Year-end: the moment to look back, evaluate successes and errors – a retrospective of what we at Astella have experienced and created in 2022; an outline of new processes and structures we have put in place; and some good news on new approaches, and evolution for the medium term.
As we all know, in global social and economic terms 2022 was an extremely difficult year.
After long months of pandemic, in which nations gave innumerable demonstrations of solidarity and partnership in the fight against Covid-19, the world was astonished and perplexed with the insanity of Vladimir Putin invading Ukraine: a free and independent country, a recent democracy – and a fraternal neighbor.
As part of a generation that has lived, with relief, the period of prolonged peace after the Cold War, a period that enabled globalization and economic growth to go forward, propelled by emerging countries, it was extremely sad to see a new rise in geopolitical tensions, and a new, invented war once more shatter the world’s relative calm.
Apart from the impacts on economies, it was a major and depressing shock to discover that here, well into the 21st century, diplomacy is unable to prevail.
Economically, the impacts of the pandemic and of the actions taken in 2020 and 2021 to minimize a possible recession set off a process of inflation all over the world, forcing central banks to increase interest rates. This is the context we find ourselves in now, entering 2023: rising interest rates, and an inflation that gives some signs of diminishing, but still persists and remains a source of concern.
End of a cycle – more caution, lower valuations
In Venture Capital, 2022 brought with it a significant change, with the end of a period of growth in the curve of investments and the size of investment rounds, all over the world. What we now see ahead in the next cycle is very different from what we have enjoyed in the last 40 years. The world accompanied the central banks of the US as it repeatedly reduced interest rates since the 80s – and further accentuated this trend as an economic stimulus during the pandemic. The ECB had its first interest rate hike since 2011 and since its inception, had kept interest rates bellow 3% since 2008. This more conducive atmosphere for development of new companies provided a major impulse for the technology and innovation sectors. It had never been so cheap to develop technology and test new strategies.
Although it is a feature of Venture Capital to have much longer cycles, and lower volatility, higher interest rates ignited a perception of greater risk in the economy, and resulted in less funds being directed towards this asset class in 2022. As funds and, consequently, entrepreneurs, began to adopt a more cautious strategy, they offered and perceived new, lower levels of valuation and liquidity.
Looking forward: Evolving for the future
In spite of the adverse world macro context, we at Astella had a very important year, with some major achievements, while keeping our focus on evolving our processes to ensure we continue to add value for entrepreneurs, and consequently returns for our investors.
Below I report on several aspects of this evolution, which have kept us occupied and focused throughout 2022.
Strengthening the bases of our culture
In every interaction with entrepreneurs, investors and our team we are seeking to create prosperity. Shared prosperity enables us to invest better, and to develop our talents so as to do this even better in the future.
We are creating our own hotbed of startups and professionals in Brazil. Astella has grown, and it makes us very happy to say that we have practically doubled the size of the team.
We have brought in reinforcements in several areas:
(i) our Investor Success area – fundraising, support and back office – to enhance risk management and guarantee an increasingly enhanced experience for our investors;
(ii) our Communications area, so that an increasing number of entrepreneurs and investors have access to our content, and information about our actions; and
(iii) our Investment Teams, so that we can fully cover and interact with an ecosystem that is rapidly growing and innovating, and with an increasingly large family of investee companies. As well as this – and principally – we are forming the generation of future investors.
In 2022 we made 11 rounds of investment - 6 in follow ons and 5 in new startups - growing our active portfolio by 22% from 23 startups in the end of 2021 to 28 startups. This year we also have brought in talents with an impressive range of profiles and abilities, and the absorbing challenge of training this new team and aligning them with our values has led us to a positive re-expression of our mission, and a closer focus on it.
New framework for the Astella Expert Network (AEN)
In 2022 we made a major contribution to the availability of literature and content in our sector, creating our Astella Expert Network (AEN), which brings together a network of Brazilian experts – the cream of experience in the field – and also offers input from major writers, thinkers, and leaders in the sector worldwide. These authors have enabled us to create and disseminate our first playbooks.
The Astella database has been created with a major focus on SaaS, which has become the main engine of growth and success of startups in this phase.
With the increase in the volume of marketplaces, we believed we needed to enrich our database and analysis of the metrics of development of these platforms – providing us with significant set of parameters for comparison, and helping us, importantly, in managing expectations for future rounds.
We carried out a detailed survey with the entrepreneurs of the largest marketplaces in Brazil, and were able to map the main challenges of each stage of development of these companies: We identified 7 principles that orient the growth of marketplaces, and we created detailed papers going into each one of them in depth – a considerable resource for those new to the sector, and a stimulating resource for those already working in it.
As part of this resource, we have constructed a new comparative database, based on new principles and lines of analysis and inquiry, and invited global experts onto our AEN platform to exchange experiences, models and practices. These contributions have served to validate and legitimize the concepts we created.
More than 100 Brazilian founders signed on to this project to be part of our AEN group in participation with global experts. After a thoughtful and carefully-considered process of filtration we selected a core cohort of 20 entrepreneurs most closely aligned with our overall theses and investment criteria.
This new project, and our enhanced AEN framework, has resulted in important collaterals (construction of the database, and an analysis and presentation of the main principles for growth of marketplaces, in particular in Brazil).
We will be replicating this structure in new vectors of business and areas of knowledge in the coming months.
The investment process – consensus vs. leadership
In our decision process, we have always attempted to incorporate reaching of decisions by consensus as a significant part of our process – and this has resulted in many of our numerous successes.
But with the passage of time, and as the diversity of our team has expanded, we have perceived that the effort to reach a consensus in a team consisting of such a diverse range of talent could perhaps give rise to some counterproductive effects – in which, perhaps, group-think behavior might dominate and/or stifle inspiration (for example: when someone omits to express their opinion due to an innocent desire to facilitate the consensus).
After much reflection, we came to the conclusion that we might not be making the most of the benefit of our diverse range of skills in building different theses and worldviews – and that this could be reflected in our investment decisions, and thus in the diversification of our portfolio.
We also pondered that the largest companies in the VC universe were not invested by unanimous decision, nor by consensus. Great VC managers invest based on their convictions, based in turn on their views of the world, their views of the future – in other words, on their investment theses.
So we have remodeled our decision-making process – to encourage more individual concept initiatives from our general partners, while also remaining in line with our desire to get the best out of the diversity of our team. We have included specific times for the group to help each GP in looking at opportunities in depth, bringing insights and suggestions, before the taking of a decision. Through and after a collective effort of analysis and consideration, the group thus helps the GP who identified and developed the opportunity – with the opinion of each one remaining clear, while respecting the GP’s final decision.
We have created parameters for materials to be created to help everyone in this new process of learning and analysis, and developed mechanisms to share ideas and points of view – and we find that these help and enrich the debate. (We refer to these benefits as ‘collaterals of the process’).
We have found it exciting and productive to experiment with this more individual, but equally more participative group method in discussions, and find that it results in more expression of opinions, while also fueling the process of detailing and discovery of the investment opportunities.
This new process also created an important tool for disseminating our values and our contribution, and for development of new investors – which in the final result enables us to invest more, adding more value to the entrepreneurs that we invest in, and to the ecosystem as a whole.
A new year rich in opportunities
As we reflect on what is ahead in the coming months, we have a strong sensation that we are looking at a remarkable new crop of opportunities – not only because the trend to digitalization of processes, companies and various aspects of human life is only at its beginning, but also because we are increasingly in the presence of more mission-driven entrepreneurs, who can see concrete possibilities in bringing innovation and solutions to important problems that we face in daily life, by creating start-ups and also attracting contingents of people inspired by the same aims and ambitions.
At the same time, the macro scenario has imposed a correction in the prices and valuations of assets. We believe the combination of these factors makes VC now a very attractive asset class, and we enter the new year with confidence, and focus on our values and mission.
We sincerely and warmly thank our entrepreneurs, investors, partners and friends for the learning we have received, and their continued confidence, in 2022. Looking outward, our aim is that our choices should increasingly contribute to construction of a future that gives special value to respect, quality of life and sustainability. Further, we hope and expect that an even greater confluence of positive factors will make 2023 and beyond a much better world for the people of our planet.