EconomyDivergences on risk capital

Divergences on risk capital

(Expansión) – Whoever believes that there are no second chances in Silicon Valley, only has to see what is happening with Adam Neumann, the 43-year-old Israeli businessman, who in 2010 co-founded the coworking firm of which he was president and who came to be valued at 47,000 million dollars, and which he was forced to resign in 2019.

Anyone would have thought that was the end of Neumann, but Adam is back, despite the messy behavior and extravagance that led him out of his coworking firm. Now he intends to revolutionize the apartment rental market in the United States, a country where the housing shortage is beginning to be attractive to venture capital.

His idea is to generate strong neighborhood ties for a generation that has the idea that it is impossible to buy a house in a time where the pandemic transformed work and young people no longer have to move to a new city after finding a job.

Since the beginning of 2020, small companies linked to Neumann have acquired more than 4,000 apartments with features such as: saltwater pools, a special garbage collection service, private parks to walk the dogs, art areas for the enjoyment of neighbors and outdoor cinema.

Neumman’s return is backed by Marc Andreessen, one of the most important investors in Silicon Valley, who has invested 350 million dollars in the new company and will start operations early next year, although his presence more visible is a single page website with a pastel logo and the words “coming 2023”. Andreessen acknowledges that it is “a heavy load”, but accepts that the size of his ambition is what attracted him.

The point is that the investment marks, in a year, Andreessen’s second show of support for a company founded by Neumann: the first was for $70 million in a carbon credit platform and, interestingly, the blog post of Andreessen calls this new investment the “first Neumann venture.”

News of Neumann’s new funding has raised sentiments about inequality in business funding, especially as this year’s fundraising numbers highlight the continued disparity in investments toward businesses whose entrepreneurs are women or come from underrepresented communities.

The deal has also sparked mixed reviews among early-stage investors, whose job it is to back atypical entrepreneurs with high potential for success. Some say this is the exact point of the venture asset class – backing bold entrepreneurs – while others point to Neumann’s second chance coming as women and Black and Latino entrepreneurs fight harder than ever to raise seed capital. .

Kate Brodock, CEO of a fund to support entrepreneurship, called the deal between Andreessen and Neumman “disgusting”: “It’s like someone woke up and said: how many boxes can I check that only set us back?”

Allison Byers, founder of a platform that supports startup diversification, described feeling a muffled rage: “There’s an undercurrent of acceptance and almost learned helplessness. All of this seems new and horrendous to those who have opened their eyes to systemic problems.” of venture capital funding in the last two years, but we’ve been dealing with this forever.

Charlie O’Donnell, Founder and General Partner of another startup says, “Adam is credited for building a great coworking community, even though it was always known for being an uninspiring place to work. They accept a certain reputation that really has nothing behind it but Adam’s own bragging.” He was also skeptical that the new business can meaningfully address housing issues.

Several investors said such funding reflected industry bias against minority entrepreneurs: As Neumann raises hundreds of millions of dollars for his startups despite problems with his leadership, many underrepresented entrepreneurs struggle to attract small funding.

Others have argued that investors often treat minority entrepreneurs as unacceptably risky gambles, even compared to other entrepreneurs with poor track records.

If you are a venture capital investor, would you give a new opportunity to an entrepreneur who has failed before? Investing in a venture capital fund is usually somewhat complicated because you have to do it at the time the fund is being set up and also the minimum investment is usually large. Did you know that to invest in a venture capital fund you must be in the investment or startup ecosystem? Keep in mind that they are illiquid funds and that it is a long-term investment.

Remember: if you are a Venture Capital fund you must take into account the purpose of the investments and not only consider the returns when making investments.

If you are the entrepreneur who requires a venture capital investor, what would you give more weight to, the purpose of the investment or the expected returns?

It is true that venture capital fills a gap that exists in finance since, when you have a company with great potential that requires a large amount of money to grow, banks mostly lend money based on current financial data and not on potential .

For his part, the venture capital investor usually buys a stake in the startup to sell it in the future at a much higher price, achieving a great return. What do you think about it? What is your personal experience?

The attractiveness of venture capital funds stems from the high return on investment they can generate. On average, in their best quarter, venture capital funds have generated returns of 29% over the last 15 years. But it is important to know that the returns of venture capital funds vary widely from one to another, so you have to do a lot of research on the fund before investing in it. What level of returns would you like to obtain if you are an investor?

Editor’s note: Pedro López Sela is Team Principal of ExO Builder, the most diverse global ecosystem of technological entrepreneurship in the world. He has co-founded 10+ companies and trained 5,000+ people in almost all sectors in Africa, America, Asia, Europe and Oceania. He is a globally recognized innovation, business, and entrepreneurship author. As an international speaker, he has shared stages with Peter Diamandis, Bob Dorf, Salim Ismail, Jeff Hoffman, to name a few. Follow him on and on . The opinions in this column belong exclusively to the author.

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