Angel investors up their contributions

Information technology, biotechnology, education and agribusiness are the fields most in demand

Carreiras aDANIEL BUENOThanks to infusions of capital from angel investors, many innovative startup projects have been turned into business success stories. In Brazil, one of the most typical and oldest examples is Bematech, in the city of Curitiba. In 1991, a group of eight businessmen invested $150,000 in the idea two electronic engineering students had to develop systems for matrix printers in exchange for a 50% stake in the company. The project, carried out by the students, had been accepted in 1989 as the first venture of the then-nascent Curitiba Technology Incubator. Today, the company provides business automation solutions for a number of fields. It has four R&D centers and operates in Brazil, China, Taiwan, the United States, Argentina, Chile, Portugal and Mexico. “Before researchers approach angels for investments, they should canvas the market and understand the client’s needs if they hope to become entrepreneurs. They should also make a prototype of the product they design,” says electronic engineer Cassio Spina, founder and president of Angels of Brazil, an organization that finds investors for entrepreneurs. Spina emphasizes that the first question investors ask before they decide to invest is how innovative the research or product is. Some of the most sought-after fields today are biotechnology, education, agribusiness and information technology. “The business must be scalable and it must be able to grow without requiring significant amounts of capital. It also has to have the potential to cover at least the domestic market.”

HBS Alumni Angels of Brazil, a group of investors comprised of alumni from Harvard University, also aims to facilitate finding investors for entrepreneurs. “In our case, some of these investors are actual members of the group,” says Magnus Arantes, a mechanical engineer with a master’s degree in business administration. Arantes is the president of the group and is responsible for its implementation in Brazil. Harvard Angels Global invited him to set up the Brazilian group, and early on he talked to 30 alumni to ascertain if there was interest in the initiative. The project was officially launched in the first half of 2012. Today there are 96 participants. “Brazil is part of a global group with 15 organizations in eight different countries,” Arantes says.

There are three ways that projects can apply for investments: know a Harvard alumnus; be nominated by an institution that the angels know (such as investment funds and universities); or register on the group’s website. One selection criterion is that the product or service must already be on the market and be profitable. It also must be capable of being scaled up significantly and face an entry barrier, such as a patent, for example. The group has four companies in its portfolio: one that specializes in technology applied to education; one with a digital document signature technology; one that features an application to computerize sales; and one that is a digital exchange agency. It invested a total of R$5 million. “We have already looked at over 250 companies, and we are still supporting 12 of them, but not with financial investment.”

Angel investments are not loans. “They are investments in exchange for a stake in a company,” Spina points out. The relationship between the entrepreneur and investor is established by a corporate agreement. The investor has a minority stake and serves as an advisor to the startup founders. “One of the great challenges of this model in Brazil is that there are no legal protection mechanisms,” Spina states. “In Brazil, no distinction is made between investor and business partner.” As a result, the amount invested is converted into a stake in the business only once the contract expires.