Newsocting

Angel Ventures Newsletter Year 5, Vol. 10, October 2013

“If you have a dream pursue it and don’t let anyone stop you” Víctor Zegarra Muñante

Early Stage Investing in Mexico: The Role of Angel Investors and Seed Capital Funds. P. 2

What you did not know of Angel Investors. P. 9

Probionics, nominated “The Favorite Entrepreneur fo 2013”. P. 5

AVM Events and Entrepreneur Ecosystem.

P. 10 & 11

PWC Sessions. P. 6

Financial Vocabulary & recomendations.

P. 12

The importance of the elaboration of a Bussines Plan for Financing. P. 8

2

ANGEL VENTURES NEWSLETTER

Early Stage Investing in Mexico:

The Role of Angel Investors and Seed Capital Funds

By Roberto Charvel (Vander Capital Partners)

“Reprinted with permission of Venture Equity Latin America/ Thomson Reuters. For more information or to subscribe to VELA, please visit www.wtexecutive.com/velatin.html.”

I

n 1994, Mexico positioned itself at the forefront of the private equity industry in Latin America by launching the first venture capital (VC) fund. The fund (NAEF-Ventana) was sponsored

by Nafin—a local development bank—and specialized in early stage investments in environmental technologies and their commercialization. Mexico had just signed NAFTA (a free trade agreement among Canada, U.S. and Mexico) and it would have to comply with the environmental requirements of its northern neighbors. The fund raised $34 million and conducted 12 investments. The rest of the story is not as glamorous for the 13 institutional investors which included groups from Austria, Belgium, Cyprus, Japan, Spain, UK and U.S.I Emerging VC Market in Mexico During the Internet boom years, Mexico had relatively less entrepreneurial activity than Argentina or Brazil. It is not clear whether this was the case because Mexico also had a smaller VC industry or simply because there was less of an entrepreneurial culture. In any case, today, the VC industry is still small with three established funds (Alta Ventures, Ignia and Latin Idea) which together, manage close to $300 million and other new entrants

(Adobe Capital or Capital Indigo among others) which still need to consolidate their positions.

Without a doubt, the best thing that could happen to the industry is to start seeing great returns from these managers.

In an ecosystem where entrepreneurs are financially starved, it would seem that this is a buyers market and that VCs would be able to choose among the best teams and achieve their financial goals. This is still to be proven. There is hope as there is a lot of excitement around a hugely successful exit from Alta Ventures that is supposed to have secured the expected return of the fund. However, an industry is not supported by one lucky investment or one fund. The fund managers need to step up to the plate and make the case of why it makes sense to invest in early stage firms in Mexico.

The three VC funds have different vintages. Ignia is fully invested while the other two are still on their investment commitment periods. It is not clear when the industry will be able to show consolidated returns to create an asset class. Before that happens, the focus could be around entrepreneurs in Mexico as a proxy of future returns.

ANGEL VENTURES NEWSLETTER

Examining Leading Accelerators A good way to understand entrepreneurial activity is to look into what some of the leading accelerators have done in the country. Table 1 has a list of the performance of the three leading accelerators since 2002. Unfortunately, there is little or no data on the performance of the firms, on how much they have grown, how many patents they have or how many jobs they have created over time. However, at least it can be concluded that there seems to be a healthy number of entrepreneurs that could be seeking financing.

But numbers don’t tell the whole story. Even when the selected firms may have been good targets for accelerators, there is no information about how these firms could have been good investments for VC. In 2012, a group of successful entrepreneurs launched an accelerator that eventually was partially sponsored by 500 Start Ups from the U.S. and it is now known as 500 Start Ups Mexico.

They started investing equity in firms even before they got funding from the co-investment fund managed by the Mexican government. They also created the first co-working space from they have been able to source some of their investments.

Mexico, like other emerging markets, needs a robust and well-trained group of entrepreneurs that can implement technologies (peer-to-peer lending) or strategies (car sharing) developed in other markets or come up with proprietary ideas and implementations. This group of entrepreneurs needs to be trained and work closely with early stage investment managers that will help them understand the investment cycle and prepare them for VC investments. Before receiving VC investments, it could be helpful for them to have rounds with angel investors or seed capital funds. This is exactly what is happening now and what may impact positively the VC industry in the future.

online market for angel investors through Mexico with a very limited result. It wasn’t until 2009 when things started to change.

Some MIT Sloan grads decided to start the first angel investment network in Mexico and created Angel Ventures Mexico (AVM).

In the first year, they focused more on convincing middle-aged successful professionals and entrepreneurs to invest in early stage firms. They now have clubs set up in several cities through Mexico and have been used as reference by nascent similar organizations through Latin America. Even when the number of investments they have performed seems small (See Table 2), the cultural change will probably be felt overtime. AVM is in the

process of closing a co-investment fund, which will bring more liquidity to the market. Some U.S. based development banks seem to be among the potential limited partners of the fund.

In 2011, two seed capital players entered the market: Wayra and Venture Partners. Wayra, an arm of Spanish telecom giant Telefónica, started performing investments in start-ups. Their strategy seems to be a hybrid between an incubator and a seed capital fund. They have been able to attract a lot of attention from entrepreneurs and have had great media coverage. Venture Partners is possibly the first seed capital fund in Mexico that has evolved organically from an effort of two Stanford MBAs. The two partners started teaching entrepreneurship in a leading school in Mexico. Eventually they decided to leave their jobs and start Venture Institute, which is an accelerator with an academic component. They were also successful in raising the first seed capital fund called Venture Partners.

By 2012, Nafin with the Ministry of Commerce decided to make an entrance into the space and created a seed capital coinvestment fund that can invest up to $4 million in a seed capital fund or perform investments in early stage firms of up to $800 million. Apart from Nafin and the Ministry of Commerce, CAF, Latin America’s leading development bank, committed capital to the fund.

Involvement of Development Banks New Players Enter in 2013 The beginning of this movement can also be tracked down to Nafin, the development bank that launched NAEF-Ventana. In the early 2000’s, it created an early stage investment vehicle, which performed over 40 transactions. Nafin also tried to organize an

2013 has brought two new players into the seed capital investment arena. One is the first specialized Internet seed capital fund that is managed by a proven Endeavor entrepreneur

3

4

ANGEL VENTURES NEWSLETTER

and Harvard grad that was among entrepreneurs in Mexico. His fund A large private media company investment of up to 50 percent of fund. This is also a first for Mexico.

the few successful Internet is called Capital InventMX. has approved a potential the equity required by the

The other great story of 2013 is the creation of an investment club started by Harvard Business School grads that secured the first round of financing from other fellow alumni. This fund is called Soldier’s Field PartnersII and could be a good idea for alumni of other business schools to start early stage investment vehicles that will create better entrepreneurs. In the meantime, some of these fund managers could graduate into VC, which is where Venture Partners is.

NAEF-Ventana was a bad investment for limited partners, but not for firms. Three of the twelve investments have resulted in leading firms in the environmental industry in Mexico. One of them secured a round of $75 million from private equity investors; another one is among the leading private developers of energy generating infrastructure with one of their latest projects valued at $300 million. Regardless of the return of the first three VC funds, more people and organizations are looking

I See Charvel R. et al, North America Environmental Fund, 2009, Sociedad Panamericana de Estudios Empresariales, A.C. (Instituto Panamericano de Alta Dirección de Empresa, IPADE), printed in EDAC, S.A. de C.V., Cairo No 29, 02080 México, D.F. Business case code (P)DGe-440 II The fund is not affiliated with Harvard Business School.

into the early stage arena. It is probably a matter of time until Mexico has a larger pool of good fund managers, better-trained entrepreneurs and a more liquid market, which would transform itself in a self-fulfilling prophecy. Perhaps the industry will get the required traction in 2014 when it turns 20 years old.

Author Bio: Roberto Charvel (roberto.charvel@vandercp.com) is the Founder and Managing Director of Vander Capital Partners. Vander has a specific focus on equity project finance. Prior to founding Vander, Mr. Charvel was Vice President and head of Business Development for Prudential Real Estate Investors Latin America.

Reprinted with permission of Venture Equity Latin America/Thomson Reuters. For more information or to subscribe to VELA, please visit www.wtexecutive.com/ velatin.html or follow VELA on Twitter @thomsonvela.

ANGEL VENTURES NEWSLETTER

5

Probionics nominated “The Favorite Entrepreneur of 2013” By: Emma L. Cruz, Public Relations Manager for AVM-USA

P

robionics, one of the companies in which Angel Ventures México has invested, was selected by Expansion magazine of CNN, to be one finalists of “Entrepreneur of the year”. The selected finalists includes companies that are already proving their potential in sales, profits and have high growths.

Probionics is a Mexican company based in Tlalnepantla, Mexico State, founded with the purpose of developing bioengineering synthetics focused on the REHABILITATION PHASES of individuals.

Luis Armando Bravo is a Bionic engineer graduated from the National Polytechnic Institute (IPN). Probionics, is the only company in Mexico to sell such products.

Probionics has several awards among which stand out: •Award State Science and technology 2008 •State Prize for Mexican business excellence 2008

Judges alrea dy the ent repre voted for neur 2013 it’s now the turn of the public to cho ose the favo rite entrepreneu r of the year. rt Let’s suppo astillos. do Bravo C Luis A rman jec t, in addition of pro An excellent technology e g d e g in tt having cu low-income g in lp e h c ti is altruis ccessful and u s a e v ie h c people a n after the o ti ta ili b a h re integral nd, or arm. a h r, e g n fi a loss of

You can vote at:

http://www.cnnexpansion.com/votaciones/2013/09/19/vota-por-tu-emprendedor-2013-favorito

6

ANGEL VENTURES NEWSLETTER -

SESSIONS

Solving Problems logic and Intuition

Supplies are an important element in budgets of most companies, but many senior executives have no idea how to build a relationship with suppliers that generate large profits and operating profits.

SESSIONS - ANGEL VENTURES NEWSLETTER

O

rganizations face problems as a result of external or internal situations, or both, and you have to come up with the solutions as fast as possible, because economic issues and finances could be affected while you take a decision.

So what do you need to solve problems? Decisions based on predefined concepts and paradigms or creative solutions? The answer depends on the problem and who should fix it.

Oxford dictionary’s definition of a problem is: “a matter or situation regarded as unwelcome or harmful and needing to be dealt with and overcome” In that sense, the first step in the solution depends precisely in identifying the problem.

To Roger Dawson, negotiation expert and author of Secrets of Power Problem Solving and Secrets of Power Negotiating says that the first thing you should do is find the best process to reach a solution . He says that having the right system gives you confidence in decisions.

From simple to creative The founder of Toyota Sakichi Toyoda , made famous technique of the 5 whys to solve problems. The 5 Whys is an iterative question-asking technique used to explore the cause-and-effect relationships underlying a particular problem. The primary goal of the technique is to determine the root cause of a defect or problem.

This technique was first used in Toyota during the evolution of their manufacturing methodologies, which then culminate in the Toyota Production System ( TPS ). Currently being used in many areas. An example: 1. Problem: We missed an account, why?

2. Answer: We didn’t serve the customer, why?

3. Answer: There was not enough staff, why?

4. Answer: There is high turnover, why?

5. Answer: The salaries are very low, why?

But if the answer to that why does not lead to the solution, we may need another option and lateral thinking can be a helpful resource. Creative thinking was coined by Edward de Bono in the 60s of last century to realize that logical thinking, which is essentially hypothetical and deductive, allows us to address the obvious, which can present many limitations when it comes to seek solutions with new approaches.

The premise is that if we are able to think laterally, we could

approach the problem from a new perspective that creativity is involved. To achieve this, De Bono - Author of Lateral thinking: creativity and manual six thinking hats, proposes to consider: • Random word: Randomly choose an object or a word in the dictionary, and associate it with the situation you are trying to solve.

• Provocation: To help the shift to a new stage in which new ideas emerge.

• Challenge: Questioning the way things has always been done.

Another technique is troubleshooting or brainstorming, which was created by Alex Osborne in the 1940s , is appreciated in many companies that solve problems in a group , where all are heard and listened to. Its effect is that, according to those who have implemented, are better solutions when several people involved giving different opinions.

In practice According to Dawson, we should never rush to solve a problem, it’s best to discuss alternatives and analyze the events correctly, and in doing so the team should be involved in decision-making processes. “ Ignore the temptation to go with the first solution that seems viable.”

This specialist, leaders are problem solvers based on formal processes, are bold and have decision-making capacity, refuse to be rushed, but can be fast when the situation requires.

Furthermore, they agree with their plans and actions, but are prepared to change course if your choice is not the best.

Dawson ads that know that to maintain objectivity sometimes have to put distance between them and the problems and strive to achieve consensus on decisions that affect others.

There are techniques and tools for troubleshooting and defined some characteristics of leaders, based on this, the author mentioned to emphasize that: Effective problem solving usually involves a combination of logical thinking and intuition.

Visualize things can improve performance; therefore, we should look to develop the ideal solution to the problem at hand.

Luis Gerardo Diaz Partner Marketing and New Business Development 52 (55) 52 63 60 26

7

8

ANGEL VENTURES NEWSLETTER

The importance of the elaboration of a Business Plan for Financing By: Hedy Teresa Trigos Iniesta, partner in the area VP of P&D. Autonomous University of the State of Mexico IMEF Universitario.

C

urrently, schools are expanding greatly the culture of entrepreneurship in students using Learning Units in their Plan of Studies, as well as an offer for participation in Fairs of the Entrepreneur.

However in my journey of student I have met entrepreneurs who either they have an established business or have a business idea, all of them have the same problem of scarcity of financial resources to be able to carry out the idea or expansion of their company.

The lack of capital or finance is one of the causes of so many failures for new business. If you do not have enough capital or it runs out on the road, you will have problems to provide the service or product that you are thinking. If the deadlines of the suppliers expires they will cut you the supply of raw materials, and that will affect production. If your workers realize that you don’t have money, they will begin to feel distrust and seek for other jobs, because that low morale at work and the performance of the staff, which increases costs and reduces the quality. Of course that also customers realize when you have run out of capital.

There are many signs; from failure to comply with deadlines, to the neglect that would be viewed on the premises or in the same quality of products and services. (Nuñez, 2012) I believe that, to formally establish an idea it is very important the

formulation of a Business Plan; which is defined as: Document of analysis with organized information for the decision-making on putting into practice an idea, initiative, or business project. It has among its features being a executive document, demonstrative of a niche or area of opportunity, in which you expose the profitability, as well as the strategy to follow to generate a viable business.(Conacyt) A Business Plan gives entrepreneurs the possibility of financing since it opens the doors of investors and banks. If you present an “idea in your head “, with nothing else, you won’t convince anyone to finance your project.

There are many sources of funding for those equipped with a BUSINESS PLAN to seek capital or financing. Many investors will be willing to participate as partners in your business if you convince them with the benefits of your project, this thanks to a professionally prepared BUSINESS PLAN.(Nuñez, 2012).

References: Núñez, E., (2012, septiembre 02). 4 Razones para elaborar tu plan de negocios [Web Blob post]. Recuperado de: http://www.fundapymes. com/blog/4-razones-para-elaborar-tu-plan-de-negocios/Conacyt.

Plan de Negocios. Recuperado de: http://www.conacyt.gob.mx/ FondosyApoyos/Insitucionales/Avance/Documents/Ejemplo-de-PlanNegocio.pdf

ANGEL VENTURES NEWSLETTER

What you did not know

of Angel Investors

According to the Center for Venture Research at the University of New Hampshire an angel investor in the United States has the following features: • Age: mean 47 years • Income: $ 90,000 annually • Minimum equity: $ 750,000 • Minimum Level of education: College • Average investment per project: $ 37,000 • Expected return on project: 26 % per year on average • Entrepreneurs of at least one business Most common reasons for rejecting a project: • Poor growth • Lack of talent management team • Actions overvalued • Lack of information about the entrepreneur About his Investments: • 7 out of 10 investments are located in nearby (about 80 km. Around) • 9 out of 10 of its investments are in start-ups (less than 20 employees) • They understand that third part of their investment will report losses.

• Invest in about 3 companies of 10 considered.

9

10

ANGEL VENTURES NEWSLETTER

AVM Events And Entrepreneur Ecosystem

¡Capitalízate!

Entrepreneur challenge By: Emma L. Cruz, Public Relations Manager for AVM-USA

I

n order to promote Angel investment in the Cali-Baja region, as well as training students of the Universidad Autónoma de Baja California, Mexicali Campus, Angel Ventures Mexico-USA held: “Capitalízate” on Monday, September 30.

¡Capitalízate! is an event where a group of entrepreneurs in search of financing, presented their project for a real opportunity to raise angel capital, from Mexicali Investors Club formed by Mr. Adrian Flores, President of CANACINTRA Mexicali, Lic. Juan Ignacio Gallego CEO of Grupo SATA, Lic. Rolando Rodarte, founding partner and CEO of Grupo Metalco, Lic. Javier Armando Oliver, Director of Grupo Gallego and Lic. Carlos Gratianne Ortega, entrepreneur of Carnes Selectas de Mexico, and adviser of Banamex.

The students had the opportunity to witness how to make a presentation for investors and learning what they must say and do when they are trying to raise capital, as well as learn from the mistakes that entrepreneurs perform when are presenting their business ideas.

The three projects: HUB Station. A co-working space that seeks to integrate the region’s entrepreneurial, technological and cultural community for an effective way to generate ideas and develop innovative projects. Presented by Marco Soto, co-founder.

AIR AirScoreBoard. A social network for sports, and mobile platform that allows players to create, manage and share sports

tournaments or leagues to play. It provides tools that save time to administrators of sporting events. Unlike their competitors, mostly Web platform. Presented by Sinuhe Huidobro, founder.

Home Town Farms. An innovative company, of high margin, that integrates urban agriculture and trade by retail, efficiently.

This company combines increased agriculture technologies proven and profitable in an innovative way that at the same time drastically reduces the use of water, fuel, Earth, fertilizers, processing and transportation necessary to grow and sell harvested products. Presented by Dan Gibbs, CEO of the company.

Each one of the entrepreneurs had 10 minutes to perform his speech and attract the attention of some of the investors who at the end of the presentation had 10 minutes to ask questions about their project.

Although the three projects generated high expectations among investors, they only presented interest in investing to the Home Town Farms project.

We are currently in the process of DUE Diligence and we hope to soon form part of Angel Ventures México.

We take this opportunity to invite you to our web page www.angelventuresmexico.com and submit your Project.

ANGEL VENTURES NEWSLETTER

11

AVM Events And Entrepreneur Ecosystem

12

ANGEL VENTURES NEWSLETTER

Financial Vocabulary Leaseback A business arrangement whereby property is simultaneously sold and leased back to the seller for usually long-term continued use. Also called sale and leaseback, sale-leaseback.

Book ‘The Start-up of you’ “Adapt to the Future, Invest in Yourself, and Transform Your Career.”

Author: Reid Hoffman y Ben Casnocha Publisher: Crown Business Price: 15 dlls

Movie

Management buyout The purchase of a company by its managers, usually with outside backing from a bank or other institution Abbreviation MBO. The particular nature of the MBO lies in the position of the buyers as managers of the company, and the practical consequences that follow from that Oligopsony A market condition in which purchasers are so few that the actions of any one of them can materially affect price and the costs that competitors must pay. This typically happens in a market for inputs where numerous suppliers are competing to sell their product to a small number of (often large and powerful) buyers.

A revolutionary new guide to thriving in today’s fractured world of work, the strategies in this book will help you survive and thrive and achieve your boldest professional ambitions. The Start-Up of You empowers you to become the CEO of your career and take control of your future.

Adapt your career plans as you change, the people around you change, and industries change.

Develop a competitive advantage to win the best jobs and opportunities.

Strengthen your professional network by building powerful alliances and maintaining a diverse mix of relationships.

Find the unique breakout opportunities that massively accelerate career growth.

Take proactive risks to become more resilient to industry tsunamis.

Tap your network for information and intelligence that help you make smarter decisions.

October Sky (1990) Director: Joe Johnston Writers: Homer H. Hickam Jr. (book), Lewis Colick (screenplay) Stars: Jake Gyllenhaal, Chris Cooper, Laura Dern It is based on the true story of Homer Hickam, a coal miner’s son who was inspired by the launch of Sputnik 1 to take up rocketry against his father’s wishes, and who eventually became a NASA engineer. “Rich in sweet sincerity, intelligence, and good oldfashioned inspirational drama, October Sky is a coming-of-age story with a heart to match its Hollywood craftsmanship.”

ANGEL VENTURES NEWSLETTER

We would like to thank our: Sponsors

Super Angel

Allies

13

14

EL ÁNGEL INVERSIONISTA

desing by: