Investment in early stage is essential for the creation and growth of companies. For each stage of development of a startup or venture, there is a type of investment that is appropriate to its progress needs.
The emergence of entrepreneurship is fundamental to the economic development of countries, because it creates jobs and promotes innovation in different industries. However, in Mexico the search for capital is one of the main obstacles for entrepreneurs, according to the Global Entrepreneurship Monitor 2022/2023 Global Report.
In this analysis, Mexico ranks 44th among the countries with the best ecosystem for entrepreneurship. This represents a decline in its position compared to the previous year’s report.
It also states that government programs at the federal level have decreased in the last three years. While state governments like Jalisco, Yucatán or Nuevo León, develop programs focused on promoting local entrepreneurship, mainly in its early stages.
Al respecto, Fernando Moya, investigador en emprendimiento e innovación en la escuela de negocios del Tec de Monterrey, en entrevista comenta que el papel del venture capital es fundamental pues estimula el crecimiento de los emprendimientos que han detectado un problema o necesidad no satisfecha.
Además, el académico explica que esta alternativa de inversión permite a los emprendedores y sus proyectos sobrevivir durante el periodo de tiempo que comprende el inicio de una startup hasta alcanzar el punto de equilibrio, también conocido como el valle de la muerte.
For this reason, investment vehicles such as venture capital are the main option to stimulate the country’s entrepreneurial ecosystem. But what types of investments are available for the early stages of entrepreneurship?
Types of Investment According to the stages of a startup
There are three types of investments for companies in the early stages: pre-seed, seed and early stageThese offer capital and also facilitate connections, knowledge and mentoring from key experts in the startup of nascent companies.
These alternatives create an opportunity for early stage projects to receive investment, as it is difficult for them to seek capital through traditional models such as banking or credit.
The early stageis currently positioned as the most active stage within the private equity industry, according to DealroomAccording to the platform, as of the second quarter of 2023, global investment in pre-seed stage venture capital reached $543 million dollars, while seed investment reached 4 billion dollars.
This trend is gaining ground thanks to the decrease in mega investment rounds. Also, because of the preference of investors and funds to promote emerging companies, which do not yet need much capital, and have high growth expectations.
“Ahí es donde entra el venture capital, en las etapas tempranas cuando, probablemente, el emprendedor aún no tiene ganancias, empieza a tener ventas y se mantiene en pequeña escala. El venture capital le ayudará a seguir validando su negocio y pasar de ser una startups a una compañía”.
Fernando Moya
You can also read: Venture capital y las fases de crecimiento de las empresas
Pre- seed
Investment in the pre-seed stage focuses on supporting ideas in the development process. Investors look for projects in this phase that have a clear problem to solve, a defined market niche and its main differentiator.
Pre-seed capital allows these projects to start the research and development process. This is a viable investment strategy, since at this stage the projects do not usually have a banking history or sales records.
These figures provide pre-seed investment:
- Friend and family
- Business incubators
- Venture capital funds specialized in pre-seed capital
The seed stage in companies is also known as the start-up stage, in which work is done on the creation of prototypes and validates the business model.
Seed capital investment allows startups to build a team, formally start operations, achieve profitability and generate their own cash flow.
These are the main types of seed capital:
- Specialized private equity funds
- Government grants
- Business accelerators
- Angel investors
Early Stage
The early stage is when h companies have a Minimum Viable Product (MVP) to offer to the public, so they carry out analyses, compare and improve the product or service r to satisfy the target market.
The capital obtained at this stage allows startups and small businesses to consolidate their work teams and hire specialized personnel, as well as to plan marketing and sales strategies or to grow their infrastructure.
Early stage investors are:
- private equity funds
- Business accelerators
Industries with the gratests early stage investment
Para el académico Fernando Moya la inversión en empresas en etapas tempranas tiene beneficios tanto para emprendedores como para inversionistas, por ejemplo:
- El inversionista tiene acceso a emprendedores con ideas brillantes que buscan cambiar el mundo.
- Los emprendimientos innovadores son una oportunidad para generar grandes retornos en la inversión.
- Es una alternativa viable para los emprendedores porque no implica temas de deuda.
- Los emprendedores son acompañados por asesorías y consejos de los fondos de venture capital, por lo que se crea valor en la empresa.
Industries with the gratests early stage investment early stage
Industries such as gaming and wellness achieved rapid growth thanks to early stage investment, according to DealroomThis trend is reflected in the changes in consumer behavior and the actions of industries to respond to their new needs.
The platform lists the industries with the largest early stage investments globally in the last year:
- Healthtech
- Fintech
- Energy
- Foodtech
- Transportation
- Marketing Services
- Media & Communications
- Security & Safety
- Proptech
- Gaming
You can also read: Capital privado en México: 5 razones para invertir en emprendedores
Para Fernando Moya, la inversión no es la única alternativa para impulsar el desarrollo de las empresas. Considera que el crecimiento orgánico es importante y válido en Latinoamérica, por lo que las empresas también deben buscarlo.
WORTEV CAPITAL’s investment model is a pioneer in the private equity industry in Mexico. We invest in early stage companies through our venture capital fund.
The strategy focuses on incorporating the first business accelerator that supports the operation of companies' operations in key areas for their growth. In this way, the companies receive the necessary tools to improve processes and optimize areas, with the objective of achieving the established results in a shorter period of time.
