EMERGING MARKET HIGH IMPACT TECH STARTUPS

EMERGING MARKET HIGH IMPACT TECH STARTUPS
(“EM-HITS”)
ISIN: XS1121503822
Flex Notes, January 2015
CONFIDENTIALITY NOTICE: For distribution to prospective investors and being provided upon your request. The information contained herein is confidential and is intended only for the person to whom it
has been delivered. This information is strictly confidential and may not be reproduced or redistributed in whole or in part nor may its contents be disclosed to any other person under any circumstances
without the consent of Nxtp Labs. This information is not an offer or solicitation with respect to the purchase or sale of any security. Any investment decision in connection with EM-HITS (the “Notes”) should
be made solely based on the information contained in the Confidential Notes Documents which will be made available upon request. Please refer to such documents for a description of the risks associated
with an investment in the Notes. The following information contains, or may be deemed to contain, statements. By their nature, forward-looking statements involve risks and uncertainties because they
relate to events and depend on circumstances that may or may not occur in the future. The future results of the Notes may vary from the results and statements expressed in, or implied by, the following
information, possibly to a material degree.
KEY INVESTMENT FEATURES
Emerging Markets High Impact Tech Startups Notes are backed by shares in Nxtp.Labs, a Fund with a well diversified portfolio of
150+ early-stage technology companies in Latin America.
Nxtp.Labs is an investment fund with an acceleration program focused on early-stage technology companies, led by highpotential teams aiming at regional and global markets.
After 3+ years of intensive operations, as of October 2014 Nxtp.Labs has invested in 153 companies, and has gained the recognition
as the most active investor in Latin America by creating a fertile tech-innovation portfolio and pioneering in the construction of
the regional ecosystem.
The funds raised will be used to expand our current portfolio and make follow-on investments in those companies showing best
prospects.
There are a variety of risk factors associated with investing in technology startups, which may have a material and adverse effect
on the value of the investment. Nxtp Labs’ managers mitigate risk by portfolio diversification and active entrepreneurial
support.
EM-HITS STRUCTURE
˃EM-HITS Notes Issuer: IA Capital Structures Plc (Ireland)
˃Issue & Paying Agent:
˃Arranger and Placement Agent: GWM Group Inc
˃Auditors of the Issuer:
˃Underlying Asset: Nxtp.Labs (registered as Certo SA in
Uruguay)
INVESTMENT HIGHLIGHTS
˃Nxtp.Labs is an Investment Company duly incorporated in Montevideo,
Uruguay and registered under the name of Certo S.A.
˃Nxtp.Labs invests in early stage Internet, mobile & technology
companies in Emerging Markets, focusing on Latin America with
international growth potential. Additionally, Nxtp.Labs provides
entrepreneurial support based on coaching, training and mentoring.
˃Nxtp.Labs has a Management Team with strong digital business knowhow, rich entrepreneurial experience and relevant international contacts
in the target sector of high value-added technological companies.
˃Underlying Asset Custodian:
˃Auditor & Valuator of Nxtp.Labs: Morison International
˃Early-stage investors, while contributing far less capital than
traditional investors, generate higher returns from investing during the
most significant value creation phase in a company's lifecycle. Nxtp.Labs
is taking advantage of this innovative way of making investments by
making initial small bets plus entrepreneurial support; and making
follow-on investments in best performers.
˃Exchange: Vienna
˃ISIN: XS1121503822
EM-HITS SUMMARY
Term
8 years with the possibility of four 1-year
extensions
Target Number of
Companies
300 (already invested in 150+)
Geographic Focus
Latin America
Target Industry
Early-stage technology companies
targeting global opportunities
Use of Funds
Minority equity interests in target
companies
Value-Added Services
Support through acceleration program &
co-building an active network/ecosystem
˃The return on investment for fund investors comes mainly from the
sale of the companies in the portfolio to strategic buyers, other funds or
public markets.
˃Consumer potential of digital products and services of Latin-American
users far exceeds other dynamic emerging economies. Similar Internet
user base, much higher growing rates in penetration and broadband use.
˃Capital remains relatively scarce in the region, giving investors distinct
advantage in negotiating attractive deals.
˃Nxtp.Labs offers the opportunity to join its already existing portfolio of
150+ high potential early stage technology companies, and participate in
its targeted expansion of a 300 company portfolio.
1
NXTP.LABS OVERVIEW
After more than 3 years of intensive operations, NXTP Labs has become the most active and one of the most important technology
investors in Latin America.
Most of our companies have obtained additional capital to continue their expansion plans, and are already showing promising growth
prospects and increasing value to our investors. Nxtp.Labs has built an extensive network of offices, mentors, and alliances in 8 countries of
the Americas Region. The following numbers show Nxtp.Labs’ performance, at a glance:
Launched
September
2011
Current Portfolio
Companies
Current Portfolio Value
over Capital Invested
(TVPI)
+150
1.3
INSTITUTIONAL SUPPORT
After more than one year of exhaustive due diligence, NXTP Labs received US $5 million equity investment from the InterAmerican Development Bank, through the Multilateral Investment Fund (“FOMIN”).
Additionally, Nxtp.Labs has raised institutional funds like CORFO, from the Chilean Economic Development Agency,
through has financially supported Nxtp.Labs with almost US $10 million; and the Government of Buenos Aires City has
recently approved a non-reimbursable grant to support NXTP’s operating and investing activities. Nxtp.Labs is also in the
process of obtaining financial support from BANCOLDEX (Colombia), INADEM (Mexico) and FINEP (Brazil). These
institutional investors manage the funds as debt on fixed effort basis which allows Nxtp.Labs to increase its financial
leverage improving significantly the return on investment.
NXTP.LABS PORTFOLIO
As shown in the chart below, investments are spread through various sectors, with Internet scalability being the common denominator.
Most of our portfolio companies are showing solid growth and robust financials, expanding their businesses and closing subsequent
investment rounds. Seventy percent of graduated companies have obtained a financing event.
EARLY EXITS
Nxtp.Labs has a proven track
record of adding value and has
begun to generate initial
promising exits.
Nxtp.Labs has successfully completed
6 company sales. The proceeds from
these liquidity events have been
distributed to current investors. We
are planning to continue distributing
to investors the proceeds of next
liquidity events.
CONFIDENTIAL • NOT FOR PUBLIC DISTRIBUTION
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INVESTMENT OPPORTUNITY
TECH OPPORTUNITY: LOWER COSTS AND SCALABILITY
The cost of starting a technology business has declined dramatically over the past
decade; essentially as a consequence of open source software and cloud computing.
Furthermore, critical mass on social networks has allowed for rapid user acquisition,
enabling companies to advance further and acquire more users with less capital. Global
platforms are now available for marketing, distribution, and monetization.
The combination of faster and lower-cost online accessibility, with the increasing
ubiquity of the Internet through the expansion of a variety of devices, makes a new way
to create and prove digital business without the need of large amounts of capital
investments. Nxtp.Labs provides a filter for angel investors, a validation for series A
investors, and thus a platform from which startups can scale which attracts talented
groups and individuals.
˃Reduced capital needs in servers, software & bandwidth
˃Cheap access to online platforms with access to millions or even billions of customers:
Search (Google); Social (Facebook, Twitter, Linkedin); Mobile (Apple, Android); Media
(Youtube, Instagram, Whatsapp, etc)
EMERGING MARKETS
˃ Nxtp.Labs seeks companies that serve both pan-regional Latin American (70%) and global emerging
markets (30%)
˃ Consumer purchasing power in Latin America far exceeds other dynamic emerging market economies.
˃ Latin America represents a huge opportunity for technology business, with the world's fastest growing
online population, hungry for social media and mobile content.
˃ Smartphone adoption is booming and e-Commerce market is reaching scale. Internet users in Latin America are much more involved in
social networking sites than the global trend.
˃The total number of Internet users in Latin America is around 236 million, close to the 245 million in the United States. However, the
growing rate of the Internet user base over the last years was 17% for Latin American countries while only 2% for the US. Broadband
growth in LatAm was almost 10x the rate of the US.
CONFIDENTIAL • NOT FOR PUBLIC DISTRIBUTION
3
INVESTMENT STRATEGY
LOTS OF LITTLE BETS
Nxtp.Labs has implemented an innovative investment strategy by investing a small amount of money in early stage technology companies
coupled with digital business know-how and access to an influential network.
˃Internet & High-Tech companies will continue to gain a share of consumer spending as internet penetration grows exponentially in the
region through the expansion of broadband and mobile Internet.
˃Entrepreneurs that understand the region’s dynamics and have a solid network will build companies with sustainable competitive
advantages.
˃Several companies will scale and generate significant shareholder value, which will provide liquidity to investors via trade sales as targets
of regional and global players consolidate their industries.
NXTP.LABS RETURN MODEL
Our investment strategy assumes that:
˃
˃
˃
˃
A select few companies (2%) will realize outstanding returns, between 8-12 times over invested capital, IRR +50%.
A small portion of the portfolio (11%) will yield healthy returns, between 5-8 times over invested capital, IRR +40%
A portion of the portfolio (27%) will yield moderate returns between 1-5 times over invested capital .IRR +25%
The vast majority (60%) of our portfolio will be written off or break even.
We intend to follow-on heavily the companies that yield better returns. If we are able to successfully execute on our strategy, it is
possible to achieve favorable returns for our investors. Here’s an example based on a hypothetical portfolio of 300 companies and a fund
size of US $60M:
This model is theoretical and is provided for illustrative purposes only. The model makes certain material assumptions and projections which may or may not prove accurate. The model does not purport to
guarantee future returns, and returns for investors in Nxtp.Labs may be less or more than the returns reflected in this model. “Expected Proceeds ” and “ROI Multiple” represent theoretically possible results for
Nxtp.Labs in the aggregate and do not account for carry and certain other deductions and expenses, which would reduce the amounts returned to investors. Expected Proceeds = (Number of Companies) x
(Average Investment Per Company) x (ROI Multiples).
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4
INVESTMENT CRITERIA
GENERAL INVESTMENT CRITERIA
˃ Product or service that solves a problem for a specific target customer
˃ Scalable Internet-based distribution or proven ability to scale sales
˃ Functional prototype before investing (or previous product success)
˃ Measurable traction: engaged users, some revenue, and attractive unit economics
˃ Cross-functional team with design, engineering and marketing expertise
INITIAL INVESTMENTS IN EARLY STAGE COMPANIES
˃ US $25k initial investment for up to 10% of company equity.
˃ We formalize our agreement with convertible notes and/or Simple Agreement for Future Equity.
˃ Up to US $100k follow-on option with preference rights to exercise the option at capped valuation (typically less than subsequent
financing rounds)
˃ 4-month program providing mentorship, training, coaching,
office space, market validation, digital business know-how,
and fundraising assistance
Nxtp.Labs takes a hands-on approach across the investment lifecycle
from a company’s early stage through to follow-on investments and
the company’s sale (investment exit and liquidity). With this
approach we optimize the expected reward and minimize the
mortality rate of invested companies.
We carry out 2 selection processes per year where we screen 50-100
proposals.
Our last selection process acceptance rate was 5%. The chart on the
right summarizes our selection process.
FOLLOW-ON INVESTMENT IN BEST PERFORMERS
˃ Follow-on investments from US $100k to US $1M in selected companies (capped at 20% of the total size of the round).
˃ We co-invest with a third investment firm; and do not lead subsequent investment rounds in order make a third party (lead
investor) validate the investment opportunity .
˃ Full access to Nxtp.Labs’ network, including coaching/mentorship
˃ Information rights and future participation rights requested
INVESTMENT CASE STUDIES
Detail / Company
iBillionaire
Initial Investment
Date
First Follow-on Investment
Date
Second Follow-on Investment
U$S 25K@U$S 1M
Feb-12
Shopperception
Sontra
Tutum
Fligoo
EveryPost
U$S 25K@U$S 0,5M U$S 25K@U$S 0,7M U$S 25K@U$S 0,5M U$S 25K@U$S 0,3M U$S 25K@U$S 0,5M
Nov-12
Mar-12
Oct-13
Aug-13
Jan-13
U$S 44K@U$S 1,1M U$S 130K@U$S 3,9M U$S 132K@U$S 3M U$S 100K@U$S 10M U$S 50K@U$S 3M U$S 230K@U$S 4M
Jul-13
Oct-13
May-13
In Process
Feb-14
Jul-13
U$S 100K@U$S 2M
-
-
-
-
-
Date
Jan-14
-
-
-
-
-
Current Estimated Valuation:
25M
5M
5M
10M
4M
5M
Multiple from Initial Investment:
25x
10x
10x
20x
13x
10x
Blended Multiple:
18x
2,9x
2,9x
5x
5,2x
2,4x
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COMMUNITY PLATFORM
MENTORS NETWORK
Nxtp.Labs is rolling out a platform that enables its mentors, in different areas, not only to
provide their knowledge but also to co-invest in our invested companies. Members of
this network have strong expertise in starting, growing, scaling and selling companies
Co-investing is not required for mentors, and all startups get the final say on which
mentors can participate, but it’s a great opportunity for startups to get strategic angels on
board, and conversely, an opportunity for mentors to invest in fast-growing companies
early on in their trajectory.
NXTP.LABS MICRO-ECOSYSTEM
Our Series A funding efforts helped us create the initial funding that came from 80
investors who are also mentors. NXTP created a micro-ecosystem where investors,
mentors, and invested companies' interests are fully aligned.
We strongly believe that Nxtp.Labs is creating a high impact ecosystem, and offer
investors the opportunity to join this unique endeavor.
VALUE ADDED TO COMPANIES
Nxtp.Labs provides companies a structured business growth roadmap based on 3 key
value-added elements:
˃The knowledge acquired and transferred to entrepreneurs from kick-off day.
˃The synergy created in the workplace and the partner networking.
˃A network of industry and investor contacts.
We work in a collaborative environment and we advise all our companies (+150) to
share with each other, based on the concept of cross-fertilization. The possibility to
share experiences & explore business opportunities is a powerful value added asset.
We also try to generate a strong relationship with the management system by holding
regular review sessions. We help early stage companies grow by creating a doctrine of
best practices towards success.
SILICON VALLEY & EXIT STRATEGY CONSTRUCTION
Nxtp.Labs is building a platform to help Latin American companies land in Silicon Valley, and
to promote interaction with important US players looking for opportunities in emerging
markets. This platform, called Puente Labs, focuses on 3 areas:
˃ EDUCATE entrepreneurs with best practices for building companies in the US.
˃ CONNECT people to empower business opportunities and help startups develop in the US.
˃ LAUNCH startups in Silicon Valley by providing a platform for initial funding and generating co-investment opportunities.
EVENTS & NETWORKING:
Nxtp.Labs events are a critical part of our strategy and a strong vehicle for community-building, fund & portfolio marketing and deal-flow
generation.
We organize several events such as: Founder Friday, Silicon Valley tours, Demo Days & conferences.
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NXTP.LABS ORGANIZATION
NXTP.LABS MANAGEMENT TEAM
Ariel Arrieta, Gonzalo Costa, Marta Cruz and Francisco Coronel are actively involved in managerial activities, investment strategy,
company portfolio monitoring and coaching processes. Francisco Coronel is also our CFO. Our management team includes: Pablo
Garfinkel who operates from Uruguay; James Haft who supports M&A activities from NYC, USA; and Arturo Torres, our Acceleration
Program Director.
Ariel Arrieta, President
Ariel is a serial entrepreneur. Since 1994, he has been involved in the Internet/Online Media Industry. He founded Digital
Ventures, Directa Network, Performa Network, Afiliados Hispanos and InZearch all online advertising companies acquired by
FOX in July 2007. He is a frequent speaker at AdTech, IAA, IAB, Online Marketing Europe, OMD, Marketing 2.0 and AMDIA
among others. Ariel is completing OPM at Harvard Business School
Gonzalo Costa, Managing Director
Gonzalo has experience in private equity and venture capital. He has provided consulting services related to management
and strategy focusing on venture creation and financing in Emerging Markets. Gonzalo has participated as angel investor in
several projects. Gonzalo has an MBA from Duke University, and is an Industrial Engineer from Universidad Católica Argentina.
Francisco Coronel, Managing Director & CFO
Francisco´s expertise focuses on corporate finance, managerial reporting, budget control, economic analysis, tax planning, and
legal ramifications. Francisco was recognized as Global Endeavor Entrepreneur in 2007. He was an advisory Board member in
several leading companies. He has an Economics major from Buenos Aires University and a Corporate Finance Master
Program from the University of California at Berkeley.
Marta Cruz, Operating Director
Marta has worked for more than 8 years at MRM Worldwide –the McCann Worldroup digital agency- as Latam Regional
Director, managing accounts of the likes of HP, Intel, Coca-Cola, GM, Hilton Hotel, Nortel and MasterCard. Marta has a BA
degree from Buenos Aires University- and a postgraduate specialization in management from IAE – Austral University. She is
also professor at San Andres University (BA) and ADEN Business School
ASSOCIATED PARTNERS
Nxtp.Labs’ team is completed by our associated partners who provide assistance in human resources, performance campaigns,
business development, social media, creativity, IT scalability, legal & tax planning. We also count with the support of organizations
such as IDB-FOMIN, CORFO, Innpulsa & RutaN from Colombia, and the Government of the City of Buenos Aires.
Nxtp.Labs is the first member of the Global Accelerator Network (GAN) in LatAm. GAN is a network of more than 50 accelerators with
presence in almost 60 cities around the globe, becoming an effective platform to hep our portfolio companies scale globally. One of
our founders sits on the GAN Advisory Board.
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STRUCTURE DESCRIPTION
SUMMARY OF NXTP.LABS PRINCIPAL TERMS
Investment Objective
Maximize total return on capital by seeking capital appreciation and, from time to time, current income, through the
development and management of a diversified portfolio of high-tech Latin American companies.
Highlights


Fund Objective
Opportunity to join an already existing portfolio of more than 150 companies technology companies.
Management team with entrepreneurial know-how, rich regional business experience and relevant international
contacts in target sectors

Implemented an innovative accelerating program for invested companies

Established pipeline of potential investments

Take minority equity interests in operating companies in the Latin American market

Up to US $60M

300 companies. Fixed Initial investment of $25K per company

Follow-on investments of up to $ 1M or 5% of the Fund size per company
Technology companies that have growth potential at regional or global scale, oriented to digital business such as
Internet, Gaming, Software as a Service, Internet, E-Commerce, Audio-Visual technology & Mobile.
Seed of early stage companies related to target industries in Latin America, with regional or international growth potential.
Growth Strategy
Use capital to market validation, initial operations, and business expansion regionally and internationally.
Management
Nxtp.Labs is managed by NIBELUZ S.A., an Uruguayan corporation. Nxtp.Labs’ Management team includes Ariel Arrieta,
Gonzalo Costa, Francisco Coronel, Marta Cruz, Pablo Garfinkel and James Haft.
Estimated Average 1.75% per year. During the investment period (first five years) the management fee is 2.5% . After this
period, Managers will be entitled to a management fee on a budget basis to be approved by the Advisory Committee.
The Manager will also be entitled to a carried interest from 20% to 30% based on performance.
Use of Funds
Target Fund Size
Fund Target Portfolio
Target Industries
Management Fee
Contact Information:
Amy Hernandez / trading@gwmgroupinc.com / GWM +1 203 817-0492
DISCLAIMER:
This is being provided upon your request. The information contained herein is intended only for the person to whom it has been delivered. This information is strictly confidential
and may not be reproduced or redistributed in whole or in part nor may its contents be disclosed to any other person under any circumstances without the consent of Nxtp.Labs.
This information is not an offer or solicitation with respect to the purchase or sale of any security. Any investment decision in connection with Nxtp.Labs (the “Fund”) should be
made solely based on the information contained in the Confidential Fund Documents which will be made available upon request. The Fund has no prior operating history. Please
refer to such documents for a description of the risks associated with an investment in the Fund. Past performance should not be viewed as indicative of future results. The
information herein is not intended to provide, and should not be relied upon for, accounting, legal or tax advice or investment recommendations. You should consult your own
tax, legal, accounting or other advisors about the matters discussed herein. The information contained herein has been provided for discussion purposes only and describes
current and past investments made by Nxtp.Labs. Nothing contained herein should be construed to imply or suggest in any way that any investment reflected herein was, would
have been or will be profitable. These materials may contain information and analysis relating to such investments. Nxtp.Labs may currently or in the future buy, sell, cover,
eliminate or otherwise change the form of any such positions for any reason. Nxtp.Labs disclaims any duty to provide any updates or changes to the information contained herein,
including, without limitation, the manner, size, and type of any of the Fund’s investments. The following information contains, or may be deemed to contain, forward‐looking
statements. By their nature, forward‐looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in
the future. The future results of the Fund may vary from the results and statements expressed in, or implied by, the following information, possibly to a material degree.
Notwithstanding anything to the contrary herein, each recipient of this summary may disclose to any and all persons, without limitation of any kind, the tax treatment and tax
structure of (i) the Fund and (ii) any of their transactions, and all materials of any kind (including opinions or other tax analyses) relating to such tax treatment and tax structure.
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8