Abvcap Webcast: Venture Capital in Brazil
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  • 1. Webcast: Venture Capital inBrazil Patrick Arippol, Renata Guinther, Rodrigo Menezes, Susana Garcia- Cristiane Founding Partner, Head of Partner, Derraik & Robles, Principal Nascimento, DGF Investment, Menezes Investment Project Manager Investimentos FINEP Advogados Officer MIF/FOMIN ABVCAP Supported ByInstitutional Support Organized By 1
  • 2. AGENDARenata Guinther, Head of Investment, FINEPThe Brazilian Innovation AgencySusana Garcia-Robles, Principal Investment Officer in charge of MIF Early Stage EquityGroup, MIF/FOMINThe MIF and its Catalytic Role Building a VC Industry in BrazilRodrigo Menezes, Partner, Derraik&Menezes AdvogadosStructuring VC Investments in BrazilPatrick Arippol, Founding Partner, DGF InvestimentosCurrent Venture Capital Market in Brazil – “A VC’s ViewPoint” 2
  • 3. March 2013 Título da Apresentação
  • 4. FINEP – Brazilian Innovation Agency • Mission: To promote Brazil’s social and economic development through public support to science, technology and innovation in companies, universities, technology institutes and other public or private institutions. • Instruments • Grants Research Institutes & • Loans Universities • Investments Companies • Strategic Orientation
  • 5. INOVAR PROGRAM
  • 6. INOVAR Program A little bit of history... In the year 1999, FINEP conducted a diagnosis on the obstacles and challenges faced by technology-based SMEs to access finance through innovative financial instruments like seed and venture capital investments. As a result of this, FINEP approached the Multilateral Investment Fund (MIF) to work together on a program to be called.
  • 7. Main Gaps Detected at the time No effective bridge between investors Too few GPs with and SMEs track record Too few national Poor market for investors in VC/PE IPOs asset class Limited regulatory No VC industry framework and legal vehicles for representation on-shore VC/PE investments
  • 8. INOVAR Program Inovar was created to stimulate the formation of innovative companies and help them gain access to capital. Goals: • Develop an ecosystem conducive to VC investment • Forge relationships among Brazilian and international institutions • Increase local sources of capital/investors • Facilitate the creation of new local VC funds and fund managers Instruments:
  • 9. INOVAR Achievements Number of partners working with INOVAR grew from 4 to 17, 11 of which are pension funds Fund Process ‐ 13 calls for VC/PE fund proposals and 6 calls for Seed funds proposals ‐ 241+ proposals received and 110+ approved for due diligence ‐ 161 investors have participated in panels to evaluate fund proposals ‐ Inovar Investors represent around 10% of Brazil’s GDP ‐ $223M from FINEP and $1.90B from other investors in 26 funds (FINEP’s portfolio) VENTURE, SEED and IPO FORUMS ‐ 36 Forums: 19 Venture, 11 Seed and 6 IPO ‐ 4000+ screened companies and 345 coached and presented to investors ‐ $1B+ invested in 75 innovative companies through the Seed, Venture and IPO Forum ‐ 90+ Angel – investors attracted to 2 Seed Forums Scalability ‐ Cost of program was $16,4M, of which $3,7M was contributed by MIF ‐ INOVAR facilitated $1B+ in investment in SMEs ‐ Leverage of 5.37:1 for Innovation; 7.97:1 from private sector investors and 9,18:1 global ‐ Inovar has become a benchmark for other LatAm Countries in fostering VC
  • 10. Current Gaps Early-stage Investment still needs Committees fostering in Vc funds Best Practices
  • 11. INOVAR as a Public Policy Program Key Drivers: • Innovation and Financial Return • International Partnerships: FUMIN/IADB ; LAVCA ; ILPA • Local Partnerships: ABVCAP ; BMF&BOVESPA Lessons Learned: • Dedicated team. • Simple models. • As many positive externalities as possible. • Stick to your project’s fundamentals. • Focus on achieving the projected results. • Stay ahead of the market.
  • 12. FINAL REMARKS• FINEP is well positioned to prospect and originate investment opportunities in innovative companies and, in being fully committed to increasing the innovation rate in Brazilian companies, we see Venture Capital as one of the best strategic instruments to achieve this goal.• The most interesting thing about Inovar is the possibility to affect change on a national scale through a program that has been seasoned for 12 years and provided great track record.
  • 13. Thank You! Renata Guinther Investment Area Superintendent FINEP – Brazilian Innovation AgencyMCTI – Ministry of Science, Technology and Innovation rguinther@finep.gov.br
  • 14. AGENDARenata Guinther, Head of Investment, FINEPThe Brazilian Innovation AgencySusana Garcia-Robles, Principal Investment Officer in charge of MIF Early Stage EquityGroup, MIF/FOMINThe MIF and its Catalytic Role Building a VC Industry in BrazilRodrigo Menezes, Partner, Derraik&Menezes AdvogadosStructuring VC Investments in BrazilPatrick Arippol, Founding Partner, DGF InvestimentosCurrent Venture Capital Market in Brazil – “A VC’s ViewPoint” 14
  • 15. THE MIF AND ITS CATALYTIC ROLE BUILDINGA VC INDUSTRY IN BRASILSUSANA GARCIA-ROBLESMARCH 2013ABVCAP WEBCAST-VENTURE CAPITAL IN BRAZIL DRAFT
  • 16. Building the Seed and Venture Capital Industry of LACfor over 16 years The Multilateral Investment Fund (MIF): an independent trust fund (1993) and managed by the IDB. Mandate for high risk and innovation. It supports private sector development through equity investments, debt, and technical assistance. The MIF was a pioneer in the VC industry, entering in 1996 when it was virtually non-existent in LAC, helping rebuild it through subsequent business cycles in the Region, and was instrumental in developing the industry. Historically, the MIF has been the largest early stage investor with the widest regional coverage: – We have invested in more than 66 funds in the Region. – Since 1996 the MIF has invested approx. US$ 260 M in LAC, catalyzing US$ 1.2 B. Over the years the MIF has invested in 38 first-time fund managers covering a wide variety of sectors, including Information and Communication Technologies, Life Sciences, Clean Technologies, Technology applied to Agribusiness, among others. Today the MIF has a portfolio of 52 funds, 45 active funds and 7 pending their first closing, and is a leading provider of lessons learned and experiences for new investors in LAC. We go where we see a market opportunity and basic conditions (a conducive ecosystem): multi-sector, and sector agnostic (although tech is where we have a portfolio valued today at 2X), and with no quotas for a given country, only focused in LAC. DRAFT 16.
  • 17. BRAZIL: A LABORATORY OF EXPERIENCES AND LESSONSLEARNEDThe MIF started its activity in 1998 and never retrenched in spite of crises or volatility. Instead, the MIF bet onsupporting local first-time fund managers to create a local VC industry.BRAZIL became a laboratory of experiences and lessons learned for the MIF. What we did in Brazil helped theMIF support VC in other countries in the Region.Since 1998, the MIF has been one of the main supporters of the Seed and VC industry in Brazil, investingdirectly in VC funds and implementing programs to improve the VC ecosystem through the INOVAR I and IIinitiatives. The MIF has historically supported 17 funds. As of 2012, the MIF only has four funds that are activelyinvesting or about to start operations: Burrill, Performa, C-Ventures, and Vox. The other funds will be finishingtheir lives within the next two years.It is important to mention that MIF’s current portfolio in Brazil is performing well and the MIF is expecting a netgain in the Brazilian portfolio.The INOVAR I Program supported VC funds starting in 2001, launching calls for funding proposals and matchinginstitutional investors with promising funds. In 2007, MIF approved INOVAR II, a follow-on program, which alsohas calls for seed fund proposals, as well as focusing on attracting angel investors to the industry. The selectionof funds is performed through a competitive process and using rigorous due diligence standards. MAINCONTRIBUTION: new local and first-time fund management companies supported, training in international betspractices, pension funds’ investments. DRAFT 17.
  • 18. BRAZIL’S VC INDUSTRY Brazil as a pilot test: The MIF took the INOVAR concept to other countries: Chile, Colombia, Peru, Jamaica, Costa Rica. The MIF partnership with ABVCAP is also intended to transfer knowledge on how to build VC associations in other countries. Lessons learned: i) innovation wasn’t always welcome if the product was pioneer; this is changing now , ii) good number of fund management companies, investors and potential investments to jump- start the industry made the industry take off even if small at the early stage, iii) market is huge: a pro (you don’t need to go outside Brazil to grow your company) and a con (you don’t need to go outside Brazil to grow your company). Brazil today: i) having developed a local VC/PE industry because overseas investors were not that interested in Brazil a few years ago, the challenge is now how to adapt it to best international practices (e.g, IC composition; different sector funds under the same fund management company looks like lack of a strategy to the foreign investor); ii) early stage financing remains a challenge. DRAFT 18.
  • 19. BRAZIL AND THE REST OF LAC Chile and Uruguay: need to go global due to their small markets. Colombia: like Brazil 10 years ago, strong government support. Argentina: very innovative and exporting entrepreneurs. Peru: only a few PE funds, lack of government support for early stage. Mexico: finally taking off, a new generation of fund managers. Central America: more traditional investments, use of mezzanine financing. WHY CONTINUE INVESTING IN BRAZIL? Need to grow angel networks and seed investment. Need to foster commercialization of the innovation produced in academic centers. Great potential: natural resources, a growing middle class that demands services and products. DRAFT 19.
  • 20. THANK YOUFor more information, please contact Susana Garcia-Robles (susanaro@iadb.org) DRAFT 20.
  • 21. AGENDARenata Guinther, Head of Investment, FINEPThe Brazilian Innovation AgencySusana Garcia-Robles, Principal Investment Officer in charge of MIF Early Stage EquityGroup, MIF/FOMINThe MIF and its Catalytic Role Building a VC Industry in BrazilRodrigo Menezes, Partner, Derraik&Menezes AdvogadosStructuring VC Investments in BrazilPatrick Arippol, Founding Partner, DGF InvestimentosCurrent Venture Capital Market in Brazil – “A VC’s ViewPoint” 21
  • 22. Structuring VC investments in Brazil© 2013
  • 23. Structuring VC investments in Brazil• Investment structure• Transaction Documents• Rights, Preference and Privileges of VC investors• Pay attention to...
  • 24. Investment Structure• Local or Foreign vehicles• Holding companies or investment funds• Brazilian target or foreign target with an operational entity in Brazil• Equity or Convertible debt
  • 25. Rights, Preference and Privileges of VC investors• Preferred shares with voting rights• Tag Along / Drag Along / ROFR• Liquidation preference• Anti-Dilution Protection• Non Compete and permanence of Founders• Put Option• Appointment of members of BOD / officers• Registration Rights
  • 26. Rights, Preference and Privileges of VC investors• Protective Provisions • Restriction on transfer of shares • Approve distribution of dividends • Amendment to company by-laws’ • Approve Stock Option Plans • Approve unbudgeted expenditures • Approve loans or offer guarantees • …
  • 27. Transaction Documents• NDA• Term Sheet / MOU / LOI• Investment and Subscription Agreement• Shareholders Agreement• By-laws
  • 28. Pay attention to...• Tax issues• Labor matters• Intellectual Property – Software• Litigation – Consumer claims• Other areas (regulatory, anti-corruption, environmental, etc.)
  • 29. Thank youEmail: rodrigo.menezes@derraik.com.br Derraik & Menezes Advogados São Paulo • Rio de Janeiro www.derraik.com.br
  • 30. AGENDARenata Guinther, Head of Investment, FINEPThe Brazilian Innovation AgencySusana Garcia-Robles, Principal Investment Officer in charge of MIF Early Stage EquityGroup, MIF/FOMINThe MIF and its Catalytic Role Building a VC Industry in BrazilRodrigo Menezes, Partner, Derraik&Menezes AdvogadosStructuring VC Investments in BrazilPatrick Arippol, Founding Partner, DGF InvestimentosCurrent Venture Capital Market in Brazil – “A VC’s ViewPoint” 30
  • 31. Current Venture Capital Market in Brazil – “A VC’s ViewPoint” DGF Inova / DGF InvestimentosPatrick Arippol ABVCAP WebcastDirector March, 27th, 2013parippol@dgf.com.brPhone: +55 11 3521 3700www.dgf.com.br Documento Interno e CONFIDENCIAL – Versão #2
  • 32. Introducing DGF Investimentos – Practice Areas Innovative Start-ups DGF Early Stage 1 DGF Early Stage 2 Status: Exiting Status: Launching Size: R$ 22M Size: R$ 50M Vintage: 2002 Vintage: 2012 Mid Sized Companies Companies Mid Sized DGF GROWTH 1 DGF GROWTH 2 GROWTH Status: Invested Status: Raising CAPITAL Size: R$ 100M Size: R$ 300M Vintage: 2007 Vintage: 2013 Early Special Stage Thesis Specific DGF BIOENERGY 1 Sector Status: Investing Size: R$ 300M Vintage: 200932 Documento Interno e CONFIDENCIAL – Versão #10
  • 33. Introducing DGF Investimentos – Highlights Exits Portfolio Software for mobile ticket sales Import / Export Software B.I. Solution for Healthcare Tax Software Developer On-demand printed products CRM Software Developer Corp. Expanse Mngt. Software IT Infra-Structure Outsourcing Telecom R&D Outsourcing33 Documento Interno e CONFIDENCIAL – Versão #10
  • 34. Introducing DGF Inova: Criteria & Pipeline CRITERIA & DIRECT SOURCING SNAPSHOT Criteria (“sweet spot”): Pipeline Status since launch  STAGE – Revenues of U$1-3M with proven  U$25M fund launched in January 2012 business cycle and profitability potential  913 companies analyzed  BUSINESS MODEL – Consistent and with attractive dynamics (recurring revenue, etc)  2 investments completed  GROWTH – Potential >U$50M revenues in 5yr  Direct-sourced projects (from 30% to 70%)  TEAM – Stellar entrepreneur and team  INNOVATION – Innovative company Segment Representation among top prospects:  TICKET – Invest U$1-5M per company  E-Commerce infrastructure: 18,5%  EXIT – Clear exit opportunities  Cloud/SaaS: 15,4% Sample Investment Theses:  Web 2.0 / Internet Advertising: 13,8%  Health-Web: 12,3%  Enterprise mobile software platforms  Mobile: 10,8%  High-growth Cloud & Saas plays (long-tail)  Financial Technologies: 7,7%  SaaS solutions to drive on-line customer  IT-enabled Services: 6,1% acquisition for small and medium companies  Online Media: 6,1%  Highly scalable web platforms in healthcare  Education: 4,6%  Business Intelligence applications  Other: 4,6%  Value-added distribution of virtual goods (retail)34 Documento Interno e CONFIDENCIAL – Versão #10
  • 35. Topics: Current Venture Capital Market in Brazil – “One VC’s ViewPoint” Myths Worth Dispelling:  VC investing in Brazil is similar to VC in Silicon Valley (Risk of “One Size Fits All” Approach)  The moment for good VC Investments in Brazil has passed (Risk of “Following the Herd”)35 Documento Interno e CONFIDENCIAL – Versão #10
  • 36. One VC’s ViewPoint – Risk of “One Size Fits All” Approach  Dispelling Myth#1: VC investing in Brazil is similar to VC in Silicon Valley  YES – Bring Insights from a Mature into a Maturing Market  Sector-specific support for global technology companies  Increase direct sourcing and specialization  Best practice / governance at global levels  NO – Use the Same Investment Approaches  Only “proven models” are worth investments: great local and BRIC-specific business models  “Spray and pray”: portfolio company monitoring is more demanding  Pay US-valuations: exit markets command different valuations  Assume follow-on investors will “be there” for good companies: don’t be so sure – better be ready for follow-ons  Good companies will find exits: Again don’t be so sure. Best to find companies with multiple paths to exit, and help them reach significant scale36 Documento Interno e CONFIDENCIAL – Versão #10
  • 37. One VC’s ViewPoint – Risk of “Following the Herd”  Dispelling Myth #2: The moment for good VC Investments in Brazil has passed  Local VC eco-system has matured: specialized law firms, etc  Critical mass has been reached for companies to “hit it out of the park” – consumption (e.g. mobile phone users), entrepreneur quality, etc  Moderate economic down-cycle in Brazil is already creating interesting investment opportunities (cherry-picking of Series B investments)37 Documento Interno e CONFIDENCIAL – Versão #10
  • 38. Don´t miss our next Webcast:Confirmed panelists:Cesar Collier, Managing Director, Siguler GuffCristiano Gioia Lauretti, Partner, Kinea InvestimentosFernando Borges, Managing Director and Co-Head of theCarlyle South America / Vice Chairman, ABVCAP 38
  • 39. Thank you for your participation! See you at the ABVCAP Conference next month! 15-16 April 2016 – São PauloCristiane Nascimentocnascimento@abvcap.com.br Supported By Institutional Support Organized By 39