E aí, Brazil? Capital-as-a-Service is now live for Brazilian startups.
I’m excited to share that Capital-as-a-Service (CaaS) is now live for all entrepreneurs in our first market: Brazil.
We kicked off the CaaS pilot a little more than a year ago with the goal of democratizing access to capital globally, through the first truly software-driven, quantitative approach to venture capital. We released our private beta last Fall, and have since committed to investing in more than 70 companies out of the 5,000 we’ve screened, which span about 25 countries and six continents (sorry, Antarctica!). In that time, our product and engineering teams transformed our initial duct-taped together prototype into a beautiful and scalable service that is now available starting today for all startups in Brazil.
If you’re based in Brazil and want to apply for funding via CaaS, please visit http://caas.socialcapital.com. Applying to CaaS is more like signing up for Google Adwords, AWS, or even applying for a credit card than it is the traditional fundraising process. You fill out an online form to tell us about your company and market, then upload engagement and transactional data about your business for us to analyze key metrics. You’ll get a response within just a few days, and regardless of our decision, we’ll share our quantitative analysis. CaaS investments are currently $50,000 — $250,000 USD, and we’re open to applications from early-stage tech companies in Brazil across all industries. If you’re not based in Brazil but are interested in getting access to CaaS, you can request to be added to the waitlist for private beta access.
So, why Brazil? When we first started working on CaaS, we envisioned launching globally and being open for business all at once to any founder, anywhere in the world. That’s still the ultimate goal. But as we’ve learned more through our investments across geographies, we’ve gained a greater appreciation for the diversity and complexity of all these startup ecosystems, and it became clear that the responsible thing to do was to launch on a market-by-market basis, at least initially. Brazil was a fantastic candidate for our first market: there’s an abundance of brilliant, highly analytical founders with compelling ideas about how to solve important problems locally and globally, and a funding gap at the seed stage that we can help address.
One of our mantras with CaaS is “do no harm,” which means being incredibly thoughtful about everything from pricing dynamics to the complexities of foreign direct investment to founders’ needs beyond capital. In the spirit of transparency and celebrating things that are hard, I’m sharing some of the lessons we’ve learned in our first year of investing via CaaS below, and how we’re thinking about them as we launch in Brazil.
Lessons Learned Building CaaS:
1. We learned a lot from investing across geographies, sectors, and business models, but the complexity slowed us down.
We intentionally started very broad with the private beta, welcoming all sectors, geographies and business models, because we want to democratize access to capital for all entrepreneurs. This wide net gave us invaluable insights about startup hubs all over the world, and exposed us to edge cases that shaped our product to be more well-rounded.
But ultimately, the complexities of this approach have proved more cumbersome than scalable — at least for now. It wasn’t the variety of business models or sectors that slowed us down, but rather was the unique legal restrictions, local bureaucracies and pricing dynamics in each geography. Our plan to launch market by market will let us fully understand the nuances of a region so we can operate smoothly and scalably within it, and provide a great experience to founders. Brazil is our first market, but you can expect us to open more markets from here on out. And in the meantime, we’ll continue to invite founders from other parts of the world into our private beta so we can keep learning.
2. Deal dynamics are harder to automate than binary investment decisions.
I’ve been asked countless times how software can diligence a seed stage startup, when so much remains to be proven and “team is so important.” But making the investment decisions based on the merits of business data has been the easy part, relatively speaking — even with as little as 3–6 months of operating data from a startup.
What’s more challenging is pricing deals in an automated fashion. If we misprice and overvalue a business because we’re not experts on local valuations, it could be challenging for that entrepreneur to raise from regional VCs in subsequent rounds, which could threaten the business. We almost made this mistake once, and quickly learned that when we’re new to a market and have limited valuation data points, we should work closely with trusted coinvestors to set fair terms instead of doing it ourselves.
Does that mean we can only coinvest? No, but it does make things easier. When we are the only investor, we price very conservatively to avoid overpricing. Our focus on Brazil will let us learn pricing norms in this ecosystem and start setting terms, then as we expand, we’ll eventually have enough data to price appropriately in an automated fashion in our markets. For now, we’re fortunate to have an active network of excellent Brazilian coinvestors who can help guide us to do the right thing for entrepreneurs and the ecosystem.
3. Foreign direct investing — as in, actually getting money to startups — is hard.
Perhaps this comes as no surprise, but wiring capital to founders in countries all over the world, in exchange for equity, isn’t so simple. And yet it’s one of the most critical parts of the founder experience when fundraising (duh). The many entity structures, domiciles, taxes and accounting terms often created friction between entrepreneurs’ standard financial and operational processes and ours, which slowed down the process.
To address this in Brazil, we’ve set up a dedicated Social Capital entity that is being registered with Brazilian authorities to ensure Brazilian entrepreneurs get our investments swiftly and reliably.
4. International Startups are Highly Capital Efficient and Data Savvy.
When capital isn’t in abundance, a positive ramification is that there are a lot of highly capital efficient startups, because they have to sustain themselves with little (or no) funding. This usually means these startups have done more with less when compared to their peer set in Silicon Valley. For example, seed stage companies in emerging markets typically have built out products and early traction, and by series A, have hit product market fit and are ready for significant growth. They also get to cash-flow positive quicker.
A less obvious byproduct of scarcity of capital is how analytical, deliberate and data savvy these founders are in building their companies. When resources are harder to come by, founders need to be stringent about measuring and analyzing all aspects of their business to extract value wherever possible. We found this to be particularly evident in Brazil, where we think the startups are a natural fit for our quantitative approach to investing via CaaS.
5. Our Biggest Opportunity is to Ramp Up Post-Investment Support.
Capital is only part of the equation when it comes to democratizing access to entrepreneurship, but it was the obvious starting point. We’ve always known that the companies outside saturated VC hubs need support, but didn’t know if our Silicon Valley toolkit would be directly applicable to their markets. It turns out, the services we’ve been building for our venture portfolio are just as valuable for founders in Brazil and beyond. Understanding this, scalable support for CaaS investments is a top priority moving forward. We’re currently building more startup services, such as an online community, as well as content and webinars on retention, acquisition, and pricing. We’ll continue to explore other scalable forms of support.
With these lessons learned, we couldn’t be more excited to make CaaS live in our first market. We welcome all Brazilian entrepreneurs to apply for funding through CaaS, and would love feedback on the process and product. We’ll share our progress and new learnings in our first market as we go, and we’ll continue our path to democratize access to capital for great entrepreneurs all over the world.