Zona de Azar Brasil – Brazilian Innovation Ecosystem: Investments in SporTechs

Brasil.- July 12, 2024 www.zonadeazar.com   In the last episode, “ Mapping the Sports Tech Ecosystem in Brazil ,” I talked about all the players in the industry and who they are, and I mentioned that startups were the heart of innovation. Today, we’re going to talk about the lungs that make this heart beat: investors. Just as the lungs give life to the body, investors often give life to a project, providing the necessary conditions for it to survive until it becomes profitable.

Investing in startups can be highly risky and profitable. Let’s understand how investing in startups works, the investment stages, the types of rounds, the investors involved and who the main players are in Brazil.

Startup investing involves financing emerging companies in exchange for equity. Investors provide capital for the startup’s growth and expect to receive significant returns if the company succeeds.

Investment Stages

1. Pre-Seed: The startup is beginning to develop its idea. Funding usually comes from personal sources, friends and family.
2. Seed: The startup already has an MVP (Minimum Viable Product) and is validating its product in the market. Angel investors and seed funds are common at this stage.
3. Series A: The startup has validated its product and has an initial customer base. Funding helps expand the team and customer base. Venture capital funds begin investing.
4. Series B: The startup focuses on scaling its operations. The funding is used to expand the market and improve infrastructure.
5. Series C and beyond: For startups that have achieved significant growth and are preparing for a potential acquisition or IPO. The capital is used for major expansions.

Types of Investment Rounds

1. Angel Investment: Invests equity in early-stage startups, offering financial support, mentoring and networking in exchange for equity and potential high returns.
2. Venture Capital (VC): Venture Capital funds invest in startups at different stages of growth, expecting high returns.
3. Corporate Venture Capital (CVC): Large companies that invest in startups to access new technologies and innovations.
4. Crowdfunding: Raising capital through small contributions from many people, usually via online platforms.

Hypothetical Example

Let’s consider an early-stage startup valued at $1 million. An angel investor decides to invest $150,000, acquiring 15% of the company. Three years later, the company reaches a market value of $25 million. The investor’s 15% stake is now worth $3.75 million, representing a return of 25 times the initial investment. This return dynamic also applies to SAFs (clubs that become companies and receive investments).

If you are interested in this potential return and have a cool idea and the courage to undertake it (which is not easy, I admit), I invite you to return to the first episode. There, I tell you about the beginning of the journey to get there and the tools I used to raise more than R$2 million: “ SporTechs – What are they, where do they come from and what do they solve? Find out here at MKT Esportivo. ”

It is worth mentioning that each investment round has a specific amount and each type of investor enters a certain stage with a suitable check size. Investment funds come in all sizes. I recommend that you do more research on the subject, as there are many sources of information available.

Okay, there are many other things on the subject, but since this column is not a class, I wanted to cover the bare minimum so that you can gain insights into the next steps and make associations. Assuming that we have readers of all types, some more familiar with the topic and others not, I now feel comfortable moving forward and talking about…

In addition to being the founder of Esporte Educa, I am a SporTech ambassador for Arena Hub and I am committed to sharing my knowledge with the market. Also, as a columnist here at MKT Esportivo , my goal is to democratize this information.

The Investment Scenario in Sports Startups in Brazil and the World

Looking at the global scenario, Brazil is still far from reaching the same level of investment vehicles and innovation-related initiatives present in other countries. However, as some futurists say, “if you want to predict what will happen in the Brazilian market, just look abroad”. If this comes true, we will have a more prosperous scenario than what I have written so far over the past few weeks.

Investment Funds in Brazil specific to Sports

OTF Capital

OTF, a group that also writes monthly columns here at MKT Esportivo , is a venture capital fund that focuses on investing in sports technology startups and other emerging industries. They look for startups with the potential to transform their respective markets and are interested in various investment phases, from early stage to expansion.

Sports Angels

It is a group of angel investors specialized in startups in the sports sector. Composed of former athletes and sports professionals, it offers not only capital, but also in-depth market knowledge and a vast network of contacts.

Bossa Nova Investments

It is a micro-venture capital that launched a specific fund for SportsTech with a capital of R$5 million. The fund is focused on very early-stage startups in the areas of sports and wellness, with investments ranging from R$100,000 to R$300,000. Among its investments are startups such as Fan Base and RadarFit.

GO4IT Capital

GO4IT is a venture capital firm founded by Cesar Villares and Marc Lemann, focused on innovative startups in the sports, digital media and wellness sectors. Owned by 4M Holding, a global investment firm, GO4IT seeks to create impactful global businesses, offering financial and strategic support to its investments. Its portfolio includes companies such as Rei do Pitaco, Final Level, Strava, DAZN, Greenfly, Sorare, WSC Sports and G2 Esports.

Global and National Comparison

Investment Funds that direct their budget towards Sports

• Global: There are over 111 investment funds that invest in sports. In the last 12 months, 31 new funds have been announced, with over $4 billion available for investment. Some of this capital has already been invested, but the majority is yet to enter the market;
• Brazil: We have a total of 10 good options mapped out for investments in sports startups in Brazil that I am aware of relevant contributions to. There must certainly be more. Of these, only 3 funds have exclusive funds for sports: OTF Capital, Sports Angels, GO4IT and Bossa Nova with its Sports vertical. It is worth mentioning that there are investment funds called “agnostic”, those that invest in several sectors, including SportsTechs. Although they are not focused exclusively on sports or have a specific vertical like Bossa Nova, these funds also invest in Brazilian sports companies and because they are so broad, it is difficult to map them.

Other Brazilian Investment Funds that invest in Sports

Verve Capital

Verve is a micro-VC firm based in São Paulo and Miami, founded by Marcelo Franco. The firm specializes in writing the first check for early-stage startups in Latin America, providing financial and strategic support to help founders achieve significant growth. Although an agnostic fund, investing in several industries, Verve is one of the most active Brazilian funds in the sports sector. Notable investments include Brazil’s most successful Sportech Rei do Pitaco, as well as LeBron James’ Greenfly, Tom Brady’s Religion Of Sports, and my startup, Esporte Educa.

DOMO Invest

DOMO Invest is a Brazilian venture capital firm founded by Marcello Gonçalves and Rodrigo Borges. The firm stands out for its focus on technology, innovation and sustainability startups. DOMO invests in several promising companies, spanning sectors such as Fintech, Proptech, Healthtech and Climate Tech. In addition to providing capital, DOMO offers strategic and operational support to foster the growth and scalability of the startups in its portfolio. In the sports sector, DOMO Invest has notable investments such as Fan Base, RadarFIT and Semexe.

These invested companies represent the bets of agnostic funds such as Verve and Domo on innovative solutions that aim to transform the sports market through technology and innovation.

Networking Networks

• Global: 17+ SportsTech-specific networking networks;
• Brazil: Few networks, with Brazil Sportechs and Sportsnetwork standing out.

Acceleration Programs

• Global: 33 acceleration programs for sports startups;
• Brazil: Only Podium Labs, promoted by Arena Hub, which is in its second edition. My startup, Esporte Educa, was one of the 5 selected in the first edition of the program.

Innovation Initiatives

• Global: 77 innovation initiatives from sports entities;
• Brazil: Few specific initiatives with potential for growth, with highlights including Arena Hub and Sportheca in São Paulo, and FootHub in Rio Grande do Sul, each with a different proposal.

Corporate Venture Capitals (CVCs)

CVCs are investment vehicles created by large corporations to invest in startups that have synergies with their core operations. Sports companies, as well as those from other sectors that want to enter the sports industry, use CVCs to gain access to new technologies and innovations that can complement their business. These investments help diversify the company’s portfolio and promote innovation within the sector.

Active CVCs in Sports Brazil:

• TELLESCOM: Invested in my startup, Esporte Educa, and in Nsports;
• SBF Group (Centauro): Invests in NWB, OneFan and FitDance;
• Ânima Educação: Although it does not operate directly in sports, it is an example of a corporation that invests in innovation and owns several educational institutions. Ânima Educação is managed by VALETEC, one of the most competent management companies in the country, which also manages TELLESCOM. Companies such as Locaweb and Eurofarma trust VALETEC to manage their investments.

Crowdfunding

Another important alternative is crowdfunding, affectionately nicknamed “Vaquinha” in Brazil. This method allows startups to raise capital through small contributions from a large number of people, usually via online platforms. Crowdfunding can be rewarding, in which investors receive products or services in exchange for their contributions, or equity-based, in which investors receive equity in the company. This model democratizes access to financing, allowing startups to obtain resources directly from the public.

Brazilians love sports and have a passion that goes beyond the 4Ps of marketing, incorporating a fifth P: Passion. This cultural characteristic makes crowdfunding a very interesting alternative for sports startups, as it allows fans to directly contribute to the success of innovative initiatives.

Some of the main crowdfunding platforms in Brazil are:

• Catarse: The first crowdfunding platform in Brazil, focused on creative and innovative projects;
• EqSeed: Focused on equity crowdfunding for startups in various sectors, allowing investors to become shareholders in the companies they support;
• CapTable: Specialized in equity crowdfunding, connecting promising startups with investors interested in becoming partners.

Positive outlook for Sportechs (2025-2030)

As we discussed in previous episodes, the scenario for sports startups is increasingly promising. We predict that from 2025 onwards, Sportechs will be one of the areas of greatest interest in the venture capital and startup investment market. This is due to several factors, including the increasing digitalization of the sports industry, the professionalization of the market with the adoption of SAFs and the entry of professional investors into club management. If you are interested in this topic, I recommend reading OTF’s columns here at MKT Esportivo .

Furthermore, the current state of Venture Capital in Brazil contributes to this trend. Let’s explore the history of Venture Capital in Brazil to understand why Sportechs will be the highlight in the second half of the third cycle (2025-2030).

Venture Capital Cycles in Brazil:

• First Cycle (2000-2010): Institutional investors began to invest in technology startups, despite bureaucratic difficulties and the initial lack of interest of Brazilian investors.
• Second Cycle (2010-2020): Brazilian unicorns, innovation hubs and corporate venture capital programs emerged. Crowdfunding and individual investors gained strength, and liquidity events became more frequent.
• Third Cycle (2020-present): Representing the first half of the third cycle, which runs until 2030, this is a period marked by a strong entrepreneurial culture, an increase in second-time founders (people who have already had experience in another business, selling or going bankrupt), and the availability of startup schools, mentors, and tools. There was euphoria in the market and abundant capital availability, with high valuations and very large investment rounds. According to Distrito, until 2021, investments in startups in Brazil grew significantly, reaching US$ 9.4 billion, driven by factors such as interest rates and geopolitical events. However, the pandemic, inflation, and global instability reduced the attractiveness of venture capital, leading to a market correction. This resulted in cuts in valuations and mass layoffs to extend financial sustainability. Inside rounds emerged , with already invested funds carrying out new financing rounds. Nowadays, startups need to present realistic valuations to attract investors, facing challenges such as generating trust and standing out in a more competitive market.

Speaking of market competitiveness, this is where the opportunity for sports startups arises. While there are almost 1,500 startups in sectors such as fintech and healthtech, trying to solve a variety of problems, in sports, the latest mapping showed only 135 startups. Sporttechs, with their focus on innovation and technology applied to sports, are uniquely positioned to capitalize on this new wave of investment, especially as the market seeks differentiated and high-impact solutions.

Furthermore, sport is not only one of the biggest areas of social transformation, but also one of the biggest global markets, with enormous potential for growth and development.

As we can see above, most of the capital was directed to sectors such as fintech, proptech, retail tech, healthtech and education – the area in which my startup, Esporte Educa, focuses. The abundant capital injected into the market allowed these industries to develop solutions to almost every relevant problem, often resulting in market winners, such as iFood, which dominated the competition to the point that Uber itself discontinued Uber Eats in Brazil. This does not mean that all of the country’s social or market problems have been solved, but rather that there are well-capitalized solutions leading most of these efforts.

On the other hand, sports is a relatively new industry, but it is already showing signs of maturity. In addition to being one of the largest areas of social transformation, sports is also one of the largest global markets; as Gustavo Hazan would say, if it were a country, it would be among the seven or eight largest economies in the world. The diversification of investors who previously focused on other sectors, combined with the professionalization and digitalization of the sports market, indicates a promising moment for those who want to undertake sports technology in Brazil.

Conclusion

Brazil has the opportunity to take inspiration from what is happening abroad to foster a more robust ecosystem of innovation and investment in SportsTech. The global trend shows significant growth and diversification in the ways of supporting sports startups, and Brazil can follow this path to become a relevant player on the global stage.

The global SportsTech scene is exciting and full of opportunities. If Brazil follows international trends, we could see a significant increase in the number of investment funds, networking networks and accelerator programs, creating a more conducive environment for the growth and innovation of sports startups in the country.

And this is the penultimate episode of our special series. Over the past four weeks, you have been with me on this exciting journey that is the world of startups and innovation. To wrap things up, next week we will talk about 5 successful cases of sports or health and wellness startups. Until next week, dear reader. See you there! Fuente

Editó: @_fonta www.zonadeazar.com