The fourth annual Corporate Venture in Brasil conference organized by government agency Apex-Brasil in partnership with Global Corporate Venturing (GCV) was the most popular yet with 700 applications and 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 venture capital (CVC) units, according to Jayme Queiroz, investment manager at Apex-Brasil, in his closing remarks to the first day of the conference. And the trend is picking up.
From a handful of local CVCs in 2016, such as 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 mergers and acquisitions (M&A) and CVC, Marco Billi, who all spoke the conference following on from prior years’ speeches by Movile, Raizen, Porto Seguro, Natura, Positivo, Embraco, Algar, RBS, Totvs, AES, Agerio, Votorantim, Bradesco and Stefanini.
In turn, there are 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, São Paulo-based financial services company, raised $180m from the China-listed media conglomerate Tencent at a post-money valuation of a reported $4bn.
With CVCs increasing supporting the overall 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 also increasing.
Apex-Brasil tracked more than 80 venture deals last year with an average round size of R$11m, 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 and enough dry powder to do at least 209 more deals by local VCs, 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 by VC fund commitments before considering direct dealmaking. 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 would likely be as a limited partner in a local fund.
Likewise, 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 the similar opening panel introduction made by his colleague, Andy Tsao, at the first CV 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 its strategic deals done from its balance sheet to help the bank keep up with changes in the financial technology (fintech) sector. The objective with this third leg would be to better serve clients 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 (LatAm). Daniel Karp, director of corporate development for Israel and LatAm at Cisco Investments, also in the opening panel said it had made 35 investments, 13 M&A deals and committed to seven funds in the continent, with Brazil-based LP positions also including Monashees and Redpoint e.Ventures. Other active foreign corporations in Brazil’s entrepreneurial ecosystem include Intel, Qualcomm, Softbank, Naspers, Oracle, Microsoft, Visa, Mercedes-Benz and UPS.
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 at Cubo the day before this year’s corporate venturing conference, Brazil’s government have 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 Telefonica and corporate-backed VC Liga Ventures in Rio de Janeiro. Earlier in the year, Liga Ventures had teamed up with IT services firm Tivit and consumer goods company Unilever for corporate-backed accelerators.
BNDES was also helping fund the biggest local CVC fund, managed by Peter Seiffert at Embraer, and was planning a smart city fund potentially with international and local corporations next year, according to Fernando Rieche, manager at the national bank of development.
To help complete the various parts of the innovation capital ecosystem to work together, Rieche in a fireside chat with Seiffert, also laid out its new scheme, the Garage, to help encourage business angels to back startups rather than keep their money in banks or interest rates due to high interest rates.
Likewise, other government agencies are considering how they help, such as whether the regulator’s mandatory 0.5% of turnover from energy companies for innovation through research and development (R&D) could be better applied if it was allowed to be invested in startups through CVCs. 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 corporate venturing unit had spent a year exploring Latin America and how BASF could enter the construction technology (contech) market as the industry has been rigid in its use of new tech and way of doing things. CVC was decided as “important for us to get into Contech,” she said.
Similarly, Koser at Tigre said the group had started investing in startups outside of its core in water and effluents since December and identified 200 to 400 startups in Contech in the country.
Cassio Vidigal, head of EDP Ventures Brasil, the corporate venturing unit of Portugal’s main electricity utility, said its European CVC peer had made 20 investments over the past decade and it decided to set up in Brazil because the country made up 17% of group revenues.
The US, Israel and China are the outliers in terms of venture activity more broadly, including CVCs, but India, south-east Asia, as well as developed economies, such as Germany, UK and Japan, have been increasingly active. Brazil has about 3% of the global GDP, 200 million people and youthful demographics and abundant resources, but only 1% of global CVC activity, according to GCV Analytics data.
Even if it is still underweight compared to its global potential and lagging behind India and China as part of the so-called Brics quartet, (the fourth, Russia, has been hampered by corruption and economic sanctions in the development of its innovation economy,) there is a degree of confidence that the deep economic recession of the past three years and political turmoil and strikes are starting to pass.
These advantages perhaps show why the majority of Brazilian enterprises that CVC investors found attractive came from the Consumer, IT as well as Transport sectors. And while the majority of disclosed deals have been early-stage, there have been some large, later-stage ones recently, notably for Movile by Naspers, and the country’s largest venture-backed exit, when Didi Chuxing acquired ride-ordering service 99, notably after Japan-based Softbank invested $100m in at the end of May last year following earlier funding rounds from Qualcomm Ventures.
But although Movile has an office in Silicon Valley, relatively few Brazilian CVCs have done 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 up to California for IP-rich assets to help develop his biofuels business.
CVC is regarded as an agent of change within the internal culture. 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 cultured 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 of the country’s 25,000 or so exporters but the government is hoping to grow 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 to entrepreneurs.
Alessandro Dantas, director of innovation and intellectual property at the Ministry of Industry, Foreign Trade and Services of Brazil, said it was looking to change this perception and find ways to support CVC and exports from corporations and startups. This could involve CVCs acting as catalysts of change for both parent and portfolio companies through connecting into 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 conference in Monterey, California on 30-31 January to bring the local and LatAm CVC and innovation capital ecosystem up to meet an expected 700-plus attendees from corporations representing about $6 trillion in aggregate revenues and about $200bn of venture assets under management, judging by this year’s Global Corporate Venturing and Innovation Summit.
But for Brazil to take its rightful place among the global elite requires its entrepreneurs following in the footsteps of predecessors, such as Stefanini, which now has more than $1bn in annual revenues, in tackling big markets and finding the capital and other support from its backers to succeed.
There appears little shortage of them, judging by the pitches at the conference.
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 venture at Brazil-based Eurofarma, the startups led through their plans and execution so far.
Cesar Coelho, CEO at WeCancer, said its $50,000 in seed funding had already led to development of an application that was adding on average five months of extra life to oncology patients through a method of self-reporting adverse reactions to treatment.
Similarly, Daniel Cisalpino, head of R&D at GNTech, said the startup had bootstrapped its turnover from to $1.3m in the first seven months of the year compared to $178,000 in the whole of 2017 by selling its gene testing kit to patients taking medications and wanting to check there was a match. It was now looking for $2.5m to better educate physicians on how to use the tests.
And Rafael Figueroa, founder of Portal Telemedicina, had raised a mix of money from 15 grants and corporate venturing backing from GV (formerly known as Google Ventures as a CVC unit within the Alphabet conglomerate) to offer people “unique access to quality healthcare” through remote analysis of symptoms by doctors. This medical desertification – or lack of doctors where people live – has been targeted by telemetry for 20 years but Portal’s neural network offered pattern detection that doctors could then follow up on by linking a wider range of medical devices into the cloud.
One CVC after Figueroa’s presentation described how he had been up in Silicon Valley meeting investors and banks and had been pitched Portal as an opportunity, indicating the speed of the international community to pick up opportunities if the promise is high enough. And there has been enough promise to attract new investors, both corporate and independent, to Brazil and LAtAm generally over the past year, in part due to a rise of exits creating opportunities for serial entrepreneurs.
After selling their ridesharing startup, 99, to Didi Chuxing for $1bn last year, Ariel Lambrecht and Renato Freitas joined with Eduardo Musa, who spent two decades in the bicycle industry, to start another São Paulo, Brazil-based mobility startup, Yellow.
The bike- and scooter-sharing service, raised a $12.3m seed round in April and then $63m in it’s a round in September. The 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.
This has been part of Brazil’s challenge that is being potentially solved – setting up a venturing approach is not enough, it is how a country is connected to the global innovation capital ecosystem and uses its unique strengths as a country, culture and corporation that decides the ultimate success. All the elements for success have started to come into place at the same time 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 exertions and execution.