There seems to be some debate about how much the macro political and economic environment should or could impact the innovation capital ecosystem. Judging by healthy venture capital funding levels in places such as Brazil it would appear to be relatively little.
While Russia’s venture capital market has fallen sharply in the face of headwinds after the fall in the oil price and economic sanctions, Brazil has been more resilient in entrepreneurial finance.
Brazil is the eighth-largest economy in the world, by projected gross domestic product, and the biggest in Latin America, but it has the slowest growth rate on the continent besides Venezuela, and this past month Brazil’s President Michel Temer was indicted for corruption only a year after the impeachment of ex-president Dilma Rousseff.
Over the past few weeks and months, however, the country has seen positive headlines for large deals, venture capital fundraising and corporate innovation initiatives. One of the most prominent deals involved Japan-based telecoms and internet group SoftBank investing $100m in on-demand ride-ordering platform 99 at the end of May.
Founded in 2012, 99 has built an app-based ride-hailing service spanning both registered taxi drivers and peer-to-peer lift sharing that operates in approximately 400 Brazilian cities. It has more than 14 million registered users and more than 200,000 drivers in its network. The investment represents an extension of the $100m-plus round 99 closed in January this year. The round was led by China-based ride-hailing company Didi Chuxing and backed by growth equity firm Riverwood Capital.
Mobile chipmaker Qualcomm and venture capital firm Monashees invested an undisclosed sum in 99, then known as 99Taxi, in 2013, before the company raised $25m from Qualcomm’s corporate venturing arm, Qualcomm Ventures, Monashees and Tiger Global Management two years later.
Brazil-based mobile commerce platform Movile in June revealed $53m in funding from South Africa-based media and e-commerce and media group Naspers and investment fund Innova Capital.
Fabricio Bloisi, CEO of Movile, who is also one of Latin America’s most active corporate venturers and a previous keynote speaker at the Corporate Venture in Brasil conference, said: “Movile is in a strong position to use this new investment to realise our dream of impacting 1 billion people through our products and services.”
The ambition of the entrepreneurs to tackle large markets is impressive but builds on decades of prominent examples. Marco Stefanini, founder and CEO of Brazil-based software and services company Stefanini, explained in an introduction to a panel at the Global Corporate Venturing Symposium 2017 in London how the company had developed a “strong innovation ecosystem” covering some of its 650 corporate customers and business partners, state agencies and universities as well as startups and VC funds and accelerators.
He said: “Stefanini’s consistent growth history has been based both on organic expansion as well as intense M&A.”
Stefanini developed its Open Startups initiative as a strategic partnership program with startups that had reached product-market fit levels “and that have created disruptive products and technologies synergistic with Stefanini’s offerings”. Working with these startups allowed the company to broaden its offering and create dealflow for M&A with less risk and greater strategic fit, and it also “refreshes Stefanini’s culture with a startup way of doing things”. Stefanini had bought 10 companies this way.
The CEO said lessons learned included how to develop a more flexible M&A strategy covering control to minority positions while being ready to integrate fast and decide when to kill a startup’s culture or preserve it, and in addition, how to understand the different venture models’ pros and cons.
Brazil has developed a somewhat unique approach to innovation ecosystem building, with both Stefanini and Naspers-backed e-commerce company Movile looking to create a wider entrepreneurial network around the companies.
Jayme Queiroz, investment director at government agency Apex-Brasil, opened the panel discussion at the symposium by describing how the country’s broader economy was becoming more entrepreneurial. With 200 million people and 250 million mobile phones, Brazil is one of the most networked countries in the world and is among the top 10 economies.
Queiroz said Apex-Brasil had tracked more than 5,000 startups and 350 incubators in the country, before turning at the symposium to Carlos Kokron – whom he called Brazil’s godfather of venture capital for his work at Intel Capital initially and now Qualcomm Ventures – for a description of how things had changed.
Kokron said: “Over the past 10 years everything has improved. Entrepreneurs who used to have to work around the infrastructure now can participate. Corporations are a large part of the change over the past two to three years. There are 250 Brazilian corporations with no startup backgrounds but keen to interact, following the work of Apex-Brasil in hosting the Corporate Venture in Brasil conference the past two years, and have the perfect time to entry given the critical mass of entrepreneurs, and assets are cheap.”
The message has been heeded. Corporations already play a significant role in the Latin American Venture Capital Association’s 2017 Latin American Startup Directory. About a sixth of 144 listed tech companies that have received at least $1m in funding over at least two rounds and are still in operation have CVC backing and are based in Brazil.
In Brazil, Intel Capital has backed Geofusion, Mandic, Navita, Pixeon Medical Systems, WebRadar, while Qualcomm Ventures’ deals include 99, Strider, Enjoei, Ingresse, Loggi, Mandae, Memed and Quinto Andar.
Oracle said in January this year it would extend its startup accelerator program to Sao Paulo as one of seven cities joining an existing centre in Bangalore, India. While Oracle will avoid investing in these startups, it hopes they will use Oracle cloud services.
In June, Raízen, one of the largest producers of sugar and ethanol in Brazil, launched a startup accelerator called Pulse to target agtech developers. It is based in Piracicaba, in the interior of Sao Paulo, the region responsible for 38% of Brazil’s agtech startups. Raízen has been establishing partnerships and working with startups, including Space Time Analyts, Hekima, Agrosmart and Fhinck.
In October 2016, Raízen partnered Space Time to help the company predict production capacity up to a year in advance. Raízen produces about 2 billion litres of ethanol and 4.5 million tons of sugar a year, and has the capacity to generate about 940MW of electricity from the sugar cane bagasse – the residue left after extraction of juice.
In May, Brazil-based Positivo Tecnologia launched its Inove Positive accelerator in partnership with Altivia Ventures, an investment and consulting firm focused on startups. Prior to the launch of Inove, Positivo had invested in telemedicine system Hi Technologies at the end of 2014 before taking a 50% stake in the company in January 2016.
Other local companies, such as Embraco, a refrigeration technology and production company, and Natura, a cosmetics label that recently acquired UK-based Body Shop from L’Oreal for $1.1bn, have created similar programs to invest in startups operating in their respective spaces.
But while corporations are increasingly active as direct investors, their role is also encouraging the VC ecosystem through commitments to VC funds and a transfer of talented personnel. Brazil’s private equity and venture capital association, ABVCap, said in its annual results that corporations made up 14% of commitments in 2015.
Anderson Thees, who helped spark this transformation through his work initially at Naspers – including backing Movile – before setting up VC firm Redpoint eVentures, discussed at the GCV Symposium the importance of corporate limited partners, including Cisco and Bertelsmann in its first fund, as well as investing directly in startups. Redpoint eVentures and Itaú Unibanco partnered energy group AES in June this year to join its Cubo entrepreneurial network space in Sao Paulo.
Franklin Luzes, head of MSW Capital, a fund with seven corporate investors set up by US-based software provider Microsoft, told the symposium how he had been able to create such a multi-corporate venture fund.
Microsoft and Brazilian lender Banco Votorantim are investing together in financial technology startups, and Votorantim will invest an initial R$3m ($930,000) in the BR Startups fund created by Microsoft. Microsoft set up BR Startups in 2014 to fill the post-seed, pre-VC niche, and the fund has now grown to R$17m with other partnerships, including one on agriculture with agribusiness Monsanto, while Grupo Algar’s corporate venturing unit joined Qualcomm and Agerio in the fund in December 2016.
Other corporations and family offices have been looking at Brazil’s fintech-focused startups.
Fernando Scodro of Grupo Baoba, the third generation of a wealthy Brazilian baking family, is launching the Brazilian chapter of The ImPact, a network of wealthy families that have come together to make more impact investments more effectively. “When families start saying, I will invest according to my values, that s something you can hold them accountable to,” Scodro said in an ImpactAlpha podcast.
Visa Brazil, the local subsidiary of US-based Visa, set up an accelerator and a co-creation centre in Sao Paulo in October 2016. The Ahead Visa scheme backs entrepreneurs focused on lending, debt renegotiation, Bitcoin management, blockchain, financial efficiency and payments, and is in partnership with Brazilian accelerator Startup Farm.
Startup Farm, founded and headed by Felipe Matos, also works with US-based IBM on what it calls the “first startup acceleration program focused on artificial intelligence, cognitive technology and blockchain” as well as with Google on its local campus.
Separately, VC firm Liga Ventures runs the OasisLab innovation space and has identified 216 startups focused on the retail and consumer sector in Brazil, of which more than half were focused on store 4.0 technology. Liga is running its Retail League accelerator this month and is also responsible for acceleration programs with Porto Seguro (Oxygen Accelerator), AES Brasil, Mercedes-Benz, Embraer and Intel, as well as being a partner in Brazil for Plug and Play Tech Centre, one of the largest accelerators in Silicon Valley.
Talent is flowing in multiple directions in Brazil’s entrepreneurial ecosystem. Notable corporate executives setting up funds include, in January 2017, two former Buscapé executives – co-founder Rodrigo Borges and former vice-president Guga Stocco – joining Gabriel Sidi, Marcello Gonçalves and Felipe Andrade to set up Domo Invest.
The two Buscapé executives had followed a path laid by Romero Rodrigues, who co-founded the online price comparison site Buscapé, which South Africa-based Naspers acquired in 2009 for $342m. Rodrigues had joined Thees at Redpoint eVentures in late 2015.
More recently, last month, Argentina-based VC fund Kaszek Ventures, which was founded by senior executives at Argentina’s e-commerce firm MercadoLibre, raised $200m for its third fund. Kaszek had previously allocated much of its investment to Brazil, providing funding for companies including Nubank and Loggi. Nicolas Berman, partner at the firm, said: “We expect that most of the capital will continue to go to Brazil, as it is the largest and most developed tech ecosystem in the region. But we anticipate increased investing in the other markets in the region, particularly in Argentina, Mexico and Colombia, where we are seeing a strong evolution in their entrepreneurial communities.”
Another factor in entrepreneurs participating is assistance by governments. The Brazilian government had a short-lived scheme offering foreign companies visas and funding to relocate there through Startup Brasil. Participating firms would have had to relocate to Brazil and hire local employees. This program was based on a similar one in Chile, and Brazil has continued to look to other countries for models.
In June, Marcos Pereira, Brazil’s minister of development, industry and foreign trade, led a delegation to Israel. Delegate Marcos Vinícius de Souza, secretary for innovation and new businesses, said: “We are visiting some business organisations, some venture capital firms, and also the Israel Innovation Authority and the minister of the economy, to understand what is the second wave of public policy that Israel is developing now.
“We want to understand more about how the government is supporting these startups – what are the fiscal incentives’ design that are presented now, especially for angel investors. And also to understand the business acceleration process that you have here in Israel.”
De Souza told the Times of Israel that the country had models that could help Brazil address one of its main economic challenges – transferring knowledge from the academic world to the market. He said he was impressed by the flexibility Israeli universities had in making connections with investors and creating funds for research.
“We were really impressed with what they are doing,” he said. “About how to bring venture capitalists, how to bring mentors, how to bring companies from all over the world in order to make joint research, and also to commercialise the research.”
De Souza said Brazil would need to change certain regulations in order to adopt such models, and would also need to move the mindset in academia toward being open to working more closely with private industry. He said he liked the idea of universities having equity and acting as investors in startups that use the technology they develop.
Brazil, however, already has good examples of student-founded startups, albeit without university venture funds. Neoway, which was founded in 2002 by CEO Jaime de Paula when he was working on his PhD thesis at Universidade Federal de Santa Catarina, last month raised $45m from VC firms such as Monashees, to expand its data and analytics service to the US.
“Getting funding back then was not as easy as it is today in Brazil,” de Paula said. “But so many startups are launching in Florianópolis [capital and second-largest city in the state of Santa Catarina in southern Brazil] now, it has become a real tech hub. There are some great tax incentives here.”
Funding might be easier now but only because the entrepreneurs and ecosystem have made it possible despite the macro headwinds.
Disclosure: Global Corporate Venturing has been paid to advise Russia and Brazil among other governments on how to attract and encourage corporate venture capital to their countries and develop local CVCs to meet global best practices. The next Corporate Venture in Brasil conference will take place between October 2 and 5 in Sao Paulo, including specialist agtech and auto sector themes.