FAPESP enters into partnerships to foster investment in companies supported by PIPE

By Elton Alisson  |  FAPESP Innovative R&D – FAPESP has entered into partnerships with investment funds, equity crowdfunding platforms and angel investor networks. The initiative is one of several measures aimed at extending and diversifying the sources of funding for deep techs supported by the Innovative Research in Small Business Program (PIPE).

“Two years ago, FAPESP’s Board of Trustees decided to approve a policy of working with outside partners who could inject capital into the companies supported by our programs. That’s in addition to everything we do through PIPE and other instruments that support innovative small enterprises,” said Carlos Américo Pacheco, CEO of FAPESP, during PIPE Day, an online event held on May 23-27 to present new opportunities for access to capital to representatives of companies supported by PIPE.

“It’s an attempt to take a step beyond what we already do in order to enable deep techs to achieve more success in their innovative business ventures.”

Videos of the presentations and the slides exhibited are at: fapesp.br/16753.

FAPESP’s new partners who introduced themselves to entrepreneurs during the event were investment funds Criatec 4 and Indicator 2 IoT, equity crowdfunding platforms EqSeed and Captable, and angel investor networks FEA Angels and Anjos do Brasil.

FAPESP signed up last year to Criatec 4 and Indicator 2 IoT, both of which are sponsored by BNDES, the national development bank, with public and private investors participating. FAPESP will inject BRL 30 million into each fund for a period of four to five years, while that amount must be matched by the other parties on investments in companies supported by PIPE, currently or in the past.

Criatec 4, which is managed by Crescera Capital and Triaxis Capital, will invest in 25 to 35 companies throughout Brazil. The investees will be deep tech startups with solutions for sustainable cities, smart cities and housing-related technologies; education and employability; healthcare; sustainability and green technology; financial technology, and citizenship and public administration.

“The fund is in a period of investment. We invest in companies with an innovation density that’s a little above the average of those supported by other funds in Brazil. Our aim is to repeat more successfully what we did with a fund we managed before, Criatec 2, seeking companies with outstanding market potential and the capacity to be leaders in their segments,” said Reinaldo Coelho, a partner in Triaxis Capital.

Indicator Capital, which manages Indicator 2 IoT, has a team of experienced professionals based in São Paulo, Brazil, and Silicon Valley in the United States. It has more than BRL 370 million in assets under management and a history of 27 investments and four “exits” (sale of equity stakes). Since its inception ten years ago, it has analyzed more than 1,000 startups in the Internet of Things (IoT), according to Thomas Bittar, a co-founder of Indicator Capital.

“The average amount invested in IoT startups per round is about BRL 8.5 million, which is the amount they’re aiming for. The total pitch is for BRL 7.8 billion. That doesn’t mean they’ll raise that amount. We’d be happy if they could raise BRL 50 billion. We aren’t there yet, but we’ll get there,” he said.

Equity crowdfunding platforms

As well as investment funds, companies previously or currently supported by PIPE-FAPESP can pitch to equity crowdfunding platforms like EqSeed and Captable.

EqSeed has raised more than BRL 90 million for 57 companies. It holds public offerings for startups in a digital environment regulated by the Securities and Exchange Commission of Brazil (CVM).

“What we do is very similar to what traditional funds do in terms of structuring and analysis. The difference is that after this process we launch the company online so that multiple investors can put money into it. This enables startups to be more agile and face less bureaucracy in raising funds,” said Brian Begnoche, founding partner of EqSeed.

According to Begnoche, the platform has signed up more than 75,000 investors and has so far completed six exits from investees, with a return on investment of more than 40%.

“We’re looking at startups with excellent founders and large markets. If they lack scalable models, they’re operating in key niches that may interest investors,” he said.

A startup can raise up to BRL 15 million very quickly via the platform in a matter of months, he added. “We aim to attract seed investors, early-stage investors, and venture capital firms. Right now we’re focusing on rounds of between BRL 600,000 and BRL 3 million,” he said.

Captable focuses on rounds of between BRL 1 million and BRL 5 million, said Marcos Magnus, its head of analysis. The platform has raised more than BRL 100 million in 71 rounds.

“We’ve completed the fastest fundraising transactions in Brazil, with three successful exits,” he said.

It takes an average of 45 days to complete a fundraising transaction on the platform. “We look for startups with potential scalability, MVPs [minimum viable products] and validated PMF [product market fit], ready to begin traction,” Magnus said.

Angel investors

Angel investor networks such as Anjos do Brasil and FEA Angels are another source of funding for startups supported by PIPE. This is one of the oldest types of investment in startups. Angel investors clearly have a positive impact on the recipients, according to Daniel Graicer, head of startup and partnership management at Anjos do Brasil.

“Angel investment is the first validation by the market. It shows that what the startup is doing makes sense and supports the claims proposed in its pitches,” he said.

Anjos do Brasil currently has an investor network with 550 members based all over Brazil. They have completed more than 200 investments and analyzed more than 10,000 startups.

“A startup [that pitches to prospective angel investors] has to have a working MVP and a validated prototype. It has to show that it’s begun to make sales and achieve traction,” Graicer said.

FEA Angels has a network of 150 investors, which have invested more than BRL 5 million in 50 startups since its inception five years ago.

“We have more than 80 active members. We aim to contribute not just capital but also intelligence, relationships and connections to help boost the business of the startups supported,” said Fernando Rolim, President of FEA Angels.

FAPESP will not itself invest in startups via angel investor networks or equity crowdfunding platforms, said Tomás Bruginski, its manager of institutional relations, during the event.

“In both cases, FAPESP is endeavoring to put startups supported by PIPE now or in the past in touch with these partners in an institutional manner,” he said.

If a startup supported by PIPE succeeds in raising at least BRL 100,000 via these institutions, it can apply to FAPESP for supplementary funding via a PIPE Invest project.

“Through PIPE Invest, FAPESP can provide an amount of supplementary funding that matches the amount raised by the startup in the market, with a cap of BRL 1.5 million,” said Patricia Tedeschi, FAPESP’s innovation manager. Funding awarded by FAPESP via PIPE Invest may only be used for research. Funding from private investors may be used however the startup wishes, as long as it contributes to the commercial success of the project’s results, she added.

New funds

In addition to its participation in Criatec 4 and Indicator 2 IoT, in September 2023 FAPESP issued a call for seed capital funds that are fundraising or investing in deep tech startups to present joint funding proposals (read more at: pesquisaparainovacao.fapesp.br/2872).

The aim of the call was to consolidate a new phase in FAPESP’s use of investment funds that can meet the capital requirements of startups to which it has already awarded direct grants. Twelve proposals were received. At the end of the selection process, the Evaluation Committee indicated the possibility of investment commitments between FAPESP and the funds Gov Tech Brasil FIP Capital Semente, proposed jointly by fund managers KPTL and Cedro, and Barn Greentech FIP Multiestratégia, managed by Barn (read more at: fapesp.br/pipe/260/).

“FAPESP is negotiating with these two funds to see if an investment commitment is possible,” Bruginski said. “The funds’ obligation in the investment stage is to match the funding FAPESP awards to firms currently or previously supported by PIPE.”

Since 2013, FAPESP has also participated in the São Paulo State Innovation Fund (FIP), set up in that year in partnership with Desenvolve São Paulo (an arm of the São Paulo State Department of Economic Development), the Brazilian Innovation Agency (FINEP, an arm of the Ministry for Science, Technology and Innovation), the São Paulo unit of the nonprofit Brazilian Service for Support to Micro and Small Enterprises (SEBRAE-SP), and the Latin American Development Bank (CAF). FAPESP’s share of FIP, which totals BRL 105 million, is BRL 10 million, but it has significantly influenced the portfolio of invested companies, more than half of which are or have been participants in PIPE.

(Image from kiquebg on Pixabay)