Day 1
Like a stone’s impact on a still pond, it is hard to see how far the ripples will go, but after the first day of the Corporate Venture in Brasil 2016 conference it is clear the government’s Apex-Brasil trade and investment promotion agency has helped spark a substantial change in attitude and understanding about how corporations can support the innovation capital ecosystem.
Everson Lopes, managing partner of co-creation site Hive Brasil, over dinner – sponsored by Silicon Valley Bank and law firm Derraik & Menezes Associados – after his keynote on the first day said: “Do not underestimate the impact the first event 12 months ago has had in Brazil. Through these Corporate Venture in Brasil conferences, corporations here now know about how to go about developing venturing as part of an innovation strategy.”
At the time of the inaugural conference in October last year, Brazil’s state development bank BNDES had visited 20 corporations over the previous few months to discuss the issue of corporate venturing and held a breakfast meeting for 50 CEOs and chief financial officers at this event.
Their C-suites’ starting positions then were not encouraging. As Leonardo Pereira, head of investment funds at BNDES, said in his opening keynote to the 2015 conference: “Many of the boards did not know about open innovation or corporate venturing.”
This, therefore, has begun to change. Working with Global Corporate Venturing as partner, Apex-Brasil had more than 500 registrations for its second conference this month, including more than 100 from international corporations active or considering investing in the country, such as Microsoft, Google, BASF, Siemens, SAP, Bosch, Evonik, Applied Materials, UPS, Yamaha and Qualcomm.
International corporate venture capital groups, such as Monsanto, Qualcomm, Naspers and Microsoft, have invested more in Brazil over the past year, including Qualcomm Ventures joining the $40m round for Webradar, $3m in Strider and the $10m round for Mandâe, International Data Group backing the $110m round for Farfetch, and Naspers investing $40m in Movile.
Brazilian corporations and subsidiaries of foreign businesses have opened innovation and acceleration programs, including Accenture, AES Brasil, Bradesco, BASF, Ericsson, Grupo Algar, Gerdau, Masisa, Senior Sistemas, Porto Seguro, Mastercard, Visa and Telefónica Vivo, according to Apex-Brasil.
Jayme Queiroz, investment director at Apex-Brasil, in his closing remarks to the first day of the conference said it was tracking 120 Brazilian corporations “interested in corporate venturing”, a more than 50% increase in the past 12 months.
While few corporations have set up specific funds, Queiroz said these 120 corporations were looking at how open innovation through partnering, accelerators and corporate venture capital could complement their other strategies.
Larissa Macedo, innovation manager of Algar Agro, the agriculture subsidiary of the Brazil-based conglomerate, gave the final keynote on the first day of the conference explaining how her company was allocating the majority of its earnings before interest, tax, depreciation and amortisation (ebitda, a metric of free cash in a company) for “innovation”. This year, the company set up Algar Ventures with R$291m ($93m) to invest in entrepreneurs either as minority direct investments in early-stage companies through accelerators, or indirectly as a limited partner (LP) in VC funds, she added.
At about the same time, Brazil-based insurer Porto Seguro had started Porto Capital. Its first fund, Porto Edge Growth I, has R$400m of capital to invest primarily in medium-sized companies with revenues between R$50m and R$150m.
In the summer, Vinícius Scaramel, then CEO of Brasil Ventures, a corporate-backed accelerator and VC, and this month the new innovation manager at construction supplier InterCement, had, in partnership with Apex-Brasil, surveyed 68 corporations about their views on innovation and investing in and working with startups. Scaramel said there had been a 16 percentage point rise in the number of corporations investing in startups.
In 2015, 59% of respondents had invested in no startups, but this year the number had fallen to 43%, with a commensurate rise in the number of corporations investing in one to five startups. And the models used to make these investments are increasingly world class.
Peter Seiffert, head of corporate venture capital at Embraer and on the advisory board of Global Corporate Venturing’s Leadership Society, alongside Wendell Brooks, president of Intel Capital, Sue Siegel, CEO of GE Ventures, and Jeffrey Li, managing partner of Tencent Investments, has in the past year made five investments through the FIP (Fundos de Investimento em Participações) Aeroespecial fund managed by a third party, William Coura, managing partner at PortBank. The most recent deals included cybersecurity companies Clavis and Tempest, which raised R$4.5m and R$21.6m respectively from the Aeroespecial fund, according to GCV Analytics data.
In an on-stage discussion involving Seiffert, Coura and Lincoln Mattos, CEO of Tempest, the portfolio company explained how its investment had been “an opportunity to have Embraer as a client but also as a research partner”.
Mattos added the key challenge that Tempest faced in making the model a success was “being able to navigate the Embraer structure and access the right decision-makers and strategic knowledge, and hence accelerate itself in the market”.
Similarly, an onstage discussion with Marc Puskaric, managing director of Bertelsmann Brazil Investments and head of the Germany-based media group’s corporate centre in Brazil, Guilherme Carlos, partner at VC firm Bozano Investimentos, and Thiago Feijão, CEO at portfolio company QMágico, moderated by Maria Isabel Moretti de Miranda, M&A director at Bertelsmann Brasil, looked at the interplay between a cornerstone corporate LP in a VC fund and how the two could help the entrepreneurs.
Feijão explained how Bozano’s founder had built the firm on understanding “the building blocks of the education ecosystem” and that “this thesis connects every portfolio company”. These 15 companies through the VC fund then work on delivering value for all the others.
But by having Bertelsmann as the cornerstone LP in Bozano, this education ecosystem can then link into Bertelsmann Investments’ global venture ecosystem, which is also set up to share insights across geographies and market insights, Puskaric said. Feijão gave the example of Bertelsmann’s investment in education company Udacity, explaining how both companies had similar models, which created opportunities to learn from each other. Puskaric said that, from Bertelsmann’s perspective, using venture as a tool enabled the business to explore which of the new technologies disrupting education could be potential winners without losing focus on the core business.
This insight into why a firm is exploring venturing was at the core of a successful strategy, according to Flavio Pripas, director of the Cubo co-working space developed by Brazil-based Banco Itaú a year ago, and André Barrence, head of US-listed search engine provider Google’s Campus Sao Paulo co-working site set up in June. In their fireside chat, Barrence said understanding why you want to engage with startups is the first step, and Pripas agreed, adding: “There is no one-size-fits-all model.”
Pripas said in its first year it had been “working closely with corporations [as well as Itaú] and teaching them to work with startups”. In its first year it had helped startups close more than 100 deals with corporations.
Jesper Rhodes, chief marketing officer for Latin America at telecoms equipment supplier Ericsson, and Renato Valente, country manager for Brazil at Telefónica Open Future, in another fireside chat explained how their crowdworking collaboration had helped students and entrepreneurs at the technical university Inatel.
And, ultimately, investors and an ecosystem can thrive only when the entrepreneurial talent is there. In pitch sessions judged by corporate venturers Lutz Stoeber, investment director at Evonik Venture Capital, and Michael Stewart, principal at Applied Ventures, four Brazilian entrepreneurs showcased their companies.
The polished performances by BR Photonics, Solum, Sunew and Nano Vetores reflected well on the training provided by experts Michelle Messina and Jonathan Baer, authors of this year’s book Decoding Silicon Valley, over the previous day and weeks beforehand.
The investors noted how the calibre of entrepreneurship had grown markedly over the past few years, along with the expertise and widening pool of investors.
The ripples from the second day of the conference are likely to spread even further.
Day 2
The second day of the conference opened with further positive insights from Brasil Ventures’ survey of 68 corporations’ open innovation and venturing interests and approaches, as 77% said they had been developing relationships with startups in the past year.
With more than half (57%) having acquired a smaller company, the attitude of senior executives to entrepreneurs has improved over the past year, but the challenge remains gaining dedicated budget to invest in startups and CEO buy-in to do more, as only about half were currently involved, Arthur Garutti, managing director of Brasil Ventures said.
As understanding of best practices in innovation strategies spreads, it becomes easier to convince executives in other companies. Bruno Vath Zaperlion, technology and innovation director of the Brazilian-German Chamber of Commerce (AHK Brazil), moderated the a panel with BASF, Siemens and SAP on how to develop these first steps on innovation and working with startups. The conclusion was, understandably, it was important to “spread the philosophy of innovation to other companies and prove that Brazil is capable of doing this”.
Given the speed of change and the best practice examples developed by groups as diverse as Stefanini, Embraer, Itau, AES and Movile, the bigger potential for Brazil’s ecosystem is to take their differing approaches and showcase how others can replicate them easily.
Brasil Ventures already has 120 corporations in its network and remains one of the world’s most sector-diversified accelerators. MSW Capital, a multi-corporate venture fund, already had Monsanto, Microsoft and Qualcomm as investors but this month added local bank Banco Votorantim, according to Moises Swirski, executive partner at MSW, and Franklin Luzes, chief operating officer at Microsoft, in a fireside chat at the conference.
Ricardo Kahn, innovation manager of AES Brasil, the electricity utility subsidiary of US-based AES, said it was particularly important in its industry closely to follow the model already set up. AES Brasil sponsored the accelerator run by Liga Ventures, co-founded by Daniel Grossi, but, in agreement with energy regulator Aneels, used part of the official requirement to set aside 1% of revenues for research and development to fund the external innovation pipeline. Rather than take equity stakes in the accelerator’s startups, AES Brasil helped fund these startups’ development projects. Then both sides could share in the intellectual property developed and the startups could have potential customers and a business.
Kahn said five other utilities were looking to follow suit but would have to find other accelerators to use as it had the exclusive deal with Liga on energy.
With 120 local corporations developing venturing strategies, Brazil effectively has an opportunity to join up its entrepreneurial ecosystem with companies, universities, angels and VC funds supporting entrepreneurs and invigorating larger businesses and incumbents, and all with appropriate government backing.
After political change earlier in the year, participants at the conference were hopeful the new government’s “market” focus and attention on economic growth would pay off. BNDES insiders at this year’s conference said there was already more focus on supporting venture capital. BNDES in May said it had selected five VC managers to share in a R$1.2bn commitment.
Ferando Rieche, department of funds manager in the capital markets division of BNDES, in his keynote address at the conference, said it would commit a further $500m to new funds in the next two years.
BNDES was particularly interested in early-stage entrepreneurs, he said, and was looking to include other investors. BNDES is examining developing a pre-seed fund, as well as one for the Amazon region, and the bank committed to the Criatec III fund, to which local financial services corporation Valid had also committed. Similarly, it had committed R$40m to the FIP Aeroespecial fund, in which Embraer had invested the same amount, and the Bozano fund cornerstoned by Germany-based publisher Bertelsmann.
Rieche said it was also planning to commit to Vox Capital’s second impact venturing fund.
Julia Profeta, investor relations head at Vox, said the firm raised R$84m for its first fund in 2012 and made 10 investments in startups targeting social and environmental goals, including ToLife and Avante. Vox’s performance fees – called carried interest – have a novel structure to only pay the full 20% on profits made if it meets both a minimum 4% annual rate of return and impact, as measured by external consultancy EIIRS. Although there might be large needs at the so-called base of the pyramid, with 112 million Brazilians earning less than $9 per day, Profeta said it was an “illusion” to think there were investment-ready entrepreneurs available and its portfolio companies had required support.
However, once the company is given this support the market potential could be significant. Bernardo Bonjean, founder and CEO of Avante, in his discussion with Profeta, said whereas the typical bank approved only 2% of these micro-credit applications and suffered a relatively high default rate, Avante approved 63% of applications and had only a 2% default rate.
Similarly socially inspired, Bodo Wiegand, member of the research staff at Netherlands-based healthcare company Philips’ Brazil subsidiary, said it was targeting people before as well as when they became patients or in need of care. Wiegand noted that half of Americans would live with a chronic disease by 2020 costing about $4.5 trillion. As a result, he said Philips was focused on using data and technology to help people develop healthy living habits, prevent illness and only then provide diagnosis, treatment and home care to support those who become ill.
The final inspiration of the conference came from Spain-based phone operator Telefónica. Cristiano Yazbek, business strategy director of its Vivo division, laid out how Telefónica’s Open Future programme had rapidly expanded both its range of venturing strategies and scale of commitment.
Set up in 2006, its corporate venturing unit, Telefónica Ventures, had invested in 19 deals in the US and Israel with four exits, but its accelerators had been far more active. Its Brazil-based accelerator, formed in 2012, has had eight batches with 58 graduating and with aggregate annual revenues of R$58m, while overall Telefónica has 693 portfolio companies with €155m ($170m) invested. In addition, it has provided a host of other services, including entrepreneur education since 2011, made eight limited partner commitments since 2012 and developed crowdworking spaces since 2014.
Such examples of development and globalisation were inspiring as attendees said they were keen to learn more from international peers and eventually engage more by investing overseas. There is some progress to be made here, as Global Corporate Venturing’s data tracked only two international investments made by Brazil-based corporations in the previous five years.
Day 3: Automotive sector insights
A suitable headline for the discussion in a sector workshop developed by Apex-Brasil could well be “future-proofing an industry riding a wave of disruption”. That, indeed, was the title of a keynote presentation by Rimas Kapeskas, managing director of US-based delivery company UPS’s Strategic Enterprise Fund, during the conference.
Kapeskas said, to a corporation, venturing could look like outsourced research and development, with the 38,000 early-stage venture deals just experiments and opportunities to learn from what works and what fails.
By investing in startups UPS could learn from, Kapeskas said it helped the corporation even if the technology was still to be used. He gave the example of radio-frequency identification (RFID), in which his fund had backed four startups but whose technology had yet to be used by UPS because the latency or time delay in tracking had failed to keep up with the pace that UPS moved items.
In another area of interest, Kapeskas said drones were an interesting space, but with heavy regulations in many countries it had turned to Rwanda to trial the systems by offering to deliver life-saving education to rural areas.
The following day, Jay Onda, venture partner and director of strategic investments at Japan-based motorcycle maker Yamaha’s corporate venturing unit, picked up the drone theme. Onda said Yamaha, which makes a small helicopter for spraying crops and delivering larger payloads, had initially regarded drones as little more than toys but quickly realised they could be a potential disruptive threat.
Through ventures, however, they realised drones could be complementary by more cheaply and efficiently swarming round an area to pick weeds or look at micro-conditions ahead of spraying. As a result, Yamaha has developed a technology to help these drones be coordinated and fly safely.
Other vehicle makers and their original equipment manufacturers (OEMs) have also been following suit to set up corporate venturing programmes, according to Global Corporate Venturing data prepared in a report published at the event.
Ebru Semizer, head of market intelligence and sales projects for trucks and buses at Germany-based Mercedes-Benz’s Brazil subsidiary, announced it would be the first sponsor for an automotive-focused accelerator in the country run by Rogerio Tamassia, co-founder of Liga Ventures.
In a preceding panel, Semizer, along with Bruno Bragazza, innovation, intellectual property and new business manager at car parts maker Bosch’s Latin American subsidiary, and Alexandre Brunaldi, sales director for global OEM accounts at chip maker Qualcomm, discussed how automotive companies could look for solutions in the market besides relying on R&D to innovate.
Their main recommendation was for corporations to engage more with startups. This was eagerly received by the audience and subsequent pitch session by entrepreneurs from Automobi, Nexer, Virtual.Pyxis and TruckPad.
TruckPad, which helps independent hauliers find payloads, had already raised $4m last year in a round including corporate venturer Movile and was looking to raise a further $4m to continue its development over the next 18 months.
TruckPad, along with peers showcased in earlier pitches, such as Sunew, BR Photonics and Nano Vetores, had been among the most eagerly-followed by the corporate venturers at the event. u
Guest comment: New rules in Brazil
Alexei Bonamin, partner, TozziniFreire Advogados
On August 30, the Brazilian Securities Commission issued Instruction 578, which provides for new rules regarding the formation, management, and operation of private equity funds – the so-called Fundos de Investimento em Participações (FIPs), as well as Instruction 579, which addresses the preparation of FIPs’ financial statements and outlines the accounting criteria for recognition, classification, and measurement of assets and liabilities.
Instruction 578 results from lively discussions between the commission and Brazil’s marketplace aiming at improving the former Instruction 391 and brought important changes to the final wording of the rules, which are now closer to international industry standards and more consistent with the market’s operational practice.
These are some of the highlights of Instruction 578:
• Now FIPs can invest in non-convertible debentures up to 33% of the subscribed capital, and may advance funds for future capital increases to an invested company.
• FIPs were classified as seed capital; emerging companies; infrastructure; intensive economic production in research, development and innovation (FIP-PD&I); and multistrategy. Each category presents its own investment policy. For example, the seed capital and emerging companies types allow investment in limited liability companies, which is vital for entrepreneurship development in Brazil, as it facilitates funding of startups and early-stage companies. Also, the multistrategy FIPs may combine investments across several categories.
• The possibility of investing abroad up to 20% of the subscribed capital – 100% for multistrategy FIPs targeting professional investors.
• Additional alternatives for granting specific economic and financial rights to FIPs’ different classes of quotas.
• Detailed roles and responsibilities of FIPs’ administrators and managers.
In its turn, Instruction 579, among other highlights, provides that FIPs must value their assets and liabilities by using their fair value.
Finally, these new rules are effective immediately. Existing FIPs must comply with the changes arising from Instruction 578 by August 30 next year. In case of a new public offering of FIPs’ quotas, FIPs must immediately comply with the changes from Instruction 578. Furthermore, FIPs’ financial statements must comply with the criteria in Instruction 579 from January 1.
Brazil fact box
$1.775 trillion GDP (2015)
Urbanisation rate of 86%
207.8 million people; median age 29 years
No religious or ethnic tensions
At least 68% of the population at working age
36% net public indebtedness as a percentage of GDP (2015)
2nd for regulatory changes, according to the Latin America Private Equity & Venture Capital Association (2015-16)
New CVM regulations (578 & 579) promote Brazilian funds and portfolio companies
4th largest agricultural products exporter (2014)
5th largest consumer market
5th largest internet population with 139.1 million users
7th largest world economy
8th in global ranking for foreign direct investments at $64.7bn, 4% of global total (2015)
9th largest automotive producer (2016)
300-plus incubators and 30-plus accelerators
Estimated 120 corporate venturing units
94 science parks
40 venture capital firms with R$153.2bn in committed capital
1,500-plus portfolio companies
4,200-plus startups
60-plus private equity-backed flotations
Sources curated by Apex-Brasil
