“In our view, the agtech market is just beginning, given the representation we have of agribusiness in Brazil’s GDP…”
Henrique Galvani is CEO of the equity crowdfunding platform Arara Seed, with a degree in business administration from Unifafibe and in accounting from Universidade Paulista.
Henrique Galvani, CEO of Arara Seed
AgriBrasilis – What makes a startup attract investment?
Henrique Galvani – The stages of investing in startups are well-defined. They start with angel investors, accelerators, then move on to seed investment (pre-seed and seed) and start the more professional rounds, called series A, B, C, etc.
One factor that serves to differentiate an investment round is the objective of the investment sought and the traction of the company. Some rounds take place for specific purposes, such as the focus on customer acquisition, for those companies that already have their solutions tested and have an established product-market fit (PMF).
A tip for entrepreneurs who are looking for funding: have clearly defined why you are fundraising, where you want to go (milestones), how much you need to achieve the objectives of the round, when you will reach the milestones, how much you are willing to offer share (%) of the startup and how you will use the investment resources (capital distribution).
Raise capital to reach at least one milestone of relevance to your business within 12 to 18 months, and this will be of paramount importance for the long-term strategy.
“For Arara Seed, agtechs are much more than technology: they are a way to increase food productivity in the field, aiming to increase levels of food security in Brazil and in the world”
AgriBrasilis – How does an equity crowdfunding system work?
Henrique Galvani – When investing via Arara Seed, agribusiness equity crowdfunding, you are investing your capital in exchange for equity in a company with high growth potential. For now, this asset does not have liquidity like an investment exchange, however, the returns can be exponential.
On the entrepreneurs’ side, by raising funds directly from a broad base of investors, as is the case with equity crowdfunding, these can be potential or current customers, the startup can validate its product or service and increase customer engagement and loyalty. Additionally, the process of raising capital via crowdfunding tends to be faster in conventional rounds (which take 6-18 months).
The investment rounds via Arara Seed have the support of the lead investor, who plays a key role before and after the round. In addition to financial capital, this figure can also add in terms of connections, market expertise, board performance, as well as a supporter of the next round of funding. One of the advantages of this modality is that it democratizes access to investment in startups, as checks start at US$ 201.2. The cool thing about Arara Seed is that it curates investments for investors, in addition to bringing in all funding rounds.
AgriBrasilis – Last year, Arara Seed raised US$ 462.7 thousand, below the target of US$ 905.4 thousand. Why?
Henrique Galvani – So far, between public (equity funding) and private rounds, we have raised more than US$ 4.02 million. Last year, the venture capital market as a whole felt the high interest rates we experienced. Our projections for 2024 are optimistic, as the SELIC could reach 9% by the end of this year.
AgriBrasilis – What criteria is used for the application of resources? Is access to capital the main bottleneck for startups?
Henrique Galvani – We are looking for agtechs, foodtechs and climate techs that are raising a pre-seed round with checks between US$ 80.4 thousand and US$ 402.4 thousand, and with a maximum valuation of US$ 7.04 million.
Some important premises to raise funds with us:
– That the startup has the MVP validated;
– That it is inserted in a relevant market of opportunities;
– Gross Revenue above US$ 80.4 thousand per year (or last month’s revenue x 12 = US$ 80.4 thousand);
– That most of the founding team are full-time in the operation;
– Have a healthy captable;
– That is not extremely cash-dependent to grow;
Each investor has their own specific investment thesis. In our case, we evaluated both quantitative and qualitative drivers. We mention examples of quantitative drivers, such as: market, distribution channel, business model, ICP, etc. On the other hand, we have the qualitative drivers such as: team vs. complementarity, competition, captable vs. governance structure.
AgriBrasilis – What is the profile of the investors who seek the company?
Henrique Galvani – Today, at Arara Seed, we have two investor profiles, what we call institutional investors, which are funds, angel groups and strategic investors who have an investment thesis in agribusiness. And individual investors who want to diversify their portfolio, investing in promising startups in the sector that feeds Brazil and the world. Almost 72% of our investors already had some relationship with agribusiness.
AgriBrasilis – There are more than 1,700 agtechs in Brazil. Is this market saturated? Of those, how many survive after 3 years?
Henrique Galvani – I don’t see the market as saturated, but as full of opportunities. In our view, the agtech market is just beginning, given the representation we have of agribusiness in Brazil’s GDP.
By 2050, there will be approximately 10 billion people around the world. Such a large population requires exponential growth in food production, which consequently increases the need for financing. For Arara Seed, agtechs are much more than technology: they are a way to increase food productivity in the field, aiming to increase levels of food security in Brazil and in the world.
We don’t have this data on how many agtechs survive after the 3rd year, what we do know is that more than 70% of Brazilian startups fail to raise a Series A. In the US, according to a survey conducted by CBInsights with American startups, this rate is higher than 50%. And, as these startups mature, the success rate to raise a new investment drops until there are only 3% left that manage to carry out a Series E. Around here these numbers still seem distant, but they demonstrate that there is a huge potential for the market to mature and the need for financing from startups.
AgriBrasilis – What are Arara Seed’s investment plans? What is the goal for the next 5 years?
Henrique Galvani – This year we intend to raise US$ 1 million in equity crowdfunding rounds and another US$ 1 million in private rounds (in addition to the US$ 2.05 million we already raised for Bem Agro last month). In addition, we expect to launch the debt instrument at Arara Seed, aimed at agtechs and agribusiness companies that fall under the terms of Resolution CVM 88 and that want to structure their public funding round through debt instruments.
In the next 5 years, I expect to be very close to the goal of raising and investing US$ 40.2 million for startups and companies in the agribusiness value chain.
READ MORE: