Velvet, a platform for buying and selling late-stage venture capital “illiquid assets” (read stock options), has just raised $200 million from previous investors interested in getting the startup rolling. It is not an equity round but discretionary funding aimed at the startup‘s first acquisitions, i.e., initial portfolio. In January, $30 million has already been used to acquire shares from former employees of Nuvemshop, the Latin American e-commerce unicorn, CrediJüsto, the largest lending fintech in Mexico, and Open, one of India’s largest neobanks.
Velvet’s official launch, previously scheduled for the second quarter of this year, will likely take place in March. 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 through a platform that fractions these assets.
At the end of the day, the platform creates a secondary stock options market. As founders and co-CEOs Carlos Naupari and Edouard de Montmort explain, 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.
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“After three, four years, employees have 3%, 6% of one or more companies where they’ve worked. But it’s all on paper, right? If their families grow or they have a brilliant idea for a new business of their own, there won’t be available money to do something about it. There are alternatives for this in more mature markets, such as the United States. Employees sell part of their stock options, according to pre-established conditions, making real money and applying it as they want before the company’s IPO or acquisition, which are two of the few events where investors have the opportunity to exit,” exemplifies Naupari.
Peruvian and son of an executive in the oil industry, which made him a citizen of the world, Naupari holds a degree in Economics and International Relations from the University of Virginia, in the United States, where he began his professional career at the investment bank UBS. He was also Easy Taxi country manager in Mexico, partner at Rokk3r in Miami, and CEO at Fligoo in Brazil. He and Montmort, a co-founder of other startups and an adviser to venture capital firm KPTL, want to shake up emerging ecosystems.
Montmort explains that Velvet targets companies with a minimum market value of $500 million and backed by large local and global funds – the platform’s sweet spot is between this and $2 billion. Average tickets range between $5 million and $10 million, but the minimum one starts at $50,000.
When asked whether Latin America, more precisely Brazil, is already mature enough to have a secondary market, Naupari is emphatic: “For sure! Since December 9, 2021, Nubank‘s IPO in NYSE.” He explains that, locally, entrepreneurs already have access to regional and global investors of all stages and that the public listing of the largest neobank in Latin America paved the way for all startups in emerging markets.
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The company will start with a B2B2C model, offering the platform to digital banks, managers, and family offices via API, but it wants to go well beyond that. “Nubank is the first great example of people who got a package combining lower salaries and stock options and who became millionaires. So, with a little help from some founders, we are designing a program to attract talented people to startups. We’ll be providers of our technology for them. In addition to stock options, the CEO will show that the company is accredited to Velvet and that, under certain conditions, this person will be able to sell their stake and generate liquidity before a big event such as an IPO,” points out Montmort.
They don’t say which companies will be on the platform other than the three already mentioned but often talk about “43 of most the valuable startups” in emerging markets and a roadmap to invest, over the next 12 months, in at least 40 of them: 20 in Latin America, 10 in India, eight in Southeast Asia and five in Africa.
It is more than likely that the startups of the 16 founders involved in the startup’s BRL 17 million Seed round, raised in December, will join this list as well. Led by Global Founders Capital (GFC), the round was followed by Headline (which joined XP Inc in a new VC initiative), Yolo Investments, Armyn Capital, in addition to co-founders of companies such as Nubank, Hashdex, Nomad, Favo, Locus, and Carbon, among others.
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“As companies remain private for longer, recurring liquidity pipes in lieu of delayed IPOs are necessary. Secondary markets aligned with the interests of startups and their talent pools are pivotal for the LatAm ecosystem to evolve. Different paths to real liquidity will make it more appealing for talented professionals to take a gamble on startups and continue solving the biggest problems away from the Golden Gate bridge but closer to the reality of our region. The way to do these [new paths of real liquidity] is to show the ‘good founders,’ that is, the ones allowing this type of operation, and the new businesses that will emerge from it”, reinforces Naupari.
Velvet’s primary goal, explicit in the company’s description, is to be the largest secondary market platform for emerging markets. The platform will announce a new equity round in the first half of 2022.