Brazil’s Velvet Eyes Indian Startups, Sets Up $200 Mn Fund For Emerging Markets

Brazil-based startup Velvet, which provides liquidity to startup investors and employees, has entered the Indian market to tap the country’s unicorns, soonicorns, and Series B onwards startups.

The platform would focus on Bengaluru-based tech startups, followed by the Delhi-NCR players. Velvet plans to collaborate with at least 3 to 4 startups this year, helping their employees avail stock liquidity solutions. 

The Brazilian startup has set aside a corpus of $200 Mn for investing in startups in India along with other emerging markets in Southeast Asia and Africa.

Founded in 2021 by Carlos Naupari and Edouard de Montmort, Velvet provides solutions for late-stage tech companies to provide liquidity to both early employees and angel investors. Velvet buys stakes in promising, privately-owned startups, allowing their partners and employees to monetise their equity before the company goes public. 

Currently, Velvet is looking at startups with valuations of above $200Mn.

Velvet raised the fund in February from Estonia-based venture capital fund Yolo Investments, along with the participation of family offices from Switzerland and the US. 

With this pool of funds, Velvet is looking at tapping at least 3 to 4 Indian startups this year, but it could also go higher depending on the kind of startups it finds.

“We believe in the Indian market. We can leverage our core competencies and offer value to the promoters and employees of Indian startups,” said Naupari, cofounder and co-CEO of Velvet. “Our customer pipeline will be highly selective and curated—the best of the best of the startups that are in the “soonicorn” category.”

While Velvet is largely sector agnostic, it has an emphasised focus on B2B SaaS and fintech startups. 

Meanwhile, India’s fintech ecosystem currently has 31 soonicorns, as per Inc42’s State Of Indian Fintech Report Q2 2022.

Speaking exclusively to Inc42, Vivek Boray, founder of Velvet’s India Office and its global head of legal affairs, said that right now Velvet is educating its potential clients in India about the liquidity solutions programme called the Velvet 360 Program and hasn’t cracked any new deals. 

According to Boray, its peers, such as EquityZen and Forge Global, are mainly focused in the US market. However, there is no platform addressing the needs within the growing ecosystem of emerging markets like India. Hence, Velvet is focused on making Indian startups understand that these opportunities also exist.

“Right now, employees are provided with stock buyback options only when startups have newly raised fundings or have enough pool of money to support the transaction. With Velvet’s liquidity solution, we will enable the buyback and provide money in lieu of the employee stakes, and help the startups incentivise their employees by providing liquidity to their stocks as an HR benefit,” said Boray. 

“Also, liquidity as a benefit is just the start of the journey with startups and their employees. As we grow, we can offer different financial instruments to these employees,” he added. 

Velvet signed a $10 Mn deal with neobank Open in January, which recently turned unicorn, providing liquidity to one of Open’s early investors. However, this is Velvet’s first full-fledged entry into the Indian markets. So far, it has deployed $30 Mn in deals with startups across the world.

A few other global names in its portfolio include Indonesia’s Lummo, Mexican fintech Credijusto, and Nuvemshop in Argentina.

Velvet estimates its total assets under management to be worth about $250 Mn currently.

While providing liquidity benefits to the startups’ early partners is the major part of Velvet’s business, it also resells a portion of the shares to investors who want to get exposure to these startups.

Velvet collaborates with various distribution partners such as wealth management firms and investment banks, who work as channels for it to resell a part of its stakes in the startups to the willing investors. “While we would continue to manage and hold the shares, at the special purpose vehicle (SPV) level, we sell those interests to the investors,” explained Vivek.

Currently, Velvet has operations in Mexico, Brazil, Argentina, India, along with the US. In India, Velvet is based in Bengaluru.

As Velvet starts exploring the Indian late-stage startup ecosystem, the country’s unicorn count stands at 102, with Purplle becoming the latest startup to get a $1 Bn valuation. A day before it, PhysicsWallah also joined the coveted unicorn club.