Eduardo Carone was a managing partner at the private equity fund Neo Investimentos for 13 years. When the fund invested in private equity companies, Carone was usually chosen to participate in the Board of Directors of these companies (he participated in the board of 24 of them). Under Brazilian law, the board member is considered an administrator who is liable for any problems of the company with his or her assets as an individual.
In 2015, Brazilian Court blocked the assets of the directors and board members of one of the companies where Carone was a board member. For this type of situation, there is a D&O (directors and officers) insurance policy that pays for the attorneys of the directors and advisors, in addition to a monthly income for those whose accounts are blocked.
Carone asked for this insurance policy and after a week discovered that the company had not taken out any insurance. He looked for the minutes of the board meeting where the business proposal and the insurance contract had been approved and found the document from six months earlier ready for the signature of the company’s CFO. “But the company’s CFO is not the CEO. The result is that I spent eight months without being able to receive money in a bank account or use a credit card, I had to manage using other people’s accounts to be able to pay my household bills,” he told LABS in an interview.
Carone started thinking about how many decisions signed in the board minutes of that and other companies were in fact executed or not, “I thought that many people must have this same problem and came up with the idea of digitalizing and giving transparency to this process. It needed to be online anywhere and I needed to see whether what was decided was accomplished or not.”
That was when the entrepreneur decided to build his own software to solve the problem, Atlas. The governance platform began development in 2016 with Carone’s own capital (approximately BRL 1.5 million) and was launched in January 2018.
The choice to take on debt to raise money
Later that year, Atlas Governance raised another BRL 1.5 million with 21 angel investors, including Leonardo Pereira, who was the CEO of Brazil‘s Securities and Exchange Commission, and Paulo Camargo, CEO of McDonald’s in Brazil. Both are advisors of the startup to this day. In 2018, Atlas had 18 clients, and in 2019 and 2020 it added 232, among them listed companies, cooperatives, state-owned companies, and startups.
In December 2020, Atlas raised its third round with the same investors, BRL 4 million Seed and another BRL 1.5 million in venture debt (the debt for venture capital companies) by Riza Capital.
“That equity generated a dilution of just over 7%. If I raised the BRL 5.5 million in equity, this dilution would be greater, we would have to give up 8.5% or 9% of the company,” explains Carone.
Riza Capital gave Atlas a one-year grace period to start paying the loan installments. “One year for a company which is tripling in size, when it comes time to pay it becomes a small bill. We pay interest since the beginning, but it is not such a high amount”, he said.
According to Carone, only Atlas’ monthly income of January already pays the first installment of venture debt that will be paid in December. “I think there is always an appropriate proportion, you should not get too much debt, but BRL 4 million in equity and BRL 1.5 million in debt is a good proportion, it is safe. In our next round, we also intend to do a mix of the two things.”
Accelerated growth: the companies that want digital corporate governance
In 2019, Atlas’ revenues were approximately BRL 2 million. Last year, turnover was BRL 6 million, BRL 4 million from new sales alone. For this year, the company aims to reach between BRL 15 to BRL 16 million.
Carone attributes the growth in the number of clients (between 25 and 30 new clients per month) to the market’s appeal to ESG (Environmental Social Governance) policies and the digitalization forced by the pandemic. “Selling the platform to companies on the stock exchange is simpler because these companies already understand the need for governance and digitization,” he said.
Henrig, Brazil‘s Mint, Sabesp, Eletronorte and CCR Rodovias are among the startup‘s main clients. Because of the latter, which is one of the main highway operators in Brazil, Atlas started its expansion process throughout Latin America and now works in five other countries besides Brazil: Argentina, Chile, Colombia, Peru, and Mexico.
CCR integrated its investments abroad (such as the airport in Costa Rica and Curaçao) in the Atlas platform. That’s when Sara Caballero took over the direction of the startup‘s international expansion.
“The governance practices are very local and different in each country. Once we had selected the countries to expand, we started looking for the first people from our team in each country, as a commercial manager to start prospecting customers. Not just anyone who speaks Spanish can sell the Atlas platform, because the business culture of Argentina and Mexico are different and we are increasingly understanding that,” Caballero said.
According to Carone, ESG policies are no longer “a cool thing to have” and have become a necessity for the market, since the consumer public demands a posture from companies from the environmental, social, and governance point of view, which has to do with information transparency.
The second driver for the startup‘s business was the forced digitalization that the pandemic provided, because many board and committee meetings, which used to be face-to-face, became remote. “No more that thing of printing and delivering documents to read on paper, having a courier collect people’s signatures. This process needed to be digitalized and we took advantage of this market trend”, he said.
For Carone, the company also got the business model right, since SaaS B2B offers better indicators than SaaS B2C because there is usually a full renewal of customers, often even with upselling (selling other products to the customer).
“Last year we closed with BRL 6 million and we will renew the same customer base to BRL 6.6 million this year because customers want more resources. There is up-selling within the base, growth is steady and continuous and profit margins are very high,” he explains.
If on the one hand, the B2B SaaS sector does not grow a thousand times a year (if compared to technology sectors that offer products to the end user), companies that offer software services to other companies “lose few customers and can triple every year for many years”, says Carone.