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3 July 2017

Editorial: Brazil breezes through macro headwinds

Over the past few weeks and months, the country has seen positive headlines for large deals, venture fundraising and corporate innovation initiatives.

Author: James Mawson, editor-in-chief

There seems to be a moot point about how much the macro political and economic environment should or could impact the innovation capital ecosystem. Judging by resilient venture capital funding levels in places such as Brazil it would appear to be relatively little.

While Russia’s venture capital market has fallen sharply in the face of headwinds after the fall in the oil price and economic sanctions, Brazil has been more resilient in entrepreneurial finance.

Brazil has the eighth-largest economy in the world by projected gross domestic product and is the biggest in Latin America. But it has the slowest growth rate on the continent apart from Venezuela, and this past month Brazil’s President Michel Temer was indicted for corruption only a year after the impeachment of his predecessor Dilma Rousseff.

Over the past few weeks and months, however, the country has seen positive headlines for large deals, venture fundraising and corporate innovation initiatives.

At the end of May, Japan-based telecoms and internet group SoftBank invested $100m in Brazil-based on-demand ride-ordering platform 99.

Founded in 2012, 99 has built an app-based ride-hailing service spanning both registered taxi drivers and peer-to-peer lift-sharing that operates in approximately 400 Brazilian cities. It has more than 14 million registered users and more than 200,000 drivers in its network.

The investment represents an extension of the $100m-plus round that 99 closed in January this year, which was led by China-based ride-hailing company Didi Chuxing and backed by growth equity firm Riverwood Capital.

Mobile chipmaker Qualcomm and venture capital firm Monashees invested an undisclosed sum in 99, then known as 99Taxi, in 2013, before 99 raised $25m from Qualcomm’s corporate venturing arm Qualcomm Ventures, Monashees and Tiger Global Management two years later.

Brazil-based mobile commerce platform Movile last month revealed $53m in funding from South Africa-based e-commerce and media group Naspers and investment fund Innova Capital.

Fabricio Bloisi, chief executive of Movile and a keynote speaker at a previous Corporate Venture in Brasil conference, said: “Movile is in a strong position to use this new investment to realise our dream of impacting 1 billion people through our products and services.”

In fact, Movile is one of Latin America’s most active corporate venturers.

The ambition of the entrepreneurs to tackle large markets is impressive, but builds on decades of prominent examples. Marco Stefanini, founder and CEO of Brazil-based software and services company Stefanini, in an introduction to a panel at the Global Corporate Venturing Symposium 2017 in London, explained how the company had developed a “strong innovation ecosystem” covering some of its 650 corporate customers and business partners, state agencies and universities as well as startups and VC funds and accelerators.

He said: “Stefanini’s consistent growth history has been based both on organic expansion as well as intense M&A.”

Stefanini developed its Open Startups initiative as a strategic partnership program with startups that have reached commercialisation stage “and that have created disruptive products and technologies synergistic with Stefanini’s offerings”.

Working with these startups allowed Stefanini to broaden its offer, create dealflow for M&A with less risk and greater strategic fit and “refreshes Stefanini’s culture with a startup way of doing things”. Stefanini acquired 10 companies this way.

He said lessons learned included developing a more flexible M&A strategy covering majority and minority positions while being ready to integrate fast and deciding when to kill or preserve a startup’s culture. He added it was important to understand the benefits and drawbacks of the different venture models.

Brazil has developed a somewhat unique approach to innovation ecosystem building, with Stefanini and Naspers-backed e-commerce company Movile looking to create a wider entrepreneurial network around the companies.

Jayme Queiroz, investment director at government agency Apex-Brasil, opened a panel discussion at the GCV Symposium on how the broader economy is becoming more entrepreneurial. With 200 million people and 250 million mobile phones, Brazil is one of the most networked countries in the world and is among the top 10 economies.

Queiroz said Apex-Brasil had tracked more than 5,000 startups and 350 incubators in the country. He then introduced Carlos Kokron, whom he called Brazil’s godfather of venture capital, crediting him for how the ecosystem had evolved.

Kokron previously worked at Intel Capital, the semiconductor manufacturer’s corporate venturing arm, before moving on to peer Qualcomm Ventures, where he serves as vice-president and managing director for Latin America.

Kokron said: “Over the past 10 years everything has improved. Entrepreneurs who used to have to work around the infrastructure can now participate. Corporations are a large part of the change over the past two to three years.

“There are 250 Brazilian corporations with no startup backgrounds but keen to interact, following the work of Apex-Brasil in hosting the Corporate Venture in Brasil conference the past two years, and have the perfect time to entry given the critical mass of entrepreneurs, and assets are cheap.”

The message has been heeded. Corporations already play a significant role in the Latin American Venture Capital Association’s 2017 Latin American Startup Directory. Out of 144 tech companies that have received a minimum of $1m in funding over at least two rounds and are still in operation, approximately a sixth secured CVC funding and are based in Brazil.

Intel Capital has backed companies such as 3D maps provider Geofusion, cloud computing company Mandic and mobile devices management services platform Navita, while Qualcomm Ventures’ deals include 99 and businesses such as precision agriculture platform Strider and mobile commerce company Enjoei.

In January 2017, software company Oracle said it would extend its startup accelerator program to Sao Paulo as one of seven cities joining the existing centre in Bangalore. While Oracle will avoid investing in these startups it hopes they will use Oracle cloud services.

Last month, Raízen, one of the largest producers of sugar and ethanol in Brazil, launched its startup accelerator, Pulse, targeting agtechs. Based in Piracicaba, a city in Sao Paulo state, the region has 38% of agtech startups. Raízen has been establishing partnerships and working with startups, including risk management platform Space Time Analytics, big data software developer Hekima, Agrosmart and operational efficiency platform Fhinck.

Raízen partnered Space Time Analytics in October 2016 to help the company predict production capacity up to a year in advance. Raízen produces about 2 billion litres of ethanol a year, 4.5 million tons of sugar a year and has the capacity to generate about 940MW of electricity from sugar cane bagasse, the residue left after extraction of juice from sugar cane.

In May, Brazil-based IT services provider 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 January last year.

Other local companies, such as Embraco, a refrigeration technology and production company, and Natura, a cosmetics label that recently acquired UK-based skincare company Body Shop from cosmetics company L’Oréal for $1.1bn, have created similar programs to invest in startups operating in their respective spaces.

But while corporations are increasingly active as direct investors, their role is also encouraging the VC ecosystem through commitments to venture capital funds and a transfer of talented personnel.

Brazil’s private equity and venture capital association, ABVCap, in its annual results with accountant KPMG, said corporations made up 14% of commitments in 2015.

Anderson Thees, who also helped spark this transformation through his work initially at Naspers – including backing Movile – before setting up VC firm Redpoint e.Ventures, discussed at the GCV Symposium the importance of corporate limited partners, including networking equipment manufacturer Cisco and media group Bertelsmann in its first fund, as well as investing directly in startups – for Thees’s guest comment in GCV on Brazil’s ecosystem click here, and also a review of Brazil’s ecosystem by TechCrunch.

Last month, Redpoint e.Ventures and financial services firm Itaú Unibanco partnered energy group AES to join its Cubo entrepreneurial network space in Sao Paulo.

Franklin Luzes, head of MSW Capital, a fund with seven corporate investors set up by US-based software provider Microsoft, told the GCV Symposium how he had been able to create such a multi-corporate venture fund. Microsoft and Brazilian lender Banco Votorantim are investing together in financial technology startups.

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-venture niche and the fund has now grown to R$17m with partnerships including one in agriculture with crops company Monsanto, while telecoms firm Grupo Algar’s corporate venturing unit in December joined Qualcomm and Rio de Janeiro’s development agency Agerio in the fund.

Other corporations and family offices have been looking at Brazil’s fintech-focused startups.

This week, Fernando Scodro of Grupo Baoba, the third generation of a wealthy Brazilian baking family, will launch the Brazilian chapter of ImPact, a network of wealthy families that have come together to increase the number of impact investments and improve efficiency. “When families start saying, I will invest according to my values, that is something you can hold them accountable to,” Scodro said in the ImpactAlpha podcast.

At the end of October, payments subsidiary Visa Brazil set up its accelerator and a co-creation centre in Sao Paulo. The Ahead Visa program backs entrepreneurs focused on lending, debt renegotiation, bitcoin management, blockchain, financial efficiency and payments and is in partnership with Brazilian accelerator Startup Farm.

Felipe Matos’s Startup Farm also works with US-based technology company IBM on what it calls the “first startup acceleration program focused on artificial intelligence, cognitive technology and blockchain”, as well as with internet company Google on its local campus.

Separately, VC firm Liga Ventures runs the OasisLab innovation space and has identified 216 startups in the retail and consumer sector in Brazil, of which more than half (115) were focused on the evolution of the retail store.

Liga is running its Retail League accelerator this month and is also responsible for acceleration programs with Intel, car maker Mercedes-Benz and the city of Porto Seguro, among others. It is also a partner in Brazil for Plug and Play Tech Centre, one of the largest accelerators of Silicon Valley.

Talent is flowing in multiple directions in Brazil’s entrepreneurial ecosystem.

In January, two notable corporate executives joined a list of people setting up funds – former executives of online price comparison service Buscapé, co-founder Rodrigo Borges and former vice-president Guga Stocco. They partnered Gabriel Sidi, Marcello Gonçalves and Felipe Andrade to set up Domo Invest.

The two executives had followed a path laid down by Buscapé co-founder Romero Rodrigues. Buscapé was acquired by Naspers for $342m in 2009. Rodrigues joined Thees at Redpoint e.Ventures in late 2015. 

Last month, Argentina-based venture capital fund Kaszek Ventures, which was founded by senior executives at Argentina’s e-commerce firm MercadoLibre, raised $200m in its third fund. Nicolas Berman, partner at the firm, said: “We expect that most of the capital will continue to go to Brazil, as it is the largest and most developed tech ecosystem in the region.

“But we anticipate increased investing in the other markets in the region, particularly in Argentina, Mexico and Colombia, where we are seeing a strong evolution in their entrepreneurial communities.”

Another reason entrepreneurs can participate are government efforts to help. The Brazilian government had a short-lived scheme offering foreign companies visas and funding to relocate there through Startup Brasil. Participating firms would have had to relocate to Brazil and hire local employees. The program was based on a similar project in Chile. Brazil continues to look to other countries for models.

Last month, Marcos Pereira, Brazil’s minister of development, industry and foreign trade, led a delegation to Israel. Delegate Marcos Vinícius de Souza, secretary for innovation and new businesses, said: “We are visiting some business organisations, some venture capital firms, and also the Israel Innovation Authority and the minister of the economy, to understand what is the second wave of public policy that Israel is developing now.

“We want to understand more about how the government is supporting these startups – what are the fiscal incentives’ design, especially for angel investors, and also to understand the business acceleration process in Israel.”

De Souza told the Times of Israel that Israel had models that could help Brazil address one of its main economic challenges – transferring knowledge from the academic world to the market. He said he was impressed by the flexibility Israeli universities had in making connections with investors and creating funds for research.

He noted the delegation saw examples of “how to bring venture capitalists, how to bring mentors, how to bring companies from all over the world in order to make joint research, and also to commercialise the research”.

De Souza said Brazil would need to change certain regulations in order to adopt such models, and would also need to change the mindset in academia towards being open to working more closely with private industry. He said he liked the idea of universities having equity and acting as investors in startups that used the technology they developed.

Brazil, however, already has good examples of student startups, albeit without the university venture funds. Neoway, which was founded in 2002 by CEO Jaime de Paula when he was working on his PhD thesis at Universidade Federal de Santa Catarina, last month raised $45m from VC firms such as Monashees to expand its data and analytics service to the US.

“Getting funding back then was not as easy as it is today in Brazil,” de Paula said. “But so many startups are launching in Florianopolis [the capital and second-largest city of Santa Catarina in southern Brazil] it has become a real tech hub. There are some great tax incentives here.”

Funding might be easier now but only because the entrepreneurs and ecosystem have made it possible despite the macro headwinds.

Disclosure: Global Corporate Venturing has been paid to advise Russia and Brazil among other governments on how to attract and encourage corporate venture capital into their countries and develop local CVCs to meet global best practices.

The next Corporate Venture in Brasil conference will be October 2-5 in Sao Paulo and will include agtech and automotive sector themes.

– A version of this editorial first appeared on our sister site Global Corporate Venturing.

Copyright Mawsonia Limited 2010. Please don´t cut articles from www.globaluniversityventuring.com or the PDF and redistribute by email or post to the web without written permission.

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