4. Raising Equity Capital (Part II)
What’s new, reader?! How are you doing? I’m back with you to elaborate on the last column’s subject about raising “dough!” As I mentioned in the first part, this topic depends on too many variables, and there’s no secret formula. In this column, I’ll continue with our story on how we raised capital to launch “Resuelve,” and some other important concepts.
Resuming our story, Zorro and I had just been brushed away by the guys at “Freedom Financial,” and it was time to go back to Mexico. Zorro had a job offer at Barclays to join the Sales & Trading team, and I was in some recruitment processes to see if I could get a job in a Private Equity Capital Fund. Meaning: I officially was in the unemployment row.
Years later, Pantera confessed that he asked his wife: “What will poor Javi do? He’s out of work, and owes tons of “dough” of his master’s!” Although I was a little worried, I felt that, at worst, I could go back to investment banking. There, they’re always looking for poor souls, willing to work 24/7, who have done it before. Just between us, I think I felt more embarrassed at the thought of seeking shelter in banking than saying I was unemployed.
Zorro and I reached an agreement: we’ll spend our summer seeing if our idea had some traction. He would officially start his job by September, and I would have all summer for job hunting.
While we were in Stanford working on our flaming business plan, Zorro talked with his brother-in-law, Fer Pizzuto (“Pizpurri”), about our idea. Pizpurri is what I call a born entrepreneur. He’s done everything: some very successful projects, some other were massive failures. He had a chili pepper business in San Luis Potosi (no innuendo), and he lost it all during a frost. Another one was renting coffee machines to corporate offices. Once, he sold 15k shirts, and sweatpants, of Aguigol (yes, the unfortunate, not official, pet of El Tri during the 1994 World Cup), and then he bought a whole industrial container of discontinued Reebok’s tennis shoes. He raised 2500 million USD to launch Bank Boston’s Investment Funds Operator and then sold it to Bank of America. Today, he’s the general director, and founder, of a group credits micro-financer called “CrediConfia”; which he launched while we were at Stanford. His favorite quote is “Never in your freaking difficult and bitchy life surrender!”
During that talk/drinks where Zorro told him about our idea, he told Pizpurri we were looking for an office where we could focus on raising capital. A place where we could hang out without our wives pestering us. Besides being a born entrepreneur, Pizpurri is all heart; so, without thinking, he offered him an office space withing CrediConfia. It was an office of around 10 x 10 feet (3 by 3 meters) where, according to Zorro’s mom, we were “playing entrepreneur,” and Mer, his wife, would comment that I was influencing and dragging him to the unemployment rows.
We got back to Mexico on a Friday and, by next Monday, Zorro and I were right on time (surprising in Zorro) at 9:00 a. m., suit, and tie, with our laptops, in the office that Pizpurri had lent us. We never said this, but I’m sure that, at that moment, we looked at each other’s faces wondering: “What the hell do we do now?.” During the first day, we didn’t really know where to start. Suddenly Pizpurri peeked-in through the office door and said: “I can introduce you to a couple of potential investors, but first, translate your business plan to Spanish. Suckers, you’re not in Stanford anymore. This is Mexico, you assholes.” Welcome to #ÁfricaLatina!
Let me remind you that our story took place in the summer of 2009. Right in the middle of the financial crisis. There was no Entrepreneurial Ecosystem in Mexico (a pretentious term I attribute to Fer Lelo de Larrea, haha).
Today, there are 63 seed-capital funds actively investing in entrepreneurial projects, as shown in the following graph.
Last year, 182 Venture Capital transactions took place in Mexico, while in 2010 barely 7 did. A year before, when we launched, there were so little, that information about how many investment transactions were done is none existent, according to the Mexican Association of Private Capital (AMEXCAP, in Spanish).
Nowadays, the VC industry in Mexico is starting to solidify. As shown in the previous graphs, the volume of transactions keeps growing, and this means that more money is making its way to entrepreneurs. During our capital raise, in 2009, we only saw 2 institutional VC funds.
The first one was “Alta Growth,” where a guy received us, I think he from Canada (can’t remember his name), and didn’t speak Spanish very well. This dude wore the ugliest Christmas sweater I’d ever seen in my life. It was kind of one those Ugly Christmas Sweater contests. We didn’t have much traction with him and never had a follow-up meeting.
The second meeting was with, what is now, Angel Ventures (they were starting). They dismissed us because one of their analysts considered that the wages Zorro and I wanted to earn were too high. In our defense, the salary wasn’t high. It was enough to calm wives and pay student loans. I believe that a Startup founder must earn enough not to be worried to look for additional sources of income, but keep a frugal, and non-luxurious, profile.
Nowadays, the National Institute of the Entrepreneur exists (INADEM, in Spanish), which has impulsed funds and startups. Even though there’s still little transparency in many decisions of the projects INADEM supports, I can testify that (in spite of corruption) money has made its way to high-quality entrepreneurs and investors.
In my opinion, the next step for the VC industry is to consolidate investment in successful outlets since, to this day, there have been only a few successes. It’s just a matter of time, given that the regular cycle of a fund of this nature tends to be of 7 to 10 years. I hope that, during the following 5 years, we get to see successful results from the first investments.
Another essential thing generated by the entrepreneurial ecosystem is the “hunger,” among MBA students, to start a company. When we were in Stanford, most Mexicans in our generation would go back to work in the corporate environment, banks, consulting, or family businesses. But now that there’s a lot of capital looking to give life to projects, things have considerably changed.
A month ago, we had a dinner party with the graduating generation, and only one person had plans to work in consulting. Everyone else wanted to start a business. I was really impressed. I believe that anyone can be a successful entrepreneur, regardless of his or her studies or experience, but this new flux of highly prepared people is, without a doubt, positive news.
Successful start-ups produce much value, and jobs, in the Mexican economy, that’s why I believe we must further potentiate the entrepreneurial ecosystem.
For example, we, in Resuelve, have more than 1200 employees, and we’ve directly employed more than 4,500 people through our existence. More than 100,000 people have accessed our program to pay off their debts, and this has meant around 1.5 billion Mexican pesos are returning to the financial system. This year, we’ll be investing more than 600 million Mexican pesos in development, salaries, product and services’ acquisition from our suppliers.
All of this wouldn’t be possible if, 8 years ago, our original investors hadn’t taken the risk with us. Hence, the importance of nurturing this ecosystem in Mexico.
I’m running out of lines, so we’ll leave for the rest for editing, and final part (I promise) of the story about how we ended up convincing our first investors to inject “dough” in Resuelve.
We’ll read each other next month. If you have any comments, questions, complains, or suggestions, nag me on Twitter. Find me as @Javivelop.
