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Strong bet on Argentine talent: more and more "angel investors" wanting to finance projects

Strong bet on Argentine talent: more and more "angel investors" wanting to finance projects
The clubs of angels in Argentina represent a very attractive alternative for startups looking to boost their project in times of crisis
15.03.2019 18.26hs Startups

The economy is still showing signs of recovery. Consumption does not pick up and this impacts fully on the plans of the companies. To the point that they are already working with barely half of their installed capacity, as reported by INDEC itself.

The proximity of the elections adds uncertainty and puts a strong "stop" to private sector initiatives: according to the consultant Orlando Ferreres, at the beginning of this year the investment fell to its worst recorded since 2014.

Despite the bleak panorama, Argentina has the best entrepreneurial context in the region, according to Global Entrepreneurship, which surveys the 49 leading economies in the world. Moreover, it is ranked 21st in the international ranking, ahead of Mexico (23rd), Chile (26th), Colombia (32nd), Uruguay (35th) and Brazil (48th).

In addition, it highlights that the good performance is, to a large extent, the result of the approval of the Law of the Entrepreneur and the consolidation of a growing ecosystem of investors.

This year, there could even be another rule that encourages even more the financiers to "sink" capital in this type of initiative: the bill of Economy of Knowledge that President Macri sent to Congress.

According to the president, his approval will benefit more than 10,000 companies, will allow "create more than 200,000 quality jobs and generate 15,000 million dollars of annual exports."

The official initiative includes tax advantages for the generation of work, facilities to start businesses and benefits for productive innovation centers throughout the country, among other aspects.

"The knowledge economy is transforming the world and Argentina has competitive advantages to be a regional leader in these activities that create quality employment and improve competitiveness," said Minister of Labor and Production, Dante Sica.

The news was also very well received by the entrepreneurial sector. In this sense, Juan Martín Rodríguez, Executive Director of the Center for Entrepreneurship of the School of Business Administration (IAE) of the Austral University, affirms to iProUP that it is an "excellent" news for two reasons:

- "It benefits sectors that are within the areas sought by investors, which are initiatives of easy recapitalization, such as Artificial Intelligence and Internet of Things, which in some cases are the core and in others are at the service of projects invested" , Explain.

- Secondly, Rodríguez points out the other edge, which is not related to the tax benefit, but "for the stimulation to bring companies to professionals with a scientific profile, who are more receptive to generating papers than to positively impact on business. "

Given the above, it is clear that the discouraging panorama presented by the local economy at the macro level has its "Side B": those who bet on Argentine talent.

Known as "angel investors", they disburse capital and provide knowledge at the earliest stage of these developments in exchange for a shareholding in the company. By the way, this network of financiers is highly developed in Argentina. So much so that it is one of the leading countries in the entire region in this regard.

So much so that they meet in civil associations or in "clubs" to find talent: they group, train, advise and connect with those "idea managers".

Several investors belonging to a club can promote the same startup or several (each with its individual shareholding but participating together).

In turn, the clubs put at their disposal an offer of high potential entrepreneurs and even allow them to participate in the "behind the scenes" of the ventures.

In the country
Juan Giner, Executive Director of the Argentine Association of Private Capital, Entrepreneur and Seed (ARCAP), affirms to iProUP: "In these clubs community is generated, you learn and the investor is surrounded by peers who may have or greater knowledge of a particular issue or in any case different experiences to contribute ".

There are 10 of these angels institutions in the country, according to the latest ARCAP report, which bet on a variety of projects in different vertical markets:

- Business Angels Club of the IAE

- IG Business Angels Club

- Emprear Business Angels

- CygnusAngel Club

- La Plata Hub

- Nerdcube

- Incubating Health

- Incubator of the National University of the Litoral (Technological Park)

- AIVenture (Club of Investors of the Center)

- Baikal Institute

"Behind a large disbursement of a venture capital (Venture Capital or VC), there is always an angel investor that enables it to be realized," remarks Giner.

The manager stresses that it is a sector that turns its back on the crisis and accounts for sustained growth: only in the first half of 2018 did it exceed $ 115 million raised in entrepreneurial capital.

Looking ahead to 2019, Rodríguez, of the IAE, assures: "It will be a particular year, due to the elections and the current context". In addition, consider that this scenario allows two different readings.

"Traditional investments today suffer from a certain disbelief on the part of the market, and in these months we had several new financiers who had been looking for an alternative outside traditional options," says Rodríguez, who also notes the remarkable upturn in the figures that this branch of activity.

The other reading, according to the manager, is summarized in this sentence: "For angel investors, disbursing capital in something tangible, in a company that is being born, it is exciting, they feel they are participants in something new and innovative, aspects that are part of his spirit".

The Business Angels Club of the IAE was founded in 2005 as a non-profit civil association. It was created from the Entrepreneurship Center of the IAE together with a group of alumni and by the hand of Silvia Torres Carbonell. It is currently comprised of around 110 investors.

"Every week we get together to listen to a project, the club is giving a framework of confidence to the possible financiers, but the decisions are made individually by each one," Rodríguez explains.

"We do not invest as a fund, but we present the club and each partner makes the decision they want.A project usually receives the approval of several capitalists, but each one represents himself," he adds.

It invests in what is called equity. That is, the money is not lent to then demand an interest rate, but the risk is shared with the entrepreneurs and a part of the shares is taken.

"The investor becomes an entrepreneur's partner, it's a critical issue, because incorporating a partner sometimes brings inconveniences," says Rodríguez.

And he advises: "We always say that just as the investor chooses who and where to invest, entrepreneurs must also choose who they let the project in. If it does not match values ​​and strategy, it can become a problem rather than a help" .

Regarding the projects that they receive from the entrepreneurs, the expert states: "Many come as an idea, while in other cases there are firms that have already begun to invoice but need to overcome that famous 'valley of death'".

This term is used to describe a period in the life of the startup that goes from its creation until the moment it starts to generate profits.

"80% of startups do not reach their second year of life, in this instance, the participation of the angel investor is key to maintain the project with oxygen until it can live off its own business", he adds.

What investors are looking for
When investing, the "angels" put their eyes on dynamic companies.

"What is sought (hard to achieve but gives an idea of ​​what is pursued as a maximum objective), is to inject capital to a firm with high potential, capable of multiplying by 10 its valuation in a span of 5 years," says Rodríguez to iProUP.

He points out that this premise "translates into a very high internal rate", in such a way that in order to comply with this condition "the initiative must have an important innovative component".

The diversity of projects is enormous. The app and software development are very common, although they are not usually the most seductive for investors.

"On the other hand, they are very tempting to bet those initiatives that have to do with science, nano and biotechnology or renewable energies," says the director of the IAE, who adds: "They are pearls looking for financiers, but that does not mean that do not bet on services or software developments. "

The dark side of these "pearls" is that, although there is interest, a barrier arises: the knowledge of the industry.

"There are scientific projects that sound excellent and meet all the parameters of growth, but they have a barrier: that of ignorance on the part of the angel investor," says Rodríguez. And complete: "What many clubs of angels do in the world is to bring a specialist to validate what the entrepreneur proposes."

Daniel Salvucci, director of Cygnus Angels Club, assures iProUP that "five years ago it was more common to invest in digital platforms, marketplaces, games, social networks and applications, but this has changed a lot". In this regard, he points out that "for two years we have been investing in projects with a scientific-technological base in different industries".

This club of investors was created in 2013 under the wings of the Cygnus Capital fund. Today it has more than 30 members and has facilitated disbursements for more than US $ 1.4 million in a dozen startups.

With 12 years of experience in the development of industrial technology businesses, Salvucci emphasizes what investors evaluate very especially: "That they have the potential to be global".

For Salvucci, who is also a founding member of the Association of Entrepreneurs of Argentina (ASEA) and founder of the coworking space laofi.co, today the focus is on bio and nano technology, Internet of Things and Artificial Intelligence.

"Before, there were no companies of this profile with projection and maturity, but today they are very complex and tend to have high entry barriers, but that is interesting, they are projects in which intellectual property is a fundamental factor", adds .

As he says, capital seeks scientific-technological projects with global potential.

Investors fly over Argentina and the region. They look for startups that have "won the sky" of digital transformation and fertile ground to face the future. The key of the entrepreneurs then goes by invoking the "angel" indicated.

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