Private or entrepreneurial capital funds are one of the main investment alternatives for those seeking better returns in the medium and long term. This option's main quality is to allocate resources to companies with great growth potential, thus supporting the development of the country's entrepreneurial ecosystem, but what is private capital in Mexico?
The Mexican Association of Private Capital (AMEXCAP) defines private capital in Mexico as a strategy in which professional investors invest in companies with great growth potential on a temporary basis, providing support in the development process.
You can also read: Key pieces in a Venture Capital fund in Mexico
Why does private capital in Mexico invest in ventures?
Private equity funds in Mexico have been of great relevance in the country's economic recovery, especially after the COVID 19 pandemic. By investing in ventures, private equity funds promote the growth and development of the communities to which that impact
According to the study Panorama of the Private Capital Industry in Mexico, published by AMEXCAPthe total capital invested by this industry was 63.8 billion dollars in the first half of 2021. This figure represents an annual growth of 13% in the last decade.
Some private equity funds in Mexico that invest in ventures are:
- Amplifies Capital
- WORTEV CAPITAL
- Angel Ventures
- IGNIA
You can also read: 10 Mexican companies that grew with private capital
15 keys you should know about private equity
Venture capital
The Venture capital is an investment model that aims to support start-ups and small businesses that have great growth potential. On the other hand, in addition to investing capital, it provides mentoring and expert advice that allows for the potentialization of the business model, optimization of administration issues and the constitution of its corporate governance.
Getting new companies to achieve competitiveness is one of the great challenges of entrepreneurial capital, which is why it contributes in different aspects to entrepreneurship, in addition to the injection of capital.
Seed capital
The Seed capital allocates its funds to the creation of a new venture or to push the development of a small business. The projects chosen by the seed capital are usually in the start-up stage and the investment is necessary to start the operation.
These types of funds focus their attention on accompanying, supporting and guiding the development of a venture or company in its first phase.
You can also read: Venture capital vs seed capital, what is the difference?
Corporate Venture Capital
Corporate Venture Capital is a financial operation in which the capital is allocated to innovative companies and startups in early stages, which have long-term growth potential, in exchange for a percentage of the company.
Investments in this type of model are based on the analysis of an investment committee. This council determines where you can invest after a due diligence process in the different companies in which you want to invest; In this way, calls are launched and the valuation of companies with the necessary potential to receive an investment.
You can also read: Corporate Venture Capital: another option to invest?
Due diligence
A due diligence is a thorough audit or investigation carried out on a company by external consultants. This team of consultants review different aspects of companies to obtain relevant information on:
- Business model
- Activity area
- Future business prospects
- Financial state
This report is usually made when there are investors interested in injecting capital into the company or before a purchase process.
Pension funds
A very common type of investment fund is the pension fund. These are nourished by the money that the clients of the different pension plans contribute monthly. This capital is invested in different products such as stocks or bonds.
The pension fund is in charge of generating returns on customer savings.
General Partners (GP)
The main role of a General Partners (GP) (GP) es identificar los mercados con potencial para inversión. Suele reconocerse como un administrador de fondos y de hacer la evaluación sobre la estrategia de inversión.
General Partners have specific functions such as:
- Elevate the business model or detect new investment opportunities
- Participate in the company committee
- They get a percentage of the company in exchange for returns
- They are part of the board of the company with the intention of raising the value of the startup
incubators
The incubators, are spaces where entrepreneurs can find support to develop and structure their ideas, as well as consolidate their project . These centers have been a key element in ensuring the success and market positioning of the incubated companies.
The services offered by incubators for the development of projects cover key points such as:
- Business plan
- Marketing Services
- Finance
- Legal
- Human capital
- Network of contacts
angel investor
An angel investor is one who decides to invest capital in a venture with great potential for growth and expansion in exchange for obtaining returns. This type of investor is not only concerned with capital, but also provides advice and strategic contacts for the venture.
On many occasions, an angel investor is usually a successful entrepreneur who seeks to support the growth of other projects and their investments usually have characteristics such as:
- Investments focused on small and medium-sized companies.
- He frequently invests in seed stages.
- Invest your own money in ideas with high growth potential.
You can also read: Capital investment gains ground among ventures.
individual investor
Individual investors know the basics and are determined to increase their savings. They have the ability to invest small amounts of capital in company shares, bonds, or investment alternatives such as venture capital.
institutional investor
An institutional investor are organizations or funds that are dedicated to representing and managing the capital of individuals, governments or companies. His job consists of generating profits through private equity funds and important operations in the different financial markets.
These investors manage third-party capital and receive payment for this work. Other types of institutional investors are investment funds, banks and pension funds.
Limited partner
A Limited Partner works like an investment company, similar to a family office or pension fund. This type of investor has no influence on the key and strategic decisions of the companies and is therefore often called the silent partner; that is, his contribution is focused on resources and capital.
Private equity or growth capital
In Private Equity, private capital is allocated to finance the growth of companies in exchange for a stake. This investment strategy is accompanied by considerable changes and improvements in the company that give it added value and that seek exponential growth and its investment horizon is long-term.
The objective of Private Equity when investing in a project is to be able to sell its participation in the future obtaining strong profits, planning the exit of the company is essential to meet this objective.
investment series
The event where funding is sought for a startup is called an investment series. In this process there are different rounds or series depending on the stage of the venture. For example, the first series is called the Seed Series and is in which family and friends, incubators and angel investors participate.
When a venture manages to consolidate its development with the resources of the Seed Series, it will be ready to seek Venture Capital funds that can inject capital through Series A; the next investment round to raise capital is Series B, then Series C.
These series can be done every time the venture or startup meets growth expectations and its value increases.
You can also read: Panorama of private capital in Latin America in 2023.
Unicorn
A private company (which has not gone public) that achieves a billion dollar valuation through private equity is known as unicorn. This peculiar name is born from the rarity of the mythological being that has enchanted humanity through the centuries. And the achievement achieved by a startup is recognized through this name.
In Mexico, private capital has managed to position different unicorns, consolidating the country as one of the most relevant in Latin America.
You can also read: Mexican startups, what are their alternative investments to grow?
Venture Debt
This is an alternative for start-ups and small businesses that seek to capitalize their businesses, regardless of whether they are in the creation or expansion stage. The Venture Debtis an excellent opportunity for projects that can take a long time to generate profitability and that, due to their low cash flow, cannot access financing or capital injections.
Private equity in Mexico can be a complicated issue for those who want to delve into this investment alternative, which is why knowing the concepts that compose it will allow informed decision making and a general overview of the industry.
At WORTEV CAPITAL we are pioneers in the private equity industry in Mexico and we are focused on investing in early-stage companies through the venture capital fund. Hand in hand with a nuclear business accelerator that supports the operation of companies.
In this way, companies obtain advice to improve key areas and improve results in a short time. While investors are less exposed to risk and obtain attractive returns of 24% per year from the first year.
