New investment firm seeks to fill gap in seed funding

As a teenager, Pierre Schurmann spent several years sailing around the world with his family, an adventure that made the family famous in Brazil. Now he wants to help startups sail a territory still little explored in the country.

Together with João Kepler, angel investor with a portfolio of more than 40 startups, he is redirecting his investment company, Bossa Nova, to operate in a segment known as seed capital. The idea is to invest in 20 companies by the year’s end and reach a total of 100 by the end of next year. By 2018, it may have 200 to 300 companies in the portfolio, Mr. Schurmann told Valor. The average expected investment is R$500,000 per company. “Today you have a scenario of much more demand of people who wants to invest in startups than companies to receive the funds. These people want to risk part of their assets in higher-risk and also higher-return activities,” he said.

Seed money provides a way out for angel investors (who inject R$50,000 to R$50,000) and serves to structure the businesses in order to receive funds from venture capitalists (injections above R$2 million). “Some startups don’t need much money, only enough for the planning, to reach some goals. There is plenty of good things in the market and a lot of startups without support,” Mr. Kepler said. The basic assumption for Bossa Nova, he said, is to find companies that have already broken even.

Over the last six years, period in which startup investing has actually gained traction in Brazil, this segment has not developed as much, leaving a gap in the market. Without this bridge, startups that could become big businesses, but didn’t manage to grow fast enough to reach the minimum requirements for investment of a venture-capital fund, ended up falling by the wayside, which ultimately limits the innovation potential in the Brazilian market. “It’s like a polar bear walking over ice plates. If they are all placed, it manages to move easily, the entrepreneur can project the future,” says Fernando Wagner da Silva, partner of Bozano Investimentos, which manages seed-capital fund Criatec 2, of the Brazilian Development Bank. The goal is to have 36 to 40 invested companies by the end of the fund’s investment period, in 2018. Currently it has 24 approved investments.

Alexandre Alves, partner of Minas Gerais-based company Inseed, which manages Criatec 1 and Criatec 3, says the lower interest for seed capital is related to greater difficulty and also lower return of this type of fund, since it needs a bigger structure to manage several businesses at the same time. But what seems difficult has been showing results. “In Criatec 1 [which has 36 invested companies and is meant to last until 2017] we have been getting returns close to 30%, which is the market’s average,” he says. Mr. Alves notices growing interest for seed investment following the latest portfolio-diversification strategies.

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