Velvet, a fintech founded in September 2021 as a platform for buying and selling late-stage venture capital “illiquid assets” (read stock options), announced a new business model this Thursday (5th). If back in February — when it raised $200 million from previous investors interested in getting the startup rolling —, founders Edouard Montmort and Carlos Naupari wanted to do this by connecting startups’ offers to digital banks, managers, and family offices via API, the idea now is to operate as a corporate benefit.
Amid a talent shortage and the latest scramble for technology professionals across emerging and developed markets, the strategy makes sense. Through Velvet 360º Program, the fintech wants to offer employees and shareholders of emerging market startups (not only Latin America but also India and Southeast Asia) an alternative and faster path to liquidity.
The idea behind Velvet is simpler than it sounds: to allow stakeholders (entrepreneurs and venture capital investors) to sell and buy pieces of shares they received when investing or working in a startup. This can be decisive for any emerging ecosystem, after all, getting funding from experienced entrepreneurs is great, but being able to actually make money from stock options before an IPO to invest in a brand new business is even better.
For the launch of the Velvet 360º Program, the fintech has already closed recurring secondary deals with five startups: Neon (Brazil), Lummo (Indonesia), Open (which became India’s 100th unicorn this week), and Credijusto (Mexico). These are all companies that Velvet has been talking to since last year. “We talked to 27 founders in LatAm, India, and Asia. And their eyes shone even when we talked about our strategy as an HR benefit, so we decided to pivot. We are already thinking about other services that could be offered around [the program]. In recent months we have also validated that our new business model is unprecedented among emerging markets”, says co-CEO Carlos Naupari.
Velvet’s target startups, however, have changed a bit. And that, according to Naupari, is also due to the moment of caution that emerging ecosystems are experiencing now – the recent layoffs in exponents such as QuintoAndar, Facily, and Loft are just a sign of that. “We have inflation rates much higher than expected, war [in Ukraine], and a dispute for talent; some startups are suffering, thinking about down rounding,” comments the co-founder.
If before the fintech bar was positioned in companies with a market value of at least $500 million and that received rounds of significant local and global funds, now $300 million startups are already entering Velvet’s radar. “We saw that there are already startups at this stage in an ideal time to scale and, consequently, attract professionals, qualified partners,” details Naupari.
Startups that choose to offer Velvet 360º Program determine the period of recurring liquidity, that is, the trading window for the offers. Currently, the minimum window offered by Velvet is two years, and the maximum is four years. “The company also decides who are the eligible employees for each window. For example, employees with more than three years of service will be able to liquidate up to 10% of their options or shares in two years, through semi-annual offers.”
In the next 12 months, Velvet expects to transact the $200 million raised in February with Yolo Investments and family offices in Switzerland and the United States. In 2022, it wants to add other products to its program, such as loans with options as collateral and strike price acquisition financing to facilitate the option exercise process. “We see that most option holders do not have enough liquidity to actually purchase options and often end up abandoning them when they leave the companies. There are tens of millions of dollars that go back to startups because their holders don’t exercise options – this is a real pain point for the ecosystem, and we’re going to address it,” said Montmort.
In the future, Velvet also thinks it could become a wallet for employees who receive liquidity through the program and want to use that liquidity to diversify their portfolios by buying options from other companies via Velvet.
For now, the only equity round Velvet raised was a $3 million seed funding led by Global Founders Capital and followed by 16 founders late last year. It is more than likely that the startups of these founders – Nubank, Hashdex, Nomad, and Favo are some of them – will become Velvet customers.