New businesses, connected with the needs of the market. Creativity. Security for those who invest and those who create. These three ingredients are the foundation of Magellan Advisory, a start-up created this year by economist Leonardo Winocur in São Paulo. The aim is to provide security for those who are able to invest in new ventures and to facilitate fundraising for those who need it. All of this while also thinking about new types of businesses created in the contemporary world.

“The company was created in early 2018 from interaction with clients who mentioned the need to raise funds to expand small businesses. We know that although there are places to invest and, at the same time, there are investors, bringing them together is not always easy and there is fear on both sides,” he says. Winocur began this work on the side while constructing his career in the financial market, working with investment funds. “I started doing some consulting for people who came to me. It was a weekend job, but I identified a gap to be filled.”

Winocur’s idea, then, is based on first understanding which business is in need of investments. “We make forecasts for the start-ups and we calculate the cash flow that needs to be raised. This gives us a guideline as to how much the company is worth. With this, we have something to present to investors, an estimate of earnings,” explains the economist.

Start-ups

Winocur, when creating his business, was also paying attention to the growing market in Brazil. According to the Brazilian Association of Start-ups (ABStartups), there are currently around 4.2 thousand companies like this in Brazil, although it is difficult to come to an exact number. The main characteristic of these projects is that they are new to the market, have low maintenance costs, are innovative, and have potential for rapid growth. Because they are new or because they often work on purely digital platforms, many of them find it difficult to establish themselves.

“There are a lot of people who have large amounts of equity and have no way of reaching companies that need money or fear losing what they invested,” he says.

In addition, many investors, according to Winocur, hesitate due to legal uncertainty. Therefore, Magellan Advisory also works with partner lawyers. “Investors know that if they invest and a company goes bankrupt, they also lose and can be compromised legally, especially if contracts are not drawn up well.” For this reason, according to Winocur, there is still a tendency for people to prefer more traditional investments, either in banks or real estate. Another important issue Magellan Advisory is focusing on is to provide a platform that can manage and put in contact those who have money and those who need financial support to make a business viable.

In the calculations, rates of return are also taken into account. In general, when investing in Brazilian stocks, the return is around 6% to 6.5% per year. On the Stock Exchange, it can reach 15% per year. “When investing in a small business, the investment is much more risky. So, it is fair that the investor would earn from 25% to 30%. In a start-up, it’s even riskier. We have to give this security, to make it feasible for both parties,” explains the economist.

Decreasing risks

To reduce risk and provide more security to investors, Magellan Advisory formalizes investments through loan contracts that are convertible in equity. It means that when investing, a person is not yet part of the company, the legal responsibilities. Holding in the corporate structure will occur when—and only when—the business succeeds. In other words, it is a guarantee of getting the invested amount back in the form of a part of a company’s capital stock only when it goes right.

To provide even more security and to facilitate investor meeting, Magellan Advisory work goes through four stages. With Winocur’s advice, the fundraising project is drawn up. Subsequently, the legal team drafts the contracts to be executed between entrepreneur and investor.

Afterwards, funds are raised and the business is monitored for a period of at least two years. In this final stage, Magellan Advisory becomes a link between the business and the investor,” explains the entrepreneur. Thus, the total time of the consultancy varies according to the project and the stage of the new business. Three to 6 months are needed for fundraising. Precisely by going through these steps and to provide more security, some businesses are turned down by start-ups.

“We do not work with ventures for which we cannot understand what value the project is generating. Sometimes it can be a project that brings value, but it is difficult to turn it into business, make it a good, profitable investment for those involved. Many ideas should be funded by the government or become a third sector activity because it is difficult to make them fit into the market. In these cases, we prefer not to offer advice, because it would be too risky for the investor,” he states.

Currently, Magellan Advisory has five active projects, all focused on investing in start-ups, from different areas, such as domestic services, business expansion, online learning platform, communication consultation services, and a project for warehouse automation.

By Elisandra Berti

Talk to Leonardo: winocur@magellanadvisory.com.br

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