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Venture Capital and the Amazing World of Innovation

By Nathan Shabot - LIP Ventures Boutique
Managing Partner


By Nathan Shabot | Managing Partner - Thu, 05/05/2022 - 13:00

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Venture capital is an investment model that has become increasingly popular in recent years. It is a bet on startups that show high growth potential in their industry and, in general, is focused on tech and innovation-driven companies.

According to the stage the startup is in, venture capital can be categorized as:

  • Early stage: Investment in a business idea or a new company that is yet to launch a service or product to the market and, therefore, still does not generate sales.
  • Growth stage: At this stage, the startup is experiencing exponential growth and needs additional funding to keep up with demand. As it is likely that the business already has a commercially viable product and is just starting to be profitable, venture capital funding at this stage is used mostly to grow the business, with a focus on market expansion and product diversification.
  • Late Stage: Late-stage investment happens once venture capital-backed startups have developed their core product and shown there is a market opportunity, are making significant income, and are nearing an exit (liquidity event), such as an acquisition or initial public offering. Late-stage venture capital usually has lower risk than early-stage venture capital.

The economic and political environment around the world is causing significant public market turmoil. In recent months, some of the top tech companies have experienced a 30-70 percent drop in their public stock prices.

This has created a confusing fundraising environment for startups and early-stage investors who turn to public markets to benchmark valuations. Unfortunately, price movements in public markets trickle into private markets over time, as investors consider market conditions.

Early-stage startups are in a very different situation than late-stage startups, and so both require different solutions and approaches.

Given this context, we at LIP Ventures Boutique are very cautious when selecting companies, particularly verifying that they are on a clear path to profitability and have functional distribution channels, appealing gross margins, product/market fit and unit economics; that they keep a close eye on and are able to control their expenses; and that they show interesting sales growth, among other things.

Together with our partner OurCrowd — a leading fund worldwide, undoubtedly in Israel, and the most active fund in that region in terms of number of investments — we identify the most convenient options, with a focus on growth and late stage, and offer Latin American investors investment opportunities in tech startups validated by the market to help them maximize their financial turnover.

To date, our portfolio includes 23 innovation-driven companies from sectors such as cybersecurity, medicine, robotics, autonomous vehicles and mobility, applied artificial intelligence, climate, energy and telecommunications, and agriculture.

Despite the struggles we currently face worldwide, there is no doubt that many more opportunities are available to us now than just five years ago. Technological advances certainly pose challenges to our society but they will also bring beneficial transformations to our lives and help humankind make significant progress in the years ahead.

Innovation never stops, so we need to sensitize and educate people, fostering a culture of investment in innovation that will encourage contributions and help create an all-round better world. While technology poses challenges, it also provides huge opportunities to devise new roles in the workplace and transform existing jobs, leading to improvements, such as simplifying and optimizing processes, saving time and allowing for a more efficient use of resources, not to mention that these technologies also reduce margins of error and make it possible to increase accuracy.

Latin America is no exception, and we are living in a remarkable time; according to The Economist, venture capital investment in Mexico totaled more than $4 billion in 2021, up 294 percent compared to 2020. This year has a fairly favorable outlook; according to the same source, as of February 2022, investment was estimated at $537 million, up 156 percent compared to the same period in 2021.

Despite these encouraging figures, we acknowledge that we are going through a time of adjustments in the public markets and, consequently, in the private markets. Venture capital investments will certainly continue to be key for the development of new technology and innovation projects, and this sector will continue growing by leaps and bounds in the years to come, greatly benefiting our society.

Photo by:   Nathan Shabot

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