With 256 large corporations in Brazil, a million students graduating each year and increasing government support for entrepreneurs and investors, the world’s seventh-largest economy should already be one of the most vibrant in terms of its innovation capital ecosystem. But “should” rarely translates into action unless the constituents in the ecosystem want to be part of it.
Brazil’s corporations have traditionally had little desire to engage or invest in startups, and so its economy has struggled to add one of the most important elements of the so-called triple helix to supporting entrepreneurs. Partly, this lack of desire has stemmed from ignorance at board level among many corporations.
Claudia Fan Munce, managing director of the IBM Venture Capital Group for more than a decade as well as vice president of IBM Corporate Strategy, in the opening keynote address showed how powerful these benefits could be to a parent. IBM has acquired 78 venture-backed startups since the group was started in 2000 to commit money to a portfolio of 87 VC funds from 53 managers.
IBM also now invests directly in startups through a $100m software fund, and Fan Munce said it had found collaborating with other corporate venturing units – many of whose parents are clients of IBM – had given it insights into customer interests and needs. She will chair Global Corporate Venturing’s professional society to help bring the industry together from next year to further this work.
Bringing insights, potential acquisition targets and partners or customers to a parent can all be vital in keeping a corporate venturing unit relevant, but putting the entrepreneurs first helps to navigate the potential challenges in managing both sets of relationships.
Aymerik Renard, director of Sandisk Ventures, said it often introduced portfolio companies to its mergers and acquisitions (M&A) team, not to buy but to help increase the share price if they were being sold.
Erik Vermeulen, senior counsel corporate at Philips, summed it up as “putting entrepreneurs first”. He warned the current interest in innovation was attracting “bad actors” – what VC Mark Suster has called “mourning in VC for the days of rational behaviour” – putting money first rather than understanding venture investing is a service to help startups, gaining money or strategic advantage as a side benefit.
But if the parent did want to buy a portfolio company, as John Hamer, investment director of Monsanto Growth Ventures, described in its purchase of Climate Corp, then the venture team often recused itself from the discussions and passed the deal over to colleagues.
Girish Nadkarni, president of ABB Technology Ventures, compared the different styles of ventures and M&A to matrimonial lawyers. M&A acted as divorce lawyers who wanted to get the best terms, as they would never see the other party again, while venture investing was like discussing a pre-nuptial agreement where both sides still had to live together.
Similarly, corporate limited partner (LP) agreements can take on the characteristics of some marriages. Nina Lualdi, Cisco’s senior director responsible for transformational initiatives and strategic investments in Brazil, described how its $15m commitment to Redpoint eVentures in 2012 had grown into a much closer partnership. While Redpoint eVentures has other corporate LPs, including Otto, Silicon Valley Bank and Bertelsmann, Cisco has collaborated to help bring its portfolio companies into the parent’s product line. This was being used as a model for Cisco in other regions, such as Japan and China, Lualdi said, while in Brazil her team had just had a three-day meeting to identify opportunities from next year’s Olympics in the country.
Gilberto Peralta, president and CEO of GE Brazil, in the final keynote address on the first day, gave other examples of how General Electric
was using such “reverse innovation” as part of its strategy for integrating internal and external innovation platforms around the world.
When considering Brazil’s relative attractiveness compared with other countries, investors were relatively optimistic. Gabriela Ruggeri, business development director at UK publisher Daily Mail and General Trust and founder of VC firm Eastpoint Ventures, said prices were better than in 2012, while Denver Dale, founder and CEO of Tecton Capital Partners, identified its opportunity in biological processes through agriculture, energy and health, and Frank Lampen, partner at Distill Ventures, which manages part of drinks group Diageo’s innovation platform, added that the consumer sector was also an opportunity for investments.
With 17 million people, Sao Paulo is regarded as a test bed for innovation generally. Local investors, such as Humberto Matsuda, managing partner at Performa Investimentos, described, at a dinner hosted by Andy Tsai, managing director at Silicon Valley Bank, how the city and country were often the first to try new ideas. Mariano Amartino, global director of Wayra Open Future, Telefónica’s innovation programme, gave an example of those at the bottom of the pyramid in the favelas (urban slums) taking to Whatsapp as a way to make free calls and send free messages through local wifi hotspots.
Using technology and offering access to capital can help create the social mobility to ease chronic economic inequality. It was encouraging, therefore, to hear Andre Favero, business director of Apex-Brasil, describe its vision of wanting to be “the best investment organisation for the corporate venturing world as well as for inward investment”.
His colleague, Jaime Queiroz, investment officer at Apex-Brasil, laid out the services Brazil has brought together to help the market and closed the first day. These “aftercare services” includes state development bank BNDES looking to support new corporate venture capital funds.
BNDES has visited 20 corporations over the past few months to discuss the issue of corporate venturing and held a breakfast meeting for 50 CEOs and chief financial officers on the morning of the second day of the event. Their C-suites’ starting positions were not encouraging. As
Leonardo Pereira, head of the bank’s investment funds, said in his opening keynote to the conference’s second day: “Many of the boards did not know about open innovation or corporate venturing.”
Given this starting point, it could take a number of them time to work out their approach to startups, if at all.
André Leonel Leal, corporate social responsibility leader at Braskem, in a panel of local corporate venturing units said it had taken 50 meetings at his company to set up an accelerator as its starting point to “get to know this area”. He added: “Executives did not know about open innovation or venturing, as we are the largest plastics maker in the Americas. Now, 36 executives will be mentors at the accelerator. There is a gap in how to partner with small companies.”
He supported the Global Corporate Venturing initiative to form a professional society to share global best practices and examples, and help bridge the Brazilian and global innovation capital ecosystems.
André Mainart Menezes, innovation management leader at Stefanini, on the same panel, said it had opened to startups at the end of 2014 as its start in this area, while Alencar Berwanger, marketing and products director at Senior Sistermas, said it was learning about partnering others, and Adriano Nunes, innovation director at Intercement, a day earlier had talked about “intrapreneuring” through an accelerator.
Peter Seiffert, head of corporate venture capital at Embraer, supported the idea of a professional society to link local associations with the global ecosystem after finding the data, case studies and information sharing had helped him convince his board to commit to its inaugural fund after 10 years of discussion. The Aerospace fund, Fundo de Investimento em Participações (FIP) Aeroespacial, had been the first of its kind in Latin America focusing on this sector when it started in May last year with R$131.3m ($34.4m).
Embraer had committed R$40m, the same amount as BNDES and Finep, Brazil’s state funding authority for science and technology studies and projects. The remaining money had come from Desenvolve SP, with R$10m, and R$1.3m from Portbank, which will manage the fund.
The money is already trickling down to businesses. The fund has struck four deals, while Fernando Pecoraro from soil contamination startup Ambievo, in a pitch session by entrepreneurs to event attendees, said bank Santander and equipment maker Haver & Boecker had invested $10m in its earlier round.
BNDES said the next close of the Aerospace fund could be at R$200m, while it had also worked with Germany-based media group Bertelsmann on a R$400m education fund managed by Bozano.
BNDES provides 80% of the long-term financing in Brazil and is the largest venture capital investor through BNDESPar, which provides equity. Pereira said the bank was working on helping the ecosystem develop through new debt, stock market and early-stage (Criatec III) funds and fostering corporate venturing. He proposed an initiative to set up a corporate venture capital (CVC) platform as a multi-corporate programme to encourage smaller companies to commit while getting funds to a minimum viable size of R$150m.
Pereira said CVC fitted its strategy of fostering open innovation, strengthening supply chains and anchor companies, supporting micro, small and medium-sized enterprises (MSMEs) and enlarging the investor base.
Brazilian venture capital and private equity trade body ABVCap said 15% of local investors to private equity and venture capital funds came from corporations, while businesses made up 8% of funds’ international limited partners last year.
However, much of BNDES’s work in the space will continue to be in committing to VC funds. BNDES plans to commit R$1.5bn over the next two years, which would be about a 50% increase from the R$2.8bn committed to 37 funds, adjusting for investment returns and drawdowns. Last year, BNDES committed R$900m to nine new funds, so the next two years’ allocation would be in line with its recent support.
Commitments, however, will count for relatively little if the ecosystem remains fragmented and inward-looking. BNDES and Apex-Brasil have been working tirelessly to join up the innovation capital community. Cassio Spina, one of the most prestigious angel investors in Brazil and founder of non-profit Anjos dos Brasil, run by his sister, Maria Rita Spina, spoke eloquently about the potential for cross-pollination of ideas and support, and the importance of understanding the innovation trends from the exponential growth of technology development. He gave as an example how South Africa-based media group Naspers had taken stakes in a host of entrepreneurial companies, such as Tencent, Mail.ru, Flipkart and Brazil-based OLX, Abril and Movile, which raised a further $40m in April.
Fabricio Bloisi, CEO and founder of Movile, in a rousing final keynote address, talked about how Naspers, which owns a bit more than 60%, and its other investors had encouraged its rapid growth. He said: “Naspers helped our 78% per year growth by connecting us to the global venture community and telling us about cases and best practices and a culture of aggression in M&A. Naspers has been on our board and this has been very inspiring.”
Bloisi described how the company had doubled its product lines to four over the past two years through 15 M&A and minority investments to help fuel its growth to hundreds of millions of Brazilian reals, and its employee numbers from 200-300 to about 1,100. He gave his tips for others to be similarly successful, including “talk less, do more”, open an office in Silicon Valley to learn from the best, tap into technological changes through capital investment, focus on data, learn fast and concentrate on the right team culture.
Culture was Movile’s strategic advantage, Bloisi said. He said Movile spent a lot of money on team spirit through beer and parties, but offering a meritocracy, bonuses and good pay were more important. His goal was to take Movile from 14th best place to work to first, second or third.
Culture and devolved hierarchy gave Movile the ability to try ideas, track data and iterate and try new ideas. People were sacked not for failure but for failing to learn and trying the same things again, he explained in his question-and-answer session. Effectively, he said, while Brazil did not have the Silicon Valley ecosystem as a country, Movile through its culture could create an internal Valley mindset, skills and resources, which would enable it to compete globally.
The $100m Movile had raised from Naspers and Inova, which owns between 10% and 20%, had given it the resources to invest in ideas, such as buying delivery service iFood and seven bolt-on acquisitions, in a bid to become a $10bn company.
It was an inspiring vision for his local and international peers, and a great end to Apex-Brasil’s first Corporate Venture in Brazil event in partnership with Global Corporate Venturing.
See you at Global Corporate Venturing’s summit in Sonoma, California, on January 27-28. For ideas, feedback and suggestions for next year’s Brazil event and the professional society launch, contact me at jmawson@mawsonia.com
Big investors: “Now is a great time to invest in Brazil”
“Now is a great time to invest in Brazil,” according to David Thomas, managing director at Intel Capital responsible for investment activities in Latin America.
As Intel Capital is probably the world’s largest venture investor, his insight shared on a panel during the first full day of the event, was a powerful endorsement for the opportunities being created by its entrepreneurs and relatively lower pricing compared to boom times a few years earlier.
Carlos Kokron, his peer at Qualcomm Ventures, and regarded as the Godfather of the corporate venturing industry in Latin America as the first such manager back in the 1990s, was equally positive.
After his fireside chat with venture capital star Carlo Dapuzzo, co-founder and partner at VC firm Monashees, Kokron said the opportunity to support the venture capital scene through having at least 20 local corporations set up $50m funds was a real prospect after his discussions with a number of them.
But he warned that for them to be successful and benefit the ecosystem they would have to approach investing in the right way, of which being part of a professional society could help.