“THE VENTURE CAPITAL IS EXTREMELY DEVELOPED”
The Economist spoke with Ignacio Plaza, who is the manager of the Cygnus-Draper fund
After winning a major tender in the CABA to finance local startups, Ignacio Plaza, director of the Cygnus-Draper fund, spoke with El Economista about how the venture capital (venture capital) business operates in Argentina.
How long have you been investing in startups?
We have been making investments in that segment for five years. When there was an acquisition of Primary by Rofex we started to invest in different companies and decided to create a vehicle for others to invest in this: the Signus 1 fund. We also created a club of angels (investors who participate in innovative projects not only with capital but getting involved) that invested in about 10 or 15 projects. And in parallel, in 2013 I proposed to Rofex to make a small corporate fund that invested in some 15 startups related to industries in which we already were, basically fintech, and some others that we thought were important, such as energy and biotechnology.
When will they start with the Draper-Cygnus fund, which won the last tender in the CABA to accelerate several startups together with the Buenos Aires government?
Now comes a time of the legal processes of the government of the CABA, because when a definitive contract has to be made it is necessary to spin very fine with the legal clauses, and then there will surely be a formal publication of the winners. With the US $ 12 million put by the Buenos Aires government and what we have formally and informally compromised, we are in a position to be operational in March. We will start with half of the capital sought US $ 60 million and then the fund will be open to collect the rest for a year.
What profitability should the investor expect to enter the Draper-Cygnus fund?
The fund has to give a return above 20% of IRR. The typical investors of this type of funds are entrepreneurs or some institution and the capital is asking as it is being invested over five years. The investor must be given that IRR and more or less triple or quadruple their capital. Depending on how the flows are, it may be that the multiplication of capital is 3.5 and the IRR of 22.3, that varies. And the interesting thing in Argentina is that you can deduct part of the investment as if it were an expense.
Does the investor receive any other type of benefit?
Yes, because many people want to learn about the future, the new industries, to apply it to their own businesses. That is, not only multiply the capital invested but also learn to improve their business or help a company with which they have some collaboration.
How is the venture capital sector in Argentina?
It is very thinly developed: to be comparable to a developed market it should grow between ten and a hundred times. The industry itself must evolve, perhaps other forms of financing the projects start to grow, with offers of digital currencies (ICO) or crowdfunding. Venture capital through funds to finance projects is one of the ways but there are also others, because for example with cryptocurrencies you can create a company or project and issue your own currency.
Is there a better scenario for venture capital with the development of fintechs and other technologies?
I think there is a favorable scenario because it costs you less to start a business. Before it cost you $ 5 million and today you start with nothing and you can create a community behind an idea. The same thing is happening in all industries; everything is digitalized: if, for example, an open source robot company were created in the agricultural sector, you could change a super traditional industry into another super technological one. That is, the interesting thing about all this is that the possibility of change is monstrous because launching a new project is now within the reach of everyone. Just as (the creator of bitcoin) Satoshi Nakamoto could be changing the concept of money, anyone with an idea could now change any industry or create it.
Should You Invest In Bitcoin?
There’s no question, Bitcoin is the up and coming currency of the future, and its value is only increasing with time. A bitcoin that was worth ten cents just a few years ago is now valued at over $12,000 dollars — and as you read this, even that number is likely to be outdated. Bitcoin is increasingly accepted as currency for local as well as large-scale transactions, and the anonymity of the digital crypto wallet appeals to many consumers.
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We’re going to be talking about should you invest in Bitcoin? Is it too late to get on this Bitcoin train? And make some explosive gains like people are seeing? Bitcoin is a very high risk and speculative investment with high volatility it is not something for beginners.
List of Scenarios if You invest in Bitcoin or Not — If you are not falling under any of these scenarios then maybe you will decide to buy Bitcoin.
Number one, if you’re trying to buy Bitcoin because the mailman said he doubled his money don’t buy Bitcoin. The only reason you’re buying it is that somebody told you that they made money with Bitcoin. You have no idea why they made money, you have no idea what bitcoin is about, what cryptocurrency is about. If your only reason for buying it is because someone you know told you they made money then don’t buy Bitcoin or any cryptocurrency.
Number two, if you want to get rich and quit your job if your goal is to buy Bitcoin become a millionaire and then quit your nine-to-five job you’re living in the clouds that are never going to happen. You’re not going to be able to buy Bitcoin now and be able to quit your job and I know a lot of people are running cryptocurrency and Bitcoin ads and things related to that. You know, do this and then you’re going to be able to quit your nine-to-five and fire your boss. It’s like that’s complete bullshit nobody is going to invest in your IC and then quit their job as a result of that. That is the stupidest thing I’ve ever heard but the sad thing is it actually works and some people believe that and I can’t believe it. So if that’s your reason for investing and it doesn’t matter if it’s a real estate or whatever if it’s Bitcoin if your reason for investing is to quit your nine-to-five next week it’s not gonna happen. Alright, if your goal is to retire earlier yeah that’s realistic that is just not a realistic goal and that should never be a reason for investing.
Number three, if a trusted source guarantees you returns and what I mean by that is some Facebook ad or some exchange offering you 1% interest every day on your money. If anyone’s guaranteeing you or a return of any kind understand there are no guarantees with this there are no guarantees with any investment. There’s risk out there, there are lower risk and higher risk investments and if you are somebody who’s not comfortable with risk you can go lower risk and have a better shot or a better guarantee or closer to what would be a guarantee. But there’s no such thing as a guarantee, so if anyone out there is guaranteeing you profits or returns from any cryptocurrency or any investment don’t invest for that reason there is any such thing as a guarantee.
Number four, if you can’t afford to lose the money and it’s sad because actually Jeremy from financial education pointed this out one of the most popular searches around Bitcoin right now is how to buy Bitcoin with a credit card. Guess what if you’re buying Bitcoin with a credit card you can’t afford Bitcoin don’t buy it if this is money you’re gonna need to pay your mortgage. If this is money you’re gonna need to buy Christmas gifts for people or whatever or if this is money you don’t even have that you’re borrowing at a 25% interest rate from your credit card company. You’re out of your mind don’t do that do not invest in Bitcoin if it’s money that you can’t afford to lose. If you got a couple thousand dollars rolling around and you don’t care if you lose it then sure throw it into Bitcoin throw it into some speculative investment that’s the time when you would invest in something like this is if it’s money that you can afford to lose.
So I hope that helped you guys answer this question of whether or not you should invest in Bitcoin the main reason people are interested right now is that FOMO has been triggered or the fear of missing out everyone’s afraid that they missed out. So they want to jump on a train that’s already moving and who knows where that trains going. At this point a lot of the people and in my opinion a lot of the money that was there has already been made most of the money to be made in Bitcoin was made a couple of years ago or even earlier this year when people bought it right now it’s anyone’s guess where prices are going.
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