The second day of the conference opened with further positive insights from Brasil Ventures’ survey of 68 corporations’ open innovation and venturing interests and approaches, as 77% said they had been developing relationships with startups in the past year.
With more than half (57%) having acquired a smaller company, the attitude by senior executives to entrepreneurs has improved over the past year, but the challenge remains gaining dedicated budget to invest in startups and getting CEOs to buy-in more, as only about half were currently involved, Arthur Garutti, managing director of Brasil Ventures, said.
As the ripples of best practices in innovation strategies spread it then becomes easier to convince executives in other companies. Bruno Vath Zaperlion, technology and innovation director of the Brazilian-German Chamber of Commerce (AHK Brazil), moderated a panel with BASF, Siemens and SAP on how to develop these first steps on innovation and work with startups.
The conclusion was, understandably, that it was important to “spread the philosophy of innovation to other companies and prove that Brazil is capable of doing this.”
Given the speed of change and the best practice examples developed by groups as diverse as Stefanini, Embraer, Itau, AES and Movile, the bigger potential for Brazil’s ecosystem is to take their differing approaches and showcase how others can replicate easily.
Brasil Ventures already has 120 corporations in its network and remains one of the world’s most sector-diversified accelerators.
MSW Capital, a multi-corporate venture fund, already had Monsanto, Microsoft and Qualcomm as investors but this month added local bank Banco Votorantim, according to Moises Swirski, executive partner at MSW, and Franklin Luzes, chief operating officer of Microsoft’s local Microsoft Participações subsidiary, in a fireside chat at the conference.
Ricardo Kahn, innovation manager of AES Brasil, the electricity utility subsidiary of US-based AES, said in its industry it was particularly important to closely follow the model already set up.
AES Brasil sponsored the accelerator run by Liga Ventures, co-founded by Daniel Grossi, but, in agreement with the regulator Aneels, used part of the official requirement to set aside 1% of revenues for research and development (R&D) to fund the external innovation pipeline.
Rather than take equity stakes in the accelerator’s startups, AES Brasil helped fund these startups’ development projects, meaning both sides could share in the intellectual property developed and the startups could have potential customers and a business.
Kahn said five other utilities were looking to follow suit but would have to find other accelerators to use as it had the exclusive with Liga on energy.
With 120 local corporations developing venturing strategies, Brazil effectively has an opportunity to join up its entrepreneurial ecosystem with companies, universities, angels and VC funds supporting entrepreneurs, and invigorating larger businesses and incumbents, all with appropriate government backing.
After political change earlier in the year, participants at the conference were hopeful the new government’s “market” focus and attention on economic growth would pay off. BNDES insiders at this year’s conference said there was already more focus on supporting venture capital. BNDES in May said it had selected five VC managers to share in a R$1.2bn ($400m) commitment.
Ferando Rieche, department of funds manager in the capital markets division of Brazil’s state investment bank BNDES, said in his keynote address at the conference it would commit a further $500m to new funds in the next two years.
BNDES was particularly interested in the early-stage entrepreneurs, he said, and was looking to crowd in other investors. BNDES is examining developing a pre-seed fund as well as one for the Amazon region, and the bank committed to the Criatec III fund, which also received capital from local financial services corporation Valid..
Similarly, it had committed R$40m to the FIP Aeroespecial fund, in which Embraer had invested the same amount, and the Bozano fund cornerstoned by Germany-based publisher Bertelsmann. Rieche said it was also planning to commit to Vox Capital’s second impact venturing fund.
Julia Profeta, investor relations head at Vox, said the firm raised R$84m for its first fund in 2012 and made 10 investments in startups targeting social and environmental goals, including ToLife and Avante.
Vox’s performance fees – called carried interest – have a novel structure to only pay the full 20% on profits made if it meets both a minimum 4% annual rate of return and impact, as measured by external consultants EIIRS.
Although there might be large needs at the so-called base of the pyramid, with 112 million Brazilians earning less than $9 per day, Profeta said it was an “illusion” to think there were investment-ready entrepreneurs available, and its portfolio companies had required support.
However, once the company is given this support the market potential could be significant. Bernardo Bonjean, founder and CEO of Avante, said in his discussion with Profeta that whereas the typical bank only approved 2% of these micro-credit applications but had a relatively high default rate, Avante approved 63% of applications and only had a 2% default rate.
Similarly socially inspired, Bodo Wiegand, member of the research staff at Netherlands-based healthcare company Philips’ Brazil subsidiary, said it was targeting people before they became patients as well as if they were in need of care.
Wiegand noted that half of Americans would live with a chronic disease by 2020, costing an estimated $4.5 trillion. As a result, he said Philips was focused on using data and technology to help people develop healthy living habits, prevent illness and only then provide diagnosis, treatment and home care to support those who become ill.
The final inspiration of the conference came from Spain-based phone operator Telefónica. Cristiano Yazbek, business strategy director of its Vivo division, laid out how Telefónica’s Open Future programme had rapidly expanded both its range of venturing strategies and scale of commitment.
Set up in 2006, the group’s corporate venture capital unit, Telefónica Ventures, had invested in 19 deals in the US and Israel, with four exits, but its accelerators had been far more active. Its Brazil-based accelerator, formed in 2012, has had eight batches with 58 graduating, while overall Telefónica has 693 portfolio companies with €155m ($170m) invested.
In addition, Telefónica has provided a host of other services, including entrepreneur education since 2011, made eight limited partner commitments since 2012 and developed crowdworking spaces since 2014.
Such examples of development and globalisation were inspiring as attendees said they were keen to learn more from international peers and eventually engage more by investing overseas. There is some progress to be made here as Global Corporate Venturing’s data tracked only two international investments made by Brazil-based corporations in the past five years.