There are two essential elements for any ecosystem developing its innovation capabilities – “awesome entrepreneurs” and the investors and service providers to help them develop.
At the third annual Corporate Venture in Brasil conference last month, both sets were increasingly on display as the hosts, Apex-Brasil in partnership with Global Corporate Venturing and a range of local institutions, showcased Sao Paulo and the country’s renewed optimism and confidence after its deepest-yet recession – a 7% drop in dross domestic product in two years – has passed.
Before the conference had officially started, Alan Leite, founder of the country’s oldest private accelerator, Startup Farm, was one of the presenters at Cubo networking space showing the international corporate venturing delegation why there has been so much excitement about its incubator model and partnerships with IBM and Visa among others. He said its focus on “awesome founders” was the secret.
A host of entrepreneurs were shown at the main conference, including InCeres Sistemas, Sensix, Fine Instrument Technology, EDB Poliois Vegetais, Chip Inside, Pipefy, Taquion Inovacao, Lincare, Take, Omie, Configr, Resultados Digitais, HiTech Electric, Scipopulis, DLieve, Intelipost and Tbit.
This international delegation looking at the startups and meeting the local investors included Pablo Moro Casquete, manager of strategic partnerships at Telefónica Open Future, Markus Solibieda, managing director at BASF Venture Capital, Nolan Paul, head of R&D strategy and emerging technology at Driscoll’s, Dan Phillips, managing director at Cultivian Sandbox, Bernardo Nogueira, venture partner at Monsanto Growth Ventures, Ignacio Estivariz, head of corporate development at MercadoLibre.com, Amit Garg, venture capitalist at Samsung Next, Rimas Kapeskas, managing director at UPS Strategic Enterprise Fund, Roberto Picchi, general manager of Visteon, and Lutz Stoeber, investment director at Evonik Venture Capital, while SAP, IBM, Oracle, Mahle, Silicon Valley Bank and Qualcomm joined the international corporations speaking at the conference.
In an opening address on the first day, Marcia Nejaim, director at Apex-Brasil, summed up the expectation that “Brazil is on a growth path”.
The conference’s focus in its third year was on turning the interest in open innovation and corporate venture capital into practical action to help.
Carlos Kokron, managing director at Qualcomm Ventures in Latin America, did just that. The pioneer of corporate venturing in Brazil, shared his near-20 years of wisdom and experience as the first keynote at the conference. With six unicorn exits – those worth at least $1bn – in six years, half outside the US, Qualcomm Ventures has been on a roll, and with 130 active portfolio companies more could be coming. Brazil makes up more than 10% of its global portfolio – 15 to 16 deals – including the hot 99, which has just raised $200m from SoftBank and Didi Chuxing, Mandae, Impresse, Strider, IguanaFix, WebRadar, Memed, Loggi and Quintoandar. From an environment when Kokron started with few qualified entrepreneurs and VCs, Brazil today has 50 VC firms, more than 24 active corporate venturing units and serial and world-class entrepreneurs in a solid support system reaping the benefits of the democratisation of information and communication technologies, Kokron said.
Brazil’s National Bank for Economic and Social Development (BNDES) has done much to support this development. Gabriel Gomes, head of venture at BNDES, gave his insights from the country’s, and continent’s, largest limited partner in venture capital funds – it has 20 venture fund commitments and three to CVCs.
Gomes said the regulator, Securities and Exchange Commission of Brazil, was making changes to allow BNDES to invest directly in limited liability companies – younger businesses – not just corporations, in which BNDES has $30bn of equity tied up, so people could expect to see more focus on innovation and tech, and joining up the ecosystem.
Gomes said new BNDES-backed funds included Criatec, Primatec, SP Ventures and an angel co-fund expected to be agreed this month.
And with Brazil’s Ministry of Industry, Foreign Trade and Services at the conference, through its innovation and new businesses and transport departments, there was plenty to discuss about how regulations could be changed to support corporate venture investment while still “putting people first”.
The tension to satisfy public pressure ahead of presidential elections expected next year – in which João Doria, the mayor of Brazil’s largest city, Sao Paulo, could be a contender – and in the aftermath of corruption scandals, some attendees were optimistic that there would be more “room for startups” and improvements to the business environment through eased labour regulations rather than “going down the Venezuela route”.
To avoid this latter risk, Apex-Brasil has laid out clear goals to increase exports, by making local corporations more international, and inward investment, through opening domestic markets with a strategy of using open innovation and venture capital rather than fiscal incentives as a driver.
In the first half of last year, the Harvard Business Almuni Angels Brazil surveyed 64 corporations on their venturing strategies and identified 40 local businesses and found the top performers were those that most closely engaged with its corporate parent’s top leaders. However, dealflow to them has been nascent, according to GCV analytics (see Brazil corporate venture: a quick graph summary).
Even so, 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 June, Raízen, one of the largest producers of sugar and ethanol in Brazil, launched startup accelerator 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 Analytics, 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 international groups, such as Qualcomm, Intel, Naspers, Bertelsmann and MercadoLibre have been relatively more active.
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.
Andy Tsao, managing director at Silicon Valley Bank, moderated the Corporate Venture in Brasil 2017 conference’s first panel, consisting of MercadoLibre, Telefónica and BASF, to gain their insights on international investing and why Brazil was attractive.
BASF’s Solibieda said Brazil was its second-largest market for agriculture but of perhaps more interest to its corporate venturing unit was the new business models its entrepreneurs were developing. This, rather than technology, was the big value driver.
In a similar way, BASF Venture Capital was closing its Hong Kong and Japan offices in favour of opening one in Shanghai, China, as the country was changing the way the chemicals industry’s value chain was operated. He said: “China does not care how business has been done elsewhere in the world as the past 20 years of growth has been from domestic expansion and exports.”
Similarly, Estivariz of MercadoLibre pointed to China rather than the US as its closest peer for learning about corporate venturing and its strategic direction. MercadoLibre’s corporate venture capital strategy was born in 2013 after its parent opened up its e-commerce platform the year before as a way of “sharing it with the world” by encouraging partners to use it, Estivariz said.
A few days earlier, Jeffrey Li, managing partner at Tencent Investment, had told the GCV Asia Congress in Hong Kong its own CVC approach had started at the end of the last decade after its WeChat platform was opened up to more partners.
MercadoLibre had now made about 20 investments, Estivariz said, of which about half were in its home country of Argentina and about five in Brazil, where it was looking to hire an investment manager and which was its main market. Estivariz said: “Corporate venturing helps the company build and enhance the e-commerce experience in Latin America and expand into new areas, such as shipping and lending.”
He said the group was looking to move from the seed stage, investing about $100,000 per deal, to A rounds with up to $1m cheques.
Moro Casquete of Telefónica said Open Future had also primarily written $100,000 cheques to own 5% to 10% of a startup’s equity, while also having later-stage and fund capabilities.
Spain-based Telefónica has been one of the most active CVCs, particularly in Latin America but increasingly in China as well as Europe, and this issue about where and how to prioritise opportunities in a global world was captured in Amit Garg’s keynote on the first day of the conference. Garg, who grew up in Brazil before moving to the US to attend university and staying on in Silicon Valley, said Samsung Next, one of the South Korea-based conglomerate’s three CVC units, was focusing its $150m funding on software deals and was considering investing in Brazil, but had to consider whether it was better than opening offices in Bangalore, India or Beijing, China.
Although, as GCV Analytics and PitchBook data shows, CVCs were more likely than VCs to invest outside their home country, the world was still a big place and gaining attention and action was a challenge requiring a world-class approach and execution.
Garg said 80% of its 80 deals so far had been in the US, with about 20% in Israel.
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.
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.
Robert Linton and Cristian Nascimento, investor relations and project manager respectively for ABVCap, ran two sets of VC pitch sessions at the Corporate Venture in Brasil conference to help international firms identify the best local managers, including Astella Investimentos, Cedro Capital, Redpoint e.Ventures, MSW Capital and Inseed Investimentos.
But those that have directly invested the time in the Brazilian ecosystem, such as SAP and IBM, had reaped rewards. In a fireside chat involving Claudio Bessa, head of ecosystem development unit for IBM Latin America, and Startup Farm’s Leite, they talked about why IBM was the accelerator’s oldest relationship going back to 2011. Bessa said the relationship had evolved over time and it was using its artificial intelligence platform Watson to help Startup Farm filter the 1,043 applications to its IBM Ahead program down to eight by using data on successful entrepreneurs globally. Leite added that following such successful track records, he expected other corporations to become closer to startups as the next step in the Brazilian ecosystem’s development, having signed up Visa among other partners.
These corporations are targeting the main pillars of Brazil’s economy, such as agriculture, transport, fintech and healthcare, with the second day of the conference focused on detailed insights on the first two sectors, including data presentations by GCV Analytics (see Insights into the transport revolution).
Agriculture has been a mainstay of Brazil’s economy but a number of mega-trends are affecting the industry, according to Nogueira of Monsanto Growth Ventures, including consolidation, as its parent is being acquired by Germany-based Bayer, while ChemChina buys Syngenta and Dow and DuPont merge.
Nogueira said megatrends concerning the use of data and technology to improve yields and use less fertiliser and pesticide would be important to feed the growing population, while Paul of Driscoll’s said the US-based berry company was more focused on tech to aid workers in the field, or vertical farming that could disrupt supply chains by bring produce closer to city markets.
Transport and logistics is a $100bn a year industry in Brazil’s economy. Jose Gelencsir, head of sales at Mahle Metal Leve, in the final keynote, described how his company was going from a cargo ship to a speed boat in its interactions with startups by learning, pivoting and experimenting.
If the third annual conference was a fast tour of the ecosystem and its development, then attendees took away plenty of ideas and contacts to develop into business.
Disclosure: GCV was paid to advise and support the Corporate Venture in Brasil conference in the third year of our partnership with Apex-Brasil.