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 the board level among many corporations.
Brazil’s state development bank 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 Corporate Venture in Brasil event.
Their C-suites’ starting positions were not encouraging. As Leonardo Pereira, head of investment funds at BNDES, said in his opening keynote to the conference: “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.
“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 innovation capital ecosystem into the global one.
Similarly, 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 with others in this world 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 and 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.
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 into businesses. The Aerospace fund has already 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.
The highly-impressive Pereira said CVC fitted its strategy of fostering open innovation, strengthening supply chains and anchor companies and supporting micro, small and medium-sized enterprises (MSMEs) and enlarging the investor base.
Local 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 draw-downs. 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 tirelessly working 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 talked about how Naspers, which owns a bit more than 60%, and its other investors had encouraged its rapid growth.
He said: “Naspers had 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 [mergers and acquisitions].
“Naspers has been on our board and this has been very inspiring.”
Bloisi described how it 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 the technological changes through capital investment, focus on data and 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 though beer and parties but offering a meritocracy, bonuses and good pay were more important. His good was to take Movile from 14th as the best place to work to first, second or third.
Culture and devolved hierarchy gave Movile the ability to try ideas, track the data and iterate and try new ideas. People were sacked not for failure but for not learning and trying the same things again he explained in his question-and-answer session.
Effectively, he said that 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 10-20%, had given it the resources to then invest in the ideas, such as buying delivery service IFood and then seven bolt-on acquisitions that showed the growth to try and become a $10bn company.
A truly inspiring vision for his local and international peers and a great end to Apex-Brasil’s first “Corporate Venture in Brasil” event. See you at Global Corporate Venturing’s next summit in Sonoma, California, on 26-27 January and for ideas, feedback and suggestions for next year’s Brazil event and the professional society launch, please contact me at jmawson@mawsonia.com