“An important gap in financing innovation in Brazil is the quasi-absence of VC funds,” wrote Robson Braga de Andrade, president of Brazil’s National Confederation of Industry, in the Global Innovation Index 2020: Who Will Finance Innovation, a report produced by Cornell University, INSEAD and the World Intellectual Property Organisation.
Braga de Andrade said VC activities represent only 0.01% of Brazil’s gross domestic product, citing the Brazilian Private Equity and Venture Capital Association’s research, in comparison with 0.3% in the US and 0.4% in Israel.
Brazil came in 61st place in VC transactions, according to the Global Innovation Index, and more than 7,000 angel investors supplied $400m of funding in 2016, reported angel investment association Anjos do Brasil.
However, Braga de Andrade was quick to point out that more government-backed schemes are emerging, such as the Brazilian federal government-sponsored science and technology investment programme, Funding Authority for Studies and Projects (Finep).
Finep began making investments in VC funds from the early 2000s, having provided roughly $230m by the end of December 2018.
The Brazilian government-owned National Bank for Economic and Social Development (commonly known as BNDES) partnered mobile chipmaker Qualcomm’s corporate venturing unit, Qualcomm Ventures, in January this year to form an internet-of-things R$160m ($39.3m) fund.
Alexandre Villela, Qualcomm Ventures managing director for Latin America (LatAm) , said: “At a time when companies are looking for productivity gains to increase their global competitiveness, the internet of things emerges as one of the pillars of digital transformation and advanced manufacturing – industry 4.0 – in companies.”
Brazil has also developed a robust approach to encourage innovation including tax incentives and subsidised credit for technology startups, as well as scientific research conducted by universities and public research organisations, such as Adolfo Lutz Institute, Butantan Institute and Oswaldo Cruz Foundation for healthcare and medical research, which have played an important role in tackling the ongoing covid-19 public health crisis.
“Since Brazil is the largest economic force in LatAm, it is expected that, in absolute terms, there are more and larger deals here,” Clau Sganzerla, vice-president of strategy for Brazil-headquartered conglomerate Algar, told GCV regarding the country’s private capital scene, including CVC.
“In fact, in 2020 we had a few unicorns emerging and three initial public offering filings from startup companies. However, it would be interesting to assess whether other LatAm countries are more ‘active’ in relative terms in the VC market. Colombia, as far as I know, has a strong VC ecosystem. Argentina, despite the economic downturn, is also an active player.”
In 2018, three of Brazil’s corporate-backed companies enabled their investors to exit and achieved a record $1.2bn.
Brazil led the LatAm region in 2018 across all stages of VC deals, having infused 66.2% of the dollars invested, surpassing Colombia (16.9%), Mexico (8.8%), Argentina (4.2%), Chile (2.3%) and Peru (0.8%), according to the Corporate Venturing LatAm 2019 report published earlier this year that was co-authored by the IESE Business School Entrepreneurship and Innovation Centre’s executive director Josemaría Siota and its academic director Julia Prats, in collaboration with Spain-headquartered telecommunications firm Telefónica’s open innovation hub, Wayra.
Apart from Qualcomm Ventures, the report highlighted international players such as Japan-listed telecoms and internet group SoftBank, which formed a LatAm-focused vehicle dubbed SoftBank Innovation Fund in March 2019, led by the firm’s Bolivia-born chief operating officer Marcelo Claure, who ranked 10th and second on GCV’s Powerlist 2020 and 2019.
Brazil (56%) and Mexico (21%) have the highest number of VC deals in the region, which is considered the “new China”, according to the IESE report.
Héctor Shibata Salazar, director of investments and portfolio for Mexico-listed beverage distributor Arca Continental’s corporate venturing fund, AC Ventures (ACV), who was also included in GCV’s Powerlist this year, said: “Brazil is a large country with a huge market of more than 200 million inhabitants, and one of the largest global economies in the world being part of the G20. The market is deep and dynamic.
“All of these factors create significant opportunities for VC and especially for corporate venturing in Brazil. From the outside, given the market structure, legal and tax complexities and cultural barriers, corporate venturing is the next new trend in Brazil.
“The country has large number of corporates, many of them are not only protecting their market, but also, discovering new disruptions to keep on growing. This trend is somewhat similar in other LatAm countries, though scale and magnitude of impact could be greater in Brazil.”
VC partnership Redpoint’s Pripas agreed and added: “Brazil accounts for more than 50% of VC activity in LatAm. Corporate venturing activity in Brazil is increasing year over year. This movement started back in 2015 with [innovative co-working space] Cubo’s launch by Itaú Bank and Redpoint eVentures, responsible for connecting startups and corporates.
“Since Cubo’s inception, we were able to influence corporate venture strategies for more than 450 from the top 500 companies that operate in Brazil in different ways. Now, in 2020, we have seen an expected increase in the number of deals, together with the sophistication of the players in this market.”
Algar’s Sganzerla continued: “In the last couple of years I highlighted the involvement of Brazilian corporations in the VC market. Especially local groups, mostly family-controlled, have entered into the CVC market, with different initiatives – via direct investment in startups as well as indirect investment via CVC or VC funds.
“These companies realised that CVC can be a very effective way to get access to innovation and obtain both financial and strategic returns.”
ACV’s Shibata Salazar emphasised that Brazil has grown and develop significantly over the past few decades: “Entrepreneurship and VC have boomed. Corporates are contributing to VC, building platforms to accelerate startups, investing in VC and partnering with startups as they grow.”
Fintech continues to be the most sought-after vertical in Brazil, with agtech, edtech and healthtech gaining momentum, in addition to areas such as energy, technology services, said Pripas and Sganzerla.
“Brazil as other countries have many traditional industries with few disruptions and lack of innovation,” according to ACV’s Shibata Salazar, who added: “There are significant projects solving daily customers’ needs such as financial services, ghost kitchens and logistic services.”
Even with the pandemic still present, Brazil’s CVC deals have grown in 2020 – GCV Analytics has tracked 30 deals so far this year involving corporate funding, with financial services, mobility, IT and consumer sectors leading the charge.
The corporate-backed deal number has grown from 2018’s 13 to 15 in 2019 and, by October this year, GCV had logged 17. Deal value, nevertheless, decreased from 2018’s $1.7bn to $162m in 2019 while 2020 has garnered $110m by October.
Algar Ventures, the CVC unit of Algar Group, works closely with other CVC units and CVC funds, noted Sganzerla, who explained: “We are constantly evaluating new investments in alternative CVC funds. In terms of relationship with very early-stage projects, the group’s innovation lab takes the lead, developing projects with universities, other innovation labs and government backed initiatives. When these projects evolve to a VC investment phase, we at Algar Ventures jump in to support the investment rounds.”
Like CVC units elsewhere, Brazil-based corporate venturers work alongside financial VCs by investing in their funds to access market intelligence and pipeline of deals for co-investment, added Pripas. “CVC units scout universities for investment opportunities even though scholars are not used to turning into entrepreneurs,” he added.
Corporates are increasing their involvement in the Brazilian innovative ecosystem in different ways. For instance, oil and gas company Petrobras teamed up with incubator and accelerator operator Fábrica de Startups in 2018 for an energy-themed hackathon that took place at the 19th iteration of its Rio Oil & Gas Expo and Conference.
Telefónica Innovation Ventures (TIV) made a limited partner commitment to a fund operated by Redpoint eVentures in March this year. The CVC vehicle is headed by GCV’s Powerlist 2020 member Guenia Gawendo, who is a dual citizen of Brazil and Spain.
TIV’s contribution came as Telefónica upped its Brazilian open innovation strategy to double the size of investments from local open innovation subsidiary Wayra Brazil to between $100,000 and $210,000 per company.
Similarly, AC Ventures collaborates with local stakeholders such as VC funds and accelerators to develop the ecosystem, sharing pipeline, experiences, knowledge and building networks, Shibata Salazar concluded.
GCV Academy in Brazil
Global Corporate Venturing co-hosted the fifth annual Corporate Venture in Brasil conference in São Paulo with Brazilian trade and investment promotion agency ApexBrasil in October 2019, which had almost 700 international and local delegates.
Alongside the conference, Paul Morris, founder and former head of corporate venturing of chemicals producer Dow Chemical in Europe and Israel, headed the two-day GCV Academy inaugural programme in LatAm at law firm Veirano, whose venture capital, private equity, M&A and technology-focused partner Guilherme Potenza was a speaker.
GCV Academy in São Paulo featured corporate venturing experts including Flavio Pripas, corporate venture officer at Brazil-based VC firm Redpoint eVentures, and Peter Quadros Seiffert, then head of corporate venture capital (CVC) of aerospace manufacturer Embraer and now founder and managing director of CVC-oriented VC fund Valetec Capital.
George Gogolev, general manager of Severstal Ventures, Russia-based steel, energy and mining group Severstal’s strategic investment vehicle, and Markus Solibieda, managing director of BASF Venture Capital, Germany-listed chemical producer BASF’s arm, were also among the speakers.
Delegates included representatives of conglomerate Andrade Gutierrez, beverage distributor Arca Continental’s AC Ventures unit, shopping centre operator BRmalls, industrial component provider DSC, aerospace manufacturer Embraer, Banco Itaú’s Kinea Investimentos arm, phosphate-based product manufacturer OCP Group and pulp and paper manufacturer Suzano.
GCV expects to run another edition of the Academy and return to the Corporate Venture in Brasil event in São Paulo in 2021 to help corporate VCs to navigate the emerging region.
