“Hey, Luis! Let’s make this round attainable, because I’m completely sure that we’ll change the world, we are going to be the best company of your portfolio, we are going to be the company that pays the whole fund”
By Luis Bermejo, founder and Managing Partner of Alaya Capital.
This is what Eduardo Della Maggiora, founder of Betterfly, told me in 2018, when we were negotiating the terms of his Seed round, where we would enter as first institutional investor, leading the round. In this conversation, I was stating that the project was in an early stage for Alaya Capital, not only because of the amount of investment, but also because of the pretended valuation. As occasionally happens, not because of the math, we decided to choose him and his team. After three years, and being the first Social Unicorn of Latin America, it actually is “the company that pays the fund”.
He was right, but above all, he had the conditions to achieve it and the conviction in order for many investors to join.
¿How did we meet?
I was introduced to Eduardo by a mutual friend, who in his beginnings, took part of the “Burn To Give” team (name under which Betterfly was founded).
In 2018, impact startups were not that frequent in the pipeline of the Venture Capital funds. Burn to Give was a project, very different from what we used to analyze: It transformed calories into food for malnourished children in extreme poverty.
However, Eduardo made the difference as a founder. He was and he is different, he was completely determined to change the world.
¿How did we take the decision? Valuation vs Traction
Betterfly was a startup likely to be rejected from the beginning. It did not comply with the “check list” of the scouting process.
Our investment thesis is based on investing in projects that have some validation on the market, and this is usually demonstrated with traction, billings, usage/consumption rates, to name a few. Betterfly did not comply with any of these indexes. It lacked depth in the product and in the development. It had created only one running race and generated one donation of calories from it.
We came to the first reunion, where we observed the lack of a product, a non-validated business model, but we encountered an extremely powerful team.
A fundamental requirement for the investment in a Venture Capital Fund was given: the bond with the entrepreneurs. From the beginning, we connected with each other in the ideas, values, basic purposes of the entire project. This is why, I decided to deepen the analysis for investing.
The discussion was hard and the main issue that was put forward was the valuation of the startup as regards the market validation reached until this moment. The main problem was “valuation vs traction”. Betterfly was above the expected range for the startups at the seed stage.
Although valuations of startups are focused on the growth potential (not on what has been achieved until this moment), investors look for some evidence to justify this act of faith. Acting as leaders on the first round, we were the ones who validated the first valuation and it was a great responsibility.
But, as we already know, in the world of innovation, there are no rules that cannot be broken, so we decided to move forward, making an exception to our thesis. The Investment Committee’s conclusion was: “what is important is to be in the right deal, not always in the right valuation”.
¿Why did we invest?
Experience had already shown us (and even more clearly during the following years) that what is essential in early stages is the execution capacity of the founding team. At the same time, in Alaya Capital we had started a process where the impact generated by startups went from being desirable to be part of the investment decision.
But there was something more than execution, there was a purpose. The history of the founder, his background and previous experiences, were perfectly connected to a future dream. Personally, I believe that there cannot be a completely successful project without this connection and coherence between the past and the future.
Eduardo’s life history was totally powerful, from his experience in JP Morgan, his role as volunteer, his experience in the Iron Man and subsequently M&A.
Afterwards, as it commonly happens, there were some adjustments, a change into Betterfly, finding a scalable product. And the premise was fulfilled: that ideas are not worthy without a great team, able to execute them and to find the best way to successfully apply them in the market.