The fourth annual Corporate Venture in Brasil conference organised by government agency Apex-Brasil in partnership with Global Corporate Venturing was the most popular yet, with a who’s who of attendees who “came to grow” in the theme of the event.
Since the partnership started in 2016, $184m has been invested in Brazilian entrepreneurs by corporate venturing units, according to Jayme Queiroz, investment manager at Apex-Brasil, in his closing remarks on the first day of the conference. And the trend is picking up.
From a handful of local venturing units in 2016, such as those of Movile and Embraer, there are now more than 120 on “their innovation journeys”, according to Queiroz. These newer units include Tigre, which hired Lia Koser from Embraco to set up a new unit in December, Softplan’s Construtech Ventures led by co-founder Bruno Loreto, and Eurofarma’s head of M&A and corporate venturing, Marco Billi, who addressed the conferencei.
Above: Jayme Queiroz, Apex-Brasil
There are also more entrepreneurs to support. Apex-Brasil now tracks more than 10,000 entrepreneurs, up from about 5,000 a few years before. And some are increasingly valuable. Just after the conference closed, Nubank, a five-year-old, Sao Paulo-based financial services company, raised $180m from China-listed media conglomerate Tencent at a post-money valuation reported to be $4bn.
With corporate venturers increasingly supporting the innovation capital ecosystem through committing to venture capital funds as well as investing directly in startups and other partnerships and commercial arrangements, valuations and deal numbers are increasing.
Apex-Brasil tracked more than 80 venture deals with an average round size of R$11m last year, up 22% from the year before. With Brazil responsible for 45.7% of all deals in Latin America, the more vibrant innovation ecosystem in the continent’s largest economy and country is impacting the wider region, generating enough dry powder for local VCs to participate in more than 200 more deals, Apex-Brasil noted, excluding the higher amounts of foreign direct investment.
The events have helped bring more than 50 VC and CVC units to Brazil, with an increasing number, such as Monsanto, BASF, EDP and Mercardo-Libre, setting up local investment operations.
Others are starting with VC fund commitments before considering direct deal-making. Lutz Stoeber, investment director at Germany-based chemicals and advanced materials group Evonik’s CVC unit, in his third visit to the event, said its entry point into the market was likely to be as a limited partner in a local fund.
Above: Bruno Loreto, Construtech Ventures
Erik Pena, managing director at US-based Silicon Valley Bank (SVB), in the opening panel said it had committed to its first Brazilian fund, Monashees, three years ago, which was after a similar opening panel introduction by his colleague, Andy Tsao, at the first Corporate Venturing in Brasil conference. SVB manages $4.5bn in its fund of venture capital funds and direct deals through SVB Capital, but was also looking to increase the number of strategic deals conducted from its balance sheet to help the bank keep up with changes in the fintech sector. The objective with this third leg would be to serve clients better through digital onboarding and product improvements even if the startups taken on were disruptive to existing business units.
Others have moved further down the path in Latin America. Daniel Karp, director of corporate development for Israel and Latin America at Cisco Investments, also in the opening panel, said Cisco had made 35 investments, 13 M&A deals and committed to seven funds on the continent, with Brazil-based investment positions with Monashees and Redpoint eVentures. Other active foreign corporations in Brazil’s entrepreneurial ecosystem include Intel, Qualcomm, SoftBank, Naspers, Oracle, Microsoft, Visa, Mercedes-Benz and UPS.
Above: Lia Koser, Tigre
As well as Apex-Brasil’s matchmaking and development of inward investment and the local ecosystem, seen through more than 80 meetings for the international delegation of CVCs the day before this year’s corporate venturing conference, Brazil’s government has made increasing efforts to support entrepreneurs. The success of accelerator Cubo in Sao Paulo, backed by bank Itau among others, has encouraged state development bank BNDES to support a similar initiative being set up by Spain-based phone operator Telefónica and corporate-backed VC Liga Ventures in Rio de Janeiro. Earlier in the year, Liga Ventures teamed up with IT services firm Tivit and consumer goods company Unilever for corporate-backed accelerators.
BNDES was also helping fund the biggest local corporate venturing fund, managed by Peter Seiffert at Embraer, and was planning a smart city fund with international and local corporations next year, according to Fernando Rieche, manager at the bank.
To help the various parts of the innovation capital ecosystem to work together, Rieche, in a fireside chat with Seiffert, detailed a new scheme, the Garage, to help encourage business angels to back startups rather than keep their money in banks due to high interest rates.
Above: Erik Pena, SVB, and Daniel Karp, Cisco
Other government agencies are also considering how they can help, such as whether the regulator’s mandatory 0.5% of turnover from energy companies for innovation through R&D could be applied better if it could be invested in startups through corporate venturing. Ailson de Souza Barbosa, R&D energy efficiency superintendent at Aneel, the energy regulator, left the door open for such a move in his keynote speech. And such a move would be welcomed, with Ricardo Kahn, head of strategy and innovation at local utility ISA CTEEP, in the following panel noting that only about 2% of the allocated funds from the R&D tariff currently made its way to innovation projects.
However, with disruption identified across the economy – the conference focused on agriculture, healthcare, construction and energy – Brazil’s appeal as a source of innovation and large economy makes it attractive to investors.
Thais Souza, who joined BASF Venture Capital in Brazil in June, said the unit had spent a year exploring Latin America and BASF could enter the construction technology market as the industry has been rigid in its use of new technology and methods. CVC was decided as “important for us to get into construction technology”, she said.
Above: Thais Souza, BASF Venture Capital
Koser at Tigre said the group had started investing in startups outside its water and effluents core since December and identified 200 to 400 startups in construction technology.
Cassio Vidigal, head of EDP Ventures Brasil, the corporate venturing unit of Portugal’s main electricity utility, said its European venturing peer had made 20 investments over the past decade and it set up in Brazil because the country contributed 17% of group revenues.
The US, Israel and China are the outliers in terms of venture activity more broadly, including CVCs, but India, Southeast Asia and developed economies, such as Germany, the UK and Japan, have been increasingly active. Brazil has about 3% of global GDP, 200 million people, youthful demographics and abundant resources, but only 1% of global corporate venturing activity, according to GCV Analytics data.
Even if it is underweight compared with its global potential and lagging behind India and China as part of the so-called Brics countries, Brazil, Russia, India, China and South Africa – Russia, has been hampered by corruption and economic sanctions in the development of its innovation economy – there is a degree of confidence that the economic recession, political turmoil and strikes of the past three years are starting to pass.
These advantages may show why most Brazilian enterprises found attractive by corporate venturers were from the consumer, IT and transport sectors. And while the majority of disclosed deals have been early-stage, there have been some large later-stage investments recently, notably Naspers interest in e-commerce company Movile, and the country’s largest venture-backed exit, when Didi Chuxing acquired ride-ordering service 99 after Japan-based SoftBank invested $100m at the end of May last year following earlier funding rounds featuring Qualcomm Ventures.
But although Movile has an office in Silicon Valley, relatively few Brazilian CVCs have conducted international deals, perhaps understandably given the apparent relative market gap domestically. But this is also a potential opportunity for groups that can scan international markets for technology and ideas to bring back to Brazil in the way Bernardo Gradin, CEO of GranBio, went to California for intellectual property-rich assets to help develop his biofuels business.
Corporate venturing is regarded in Brazil as an agent of change. Alexandre Mosquim, consultant of global solutions and architecture at Votorantim Cimentos, in a fireside chat moderated by Rodrigo Menezes, partner at law firm Derraik and Menezes, said culture changed little by little even if CVC started small. Rodrigo Moreira, general innovation manager at Nexa Resources, the other side of the fireside chat, added that this cultural change – or clearing the kitchen as he described it – had to start even before bringing in the entrepreneurs.
Apex-Brasil represents about half the country’s 25,000 or so exporters but the government is hoping to increase this number to boost trade. However, privately, entrepreneurs at the conference complained that Apex-Brasil was one of the few “islands” of support in a government bureaucracy that created headwinds for entrepreneurs.
Alessandro Dantas, director of innovation and intellectual property at the Ministry of Industry, Foreign Trade and Services, said it was looking to change this perception and find ways to support corporate venturing and exports from corporations and startups. This could involve CVCs acting as catalysts of change for both parent and portfolio companies by connecting with their peers in the innovation capital ecosystem.
The country’s venture capital and private equity trade body, ABVCap, has started this process in a partnership with GCV’s annual Global Corporate Venturing & Innovation Summit in Monterey, California, on January 30-31, aiming to bring the representatives of the local and Latin American corporate venturing and innovation capital ecosystem to meet an expected 700-plus attendees from corporations representing about $6 trillion in aggregate revenues and about $200bn of venture assets under management.
But for Brazil to take its rightful place in the global ecosystem, its entrepreneurs need to follow in the footsteps of predecessors, such as IT company Stefanini, which now has more than $1bn in annual revenues, in tackling big markets and finding the capital and other support from its backers. There appears little shortage of them, judging by the pitches at the conference.
Above: Rodrigo Menezes of Derraik and Menezes, left, and Alexandre Mosquim of Votorantim Cimentos
In a session judged by Beatrice Bonnaud, chief project officer at WeHealth by Sevier, a digital health platform by France-based drugs maker Sevier, and Marco Billi, head of M&A and corporate venturing at Brazil-based Eurofarma, startups detailed their plans and execution so far.
Cesar Coelho, CEO at WeCancer, said its $50,000 of seed funding had already led to development of an application that was adding on average five months of life to oncology patients through a method of self-reporting adverse reactions to treatment.
Daniel Cisalpino, head of R&D at GNTech, said his startup had bootstrapped its turnover to $1.3m in the first seven months of the year compared from $178,000 in the whole of 2017 by selling its gene testing kit to patients. It was now looking for $2.5m to teach physicians how to use the tests.
Rafael Figueroa, founder of Portal Telemedicina, had raised a mix of money from 15 grants and corporate venturing backing from GV, conglomerate Alphabet’s venture capital arm, to offer people “unique access to quality healthcare” through remote analysis of symptoms by doctors. The lack of doctors close to where people live has been targeted by telemetry for 20 years, but Portal’s neural network offered pattern detection that doctors could then pursue by linking a wider range of medical devices to the cloud.
After Figueroa’s presentation, one coprorate venturer described how he had met investors and banks in Silicon Valley and had been pitched Portal as an opportunity, indicating the speed of the international community in picking up opportunities if the promise was high enough. And there has been enough promise to attract new investors, both corporate and independent, to Brazil and Latin America generally over the past year, in part due to a rise of exits creating opportunities for serial entrepreneurs.
After selling their ride-sharing startup, 99, to Didi Chuxing for $1bn last year, Ariel Lambrecht and Renato Freitas joined Eduardo Musa, who spent two decades in the bicycle industry, to start another Sao Paulol-based mobility startup, Yellow.The bike and scooter-sharing service raised a $12.3m seed round in April and then $63m in a subsequent round in September. This last round, led by VC firm GGV Capital in its first deal on the continent, was the largest series A round for a startup in Latin America.
Brazil’s challenge is in the throes of being solved. Setting up a venturing approach is not enough – how a country is connected to the global innovation capital ecosystem and uses its unique national, cultural and corporate strengths that defines the ultimate success. All the elements have started to come into place, and as the country emerges from recession, rather than at the top of the economic cycle, the question now will be whether promise becomes fulfilled through continued exertion and execution.
