Former SoftBank Brazil execs launch fund focused on startups off the beaten track

A group of former SoftBank executives announced the launch of Cloud9 Capital, a fund dedicated to supporting innovative and scalable startups led by visionary founders away from the traditional investment route.

The formal launch follows the creation of the fund in mid-2021. The new firm’s focus is on accelerating high-growth business with low cash burn rates, led by entrepreneurs that are not on the traditional investment radar. Typically, these founders will not have the ideal CV in the eyes of VCs, and have a very diluted stake in their companies, as well as a shareholder base without strong institutional names or are outside the main innovation hubs in the country.

“Of course we value [the traditional criteria], but we want to look beyond this universe and also fish in the high seas while many [investors] will simply look into a fishbowl”, said Cloud9‘s founding partner Felipe Affonso, in a statement. “When we talk about technology, we can see a profile that is still not very diverse among entrepreneurs”, the investor pointed out.

“There is a gap to be filled and that is exactly where we want to act. Founders who built a successful business with little resources should be valued rather than penalized when they need to raise a round”, he added.

In addition to Affonso, who has names such as Singapore sovereign wealth fund GIC under his belt, Cloud9‘s management includes Noah Stern, who spent most of his career at Goldman Sachs. Both executives were part of the first SoftBank team in Brazil. Economist Rafael Serson, who worked on private equity deals at fund Kinea, is also part of Cloud9‘s leadership.

Companies with a proven market proposition, as well as relevant traction and a scalable model will be the focus of the new fund. Although it presents itself as agnostic about the sectors in which they intend to invest, the team will prefer startups in the health, education and consumer markets operating under the software-as-a-service model.

“We conduct a detailed search for startups in the sectors that interest us the most and we seek startups in Brazil with models similar to others that have been successful abroad. It is worth mentioning, however, that the best leads come through our network of contacts”, said Noah Stern, also in a statement.

The investors are looking for startups with more diverse profiles, but founders will also need to meet certain criteria in terms of experience and expertise. Founders with ability to execute, as well as team quality, size of the market in which it operates, financial efficiency and potential for scale and competition are some of the factors the fund managers take into account.

Talking shop

The first closing of Cloud9‘s inaugural fund raised around 280 million Brazilian reais ($54 million). Most of the LPs are institutional investors, as well as single and multi family offices. According to the firm, the final closing should be announced within in the next six months, and the expectation is that the fund will reach 400 million Brazilian reais ($77 million).

According to the firm, the first investment will soon be announced and the plan is to invest in 10 startups over the next 3 years. The checks will vary according to the startup’s needs, but will likely start at 20 million Brazilian reais ($4 million), with flexibility for relevant increases.

The partners also draw attention to the concentration of the portfolio. In addition to ensuring substantial financial support if necessary, the decision to invest in a small number of startups is also due to the time the investors plan on dedicating to each of the portfolio companies.

“We don’t want to interfere in their day-to-day business. However, by leading the rounds, we will position ourselves as the main partner for these entrepreneurs. The idea is to empower them, insert them in the investment route, taking them from the middle stage to maturity”, said Stern. The investor also noted that managers will share their expertise with the companies they decide to support, in order to “contribute to the strategic and operational issues that are important to the company’s evolution”.

As new investments are made, new agreements could be on the horizon. Support for subsequent fundraising, restructuring complex shareholder bases, as well as organizing possible M&As and hiring talent are some of the areas the Cloud9 team will aim to be involved in.

(translation by Angelica Mari)