Keeping companies “evergreen” is the main objective of the evergreen investment model. Through this vehicle, companies in different stages of development are encouraged to keep growing thanks to the constant and gradual injection of capital.
Within the private equity, industry are different types of investment. These are defined according to the needs of the venture or company, for example, seed investment, venture capital, private equity, or venture debts, to mention a few. These alternatives position the industry as the main option for ventures in search of development.
During the first quarter of 2023, the venture capital industry reached a global investment of 58.6 million dollars, according to the CB Insights reportThis figure reflects the strength of the industry, despite an uncertain outlook.
La inversión evergreen, por otro lado, cuenta con características que resultan en una oportunidad para el progreso de empresas y su vez, se adapta a las necesidades de los inversionistas. Pero, ¿Qué es evergreen dentro del venture capital?
What is evergreen in venture capital?
Evergreen is a term of British origin that refers to the gradual injection of capital into a company in its early stages, according to the definition of Nasdaq.
Its literal translation "always green" refers to the fact that there are no seasonal themes or start periods and terms. Rather, it is a renewal in terms of investment and that is where we have to start from to understand the concept, explains Ángel Hamilton, fund manager of WORTEV CAPITAL.
How does the evergreen model work?
How the evergreen model works does not contemplate rigid periods of time and adapts to the development of the company. This type of model allows the company to gradually receive capital according to its needs.
It is common for the business models of the ventures to have some innovation, which brings with it an inherent risk in terms of investment. With the evergreen model, there is monitoring of the company's growth that mitigates risks. That is, an accompaniment is carried out to validate the fulfillment of the established objectives.
Ángel Hamilton explains that this staggered capital injection scheme allows the team to validate, grow, consolidate and strengthen, as well as refine corporate governance issues. In this way, companies and startups grow little by little and in a sustained manner, which is what the evergreen vision seeks.
When talking about evergreen, it can be seen from two angles: from the company and from the fund.
How do companies thrive?
The evergreen model does not offer all the capital in one exhibition to the companies, on the contrary, a gradual scheme is established depending on the agreements established in the investment contract.
A gradual scheme is established based on different criteria, the most common are:
- Time. According to the growth of the company in stipulated times.
- Petition. The company requests the capital it needs to grow.
- Objectives. The fund injects more capital according to the objectives met.
And what about private equity funds?
The evergreen characteristics also apply to the same fund:
- The life of the private equity fund is indefinite, it does not have a closing date.
- It is an open fund, it allows the investor to come and go.
- There is constant investment, new investors enter all the time.
- Reconfiguration of the portfolio, new companies leave and enter the investment portfolio.
The fruits that evergreen offers
The evergreen investment model in venture capital offers different benefits such as the search for growth of companies in a moderate and constant way, as well as its consolidation and validation within its market.
In addition, the gradual injection of capital, according to the established criteria, allows to reduce or mitigate the risks that an investment inherently brings with it.
If the capital is granted in exhibitions and is given by objectives, by time or request, what is achieved is a gradual and staggered monitoring of growth, this allows anticipating risks.Ángel Hamilton, fund manager at WORTEV CAPITAL
On the other hand, a risk to consider within the evergreen model is that, precisely because of its temporary nature, companies may lose position within their market.
At WORTEV CAPITAL we adopt the best practices of the evergreen model. Our investment vehicle incorporates characteristics of the evergreen model, since it seeks to mitigate risks through a phased investment and portfolio diversification.
In addition to the accompaniment of a nuclear business accelerator that delves into the operation of the companies offering experience and knowledge, in addition to monitoring their growth and compliance with the established objectives.