The New Normal in Private Capital
A Different Scenario
The year 2020 represented a great challenge for humanity in all social and economic spheres, some even label it as the “worst year in history,” in which we faced political conflicts and signs of wars, countless natural disasters like the wildfires in Australia and the Amazon, trade wars between countries such as the United States and China, strong movements including gender and racial protests like the case of George Floyd, and, of course, the Coronavirus (COVID-19). In the business realm, all these events put us to the test, not only to grow but also to survive and ensure the continuity of our companies, sources of income, and collaborators.
Fighting COVID-19 is a collective effort and we are all important parts in stopping its spread. While fear and uncertainty are recurring thoughts in our minds, we encourage you to maintain a positive attitude and prepare to face the new normal. With every challenge comes an opportunity.
Different Actions are Required
The pandemic caused by COVID-19 has impacted the private capital industry where INCIPIO Ventures operates. This is why we have prioritized solving and modifying the operation and administration of companies.
In the article “Beyond Coronavirus: The path to the next normal” written by Kevin Sneader and Shubham Singhal of McKinsey & Company, they propose 5 stages to reassess the structuring of the global economy, starting with the private sector. Below, we explain each of these stages and how INCIPIO Ventures reacted accordingly:
The first stage: RESOLVE
It involves addressing the immediate challenges that COVID-19 presents for the workforce, clients, technology, and business partners of the institution.
At INCIPIO Ventures, we officially started remote work from March 16, 2020, made cuts in rented office areas, offered discounts on license renewals for clients, and shifted focus to urgent tasks.
The second stage: RESILIENCE
It tackles short-term cash management challenges and broader resilience issues during virus-related closures and the chain economic effects.
We created new cash flow scenarios for 1, 3, and 6 months, adjusted salaries, restructured payrolls for sister companies, implemented temporary layoffs (ERTEs – Temporary Employment Regulation Files), lines of credit, and even temporarily closed operations of some companies.
The third stage: RETURN
Creating a detailed plan to get back to business and scale up rapidly as the COVID-19 situation evolves and the collateral effects become clearer.
We developed products for new markets, cut budgeted expenses for current clients, created new product promotion channels, and rescheduled online events.
The fourth stage: REIMAGINATION
Rethinking the next normal. What a discontinuous change looks like and the implications on how institutions must reinvent themselves.
Office use became intermittent and staggered, we achieved a stronger online presence through blogs, content marketing, virtual trainings, and created new customer feedback channels.
The fifth stage: REFORM
Being objective about how regulatory and competitive environments in the industry can change. We identified that the hospitality sector will be more receptive to technological solutions, telemedicine will generate more consumer trust, there will be a preference for SaaS models, and a trend towards virtual education. We also created and implemented a policy of “Yay Days” for time off, aiming to contribute to the quality of life of our collaborators and break the economic cycles generated by the pandemic.
Created new cash flow scenarios for 1, 3, and 6 months, adjusted salaries, restructured payrolls for sister companies, implemented temporary layoffs (ERTEs – Temporary Employment Regulation Files), secured lines of credit, and even temporarily closed operations for some of the companies.
Our role as a Venture Builder
Since the companies in our portfolio compete in different markets and have specific challenges, our role in this ecosystem is to provide information, ensure stability of the business structure, and fulfill our investment commitments. Taking this into account, our strategy in 2020 was solely based on managing our current companies and their operational and cash flow needs, weighting the committed capital by their Opportunity or Threat market.
AnUn 80% of our committed capital was allocated to our companies in Opportunity markets, , those riding the wave to their benefit in sectors such as pharmaceuticals, logistics, streaming services, e-commerce, and telemedicine, to name a few. The remaining 20% of our resources was allocated to companies in the Threatened market, where sectors such as tourism, public transportation, restaurants, live entertainment, and traditional commerce are found, among others.
Where do we stand?
One of the advantages of the structure of INCIPIO Ventures is having a diversified investment portfolio that helps us mitigate risks of loss of value by having stakes in different companies and industries. As expected, in times of crisis there are always winners and losers. In our case, we witnessed both scenarios, and each of our companies was forced to face different challenges.
In the first half of 2020, thanks to the Startup creation methodology of the Venture Builder, we managed to develop the business concept of our new technological company, creating an ERP system that will be marketed in Latin America and will grow to be a natural continuity option for users of administrative application systems. We have successfully completed the first round of capital raisingfor this new project and are in the process of a new corporate capital round.
Some of the companies in the group that reached profitability and breakeven by the end of 2019 saw a decrease in their revenues due to the effect of Covid-19 in the early stages of the pandemic; however, the work done has led us back on track towards profitability.
This strategy of focusing efforts on the portfolio of companies within the group sets aside the investment in external startups; however, we maintain our position in the national entrepreneurial ecosystem to seize synergy opportunities, evaluating merger opportunities and valuing startups in digital industries.
At the beginning of 2020, we considered expanding to Canada with this new technological business project, to continue growing its markets and positions. However, due to the changing panorama created by the pandemic, we chose to reschedule our entry, using the gained time to find the optimal approach to internationalization.
The learning continues in these challenging times. We encourage all our readers, friends, and investors to plan their futures, being aware of the ever-changing scenario we are going through. We invite you to always maintain a positive attitude to pave the way for building companies without losing our focus on social commitment.