We're already well into the second half of 2022 – and we already have some lessons learned throughout the last months jotted down. The first one: this year is nothing like 2021. And that's good!
Yeah, the investment pace is not the same. But this could be a blessing in disguise according to Bianca Sassoon, the managing partner of the venture capital fund 17Sigma.
"If you're starting a company now, you're sure of what you're building. Because everyone knows money is more scarce, and valuations have become more healthy and stabilized. (...) [Entrepreneurs are] going for really big total addressable markets, where moats can be really built, and for things they truly believe in", says Bianca in her chat on our Latitud Podcast.
Bianca founded 17Sigma along with Pierpaolo Barbieri, the founder of fintech unicorn Ualá. The VC fund is investing US$ 30M in entrepreneurs and projects in the early stages, and they already have 13 portfolio companies.
17Sigma's thesis is supporting companies that work on building blocks for LatAm. Those building blocks are the essential infrastructure to develop other companies in the region. Think of baseline challenges, like constituting a company (Latitud Go) or an inclusive banking solution for consumers (Ualá) and for other companies (Pomelo).
In countries like the US, you can build huge startups with "nice-to-have" products and services, as Bianca calls them. "In Latin America, there are still fundamental things that have to be disrupted and created. Things that are just a core part of our society", says Bianca. "In terms of opportunities, nothing has changed. The opportunities are still there for whoever wants to take them."
Of course, Bianca hopes that in a decade or two we can build those "nice-to-have" solutions. But the core total addressable market today is at those building blocks in 17Sigma's vision.
Last year went above and beyond in terms of money invested in startups. Latin America was the fastest growing region for venture and technology growth funding, with US$ 19.5B poured into our startups during 2021, according to Crunchbase.
Yes, we have seen a slowdown when comparing the first half of this year with the same period of the famous 2021 – more specifically, a drop of over 40%. Comparing this last semester to the same period of 2020, though, we're still on an upward trajectory.
2021 was an outlier, according to Bianca. Though not only in a good way. Of course, not all companies were started for the wrong reasons in 2021, but some people might have taken a leap of faith without being prepared for it, seeing the boom in venture capital and thinking they would have easy access to money.
"We did see a lot of opportunistic founders [in 2021]. And it's not a career path for anyone. It requires a lot of discipline, patience, hard work, and sacrifice."
2022 brought the complete opposite in terms of founders. "We have been witnessing great entrepreneurs now. They're really passionate founders and have true conviction and market sense. We're seeing more resilience, and I love that", says Bianca.
This investment slowdown has also allowed more time for founders and investors to not only review unit economics and valuations but also to get to know each other.
Having a partner might help you through this journey, both financially and strategically. But not every partner will be a match made in heaven.
Just as funds do due diligence on the founders and startups they're thinking of investing in, you should do due diligence on each fund you're speaking with.
If this is your first time on startup land, you're probably super happy that an investor took an interest in you or in your startup. Before booking wedding venues, though, take the time to think if they're the best addition to your business.
That way, you're showing to that investor that you're actually thinking this through and being serious about the investment. An added benefit is that you, at least partially, shift the power dynamic involved in a venture capital negotiation, which is usually in favor of the investor.
"If you're a first-time founder, you get really excited with that first term sheet, or first term sheets. But I think it's really important to know who you're partnering with. You'll be partnering with this fund, or funds, for the next ten years", says Bianca. "And you need to know that, at the end of the day, these funds are people. You need to know the values of these people, the values of the fund."
And what best way to know their values than to get a taste of how they act when times get tough? Talk to other startups that the fund has invested in and find out, advises Bianca.
Get references on how they work with companies that are preferably in the same stage as yours. You can ask the fund for founders' contacts, but you can also just send them a message through LinkedIn, or whatever other social media or messaging app.
"Founders are generally very open about speaking with other entrepreneurs and helping with their experience. I do very much encourage that", says Bianca. "These relationships last more or may last more than a marriage. And, in market contexts like this, they do sometimes get complex."