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  • 1. The Second Census of the Brazilian Private Equity and Venture Capital IndustryGVcepePrivate Equity and Venture Capital Research Center at FGV-EAESPProf. Cláudio V. FurtadoDecember 2010
  • 2. Disclaimer This presentation has been prepared with the sole purpose of providing certain information about the Brazilian Private Equity and Venture Capital Industry to the participants of the “Café com a Indústria” event dated December 13th, 2010 and will be available for download in the near future at websites to be further informed by Agência Brasileira de Desenvolvimento Industrial (ABDI) and Fundação Getúlio Vargas (FGV)Copyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 3. Thanks to our Sponsors and Partners Founding Members Project Sponsor Strategic Partners Institutional Sponsor
  • 4. Comprehensive Research 80% of the industry surveyed 180 144 PE&VC Managing Surveyed OrganizationsCopyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 5. Industry Overview as of Dec. 2009 US$ 36.1 bn Investors Committed Capital 144 PE&VC Firms General 258 Investment Vehicles Partners Estimated 1,593 Professionals and Staff 502 Portfolio Companies Portfolio From 2005 to 2009: Companies • 414 new investments • 137 total exitsCopyright © 2010. Fundação Getulio Vargas - GVcepe. • 37 IPOs
  • 6. Evolution of Committed Capital Committed Capital in US$ bn 40 36 35 30 43%p.a. 27 29 25 CAGR 2005-2009 20 15 15%p.a. 13 CAGR 2007-2009 10 8 5 5 5 5 6 5 4 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 NOTE: Committed Capital excludes only fully divested vehicles. NOTE: US$36.1 bn (2009) Includes US$3.32 bn resulting from R$/US$ exchange rate appreciation on R$ denominated committed capital, computed in Dec 2008 (exchange rates of R$2.28/US$1.00 and R$1.74/US$1.00 in Dec 2008 and Dec 2009, respectively). All annual figures were translated at year end nominal exchange rates.Copyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 7. Expansion of the Asset Class Committed Capital as % of GDP 3,0% 2,5% 2.3% 2x since 2004 2,0% 2.0% 1.8% 1,5% 1.0% 1.0% 1,0% 0.8% 1.2% 0.9% 0.9% 0.9% 0,5% 0.6% 0,0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 SOURCE: BACEN, GVcepeCopyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 8. Committed Capital Breakdown Committed Capital by Investment Committed Capital by PE/VC Vehicle’s Legal Structure Organization Category Corporate Corporate Other 7% Ventures Ventures 1% Limited 1% Public Sector Partnership Subsidiaries of Financial 3% Direct 37% Institutions Investment 17% 15% Public Sector Holding 4% Organizations 8% CVM* 26% Private Sector * All vehicle structures according to Brazilian PE/VC regulation CVM 391, 209, 402 Organizations 71%Copyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 9. Committed Capital Breakdown 2008 (US$ MM) Private Gov. Total % Traditional * 23,101 696 23,797 82% Corporate Venture ** 350 - 350 1% Infrastructure *** 1,897 - 1,897 7% Real Estate 2,606 - 2,606 9% Timber 334 - 334 1% Total 28,288 696 28,984 100% Dec. 08 (In US$ MM) 28,984 Fundraising (Vehicles in US$) 3,093 2009 (US$ MM) Private Gov. Total % Fundraising (Vehicles in R$) 2,979 Traditional * 27,168 935 28,103 78% Reductions (Vehicles in US$) -1,531 Corporate Venture ** 350 - 350 1% Reductions (Vehicles in R$) -732 Infrastructure *** 3,955 - 3,955 11% Exchange Rate Effect 3,318 Real Estate 2,734 - 2,734 8% Dec. 09 (In US$ MM) 36,112 Timber 970 - 970 3% Total 35,177 935 36,112 100% * Investment vehicles with focus on manufacturing, trade, services, agriculture and traditional businesses. ** Subsidiaries of industrial corporations *** Investment vehicles dedicated exclusively to oil & gas, energy and self defined infrastructure funds. NOTE: Reductions refer to discontinued operations, termination of funds, allocation to Brazil changes and reductions of committed capital by investors.Copyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 10. Fundraising 2009 Fundraising 2009 Fund At Cost Allocation* Total % Traditional 1.763 1.465 740 3.968 65% - CVM 446 - - 446 7% - Limited Partnerships 1.317 784 540 2.641 43% - Holdings & Direct Investment - 682 200 882 15% Infrastructure 1.469 - - 1.469 24% - CVM 1.224 - - 1.224 20% - Others 245 - - 245 4% Timber 632 3 - 635 10% - CVM 632 - - 632 10% - Holdings & Direct Investment - 3 - 3 0% Total 3.865 1.468 740 6.072 100% % 64% 24% 12% 100% * Global and Regional vehicles declaring increase (or decrease) of committed capital allocated to Brazil. NOTE: Direct Investments are those made directly by the PE/VC organization; no fund structure.Copyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 11. Investment and Fundraising Investment x Fundraising (in US$ bn) 8,0 7.2 0.5% 7,0 6,0 0.4% 0.5% 5.3 6.1 5,0 4.60.3% 4,0 0.2% Fundraising 2.80.2% 3.3 0.2% 3.1 3,0 Investing 0.3% 2.3 2,0 1,0 n/a n/a 0,0 2005 2006 2007 2008 2009 NOTE: The percentage represents each year’s GDP by either PE/VC committed capital raised or invested in Brazil. SOURCE: BACEN, GVcepeCopyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 12. Diversified Fund Investor Base Multilateral Institutions Government Insurance 1% Companies and Public Banks 1% Institutions 4% 4% Private Pension Companies Funds 22% 5% Others 5% Funds of Funds 6% Parent Investment Organization Funds 6% 18% Family offices 9% Trusts and PE/VC Endowments; Organization 10% Partners 9% NOTE: Parent Organization includes Corporate Ventures and Banks’ captive PE/VC subsidiariesCopyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 13. SCREENING AND DEAL FLOW
  • 14. Deal Flow Sourcing Proprietary Referrals PE VC PE VC Own PE/VC Organization 39.0% 37.0% Incubators/Tech Parks 0.3% 13.1% Incubators/Tech Parks - 5.0% Investors (LPs) 1.9% 10.0% Startup/BPlan Competitions - 7.0% Other PE/VC Organizations 5.0% 3.8% Seed/VC Forum FINEP - 5.8% Consultants/Auditors/ 30.8% 5.4% Advisors/Brokers Business Rounds - 2.3% Law Firms 4.7% 5.8% Competitors of Portfolio 0.1% 2.7% Banks 8.4% - Companies Customers/Suppliers of Portfolio 7.2% 15.8% Porfolio Companies 1.5% 2.7% Companies/Entrepreneurs Others 44.8% 46.2% Media News 5.6% 4.7% Total 100% 100% Others 44.4% 33% Total 100% 100%Copyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 15. INVESTMENTS ANDPORTFOLIO COMPANIES
  • 16. Investments by Stage and Type 2009 Number of Investments Average Ticket by Stage of Company (Includes New and Follow-on Investments) Development (US$ MM) 3% 1% Stage Average Ticket 4% 5% Seed/Start-up 0.42 41% Private Equity Venture Capital 4.41 15% Venture Capital Greenfield 46.64 Seed/Start-up Mezzanine 50.22 Greenfield Distressed 64.37 PIPE Private Equity 73.41 Distressed 31% PIPE 91.77 Mezzanine Total 39.39 Sample of 95 investments (100%) Sample of 77 investments (81%)Copyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 17. Number of Investments by Sectors of Economic Activity 2005-2008 vs. 2009 (Includes New and Follow-on Investments) 15% IT and Electronics 18% Energy and Oil 15% 11% Pharmaceutical/Medical/Aesthetics 14% 8% Agribusiness 11% 7% Various Industries* 9% 6% Various Services** 8% Transportation and Logistics Services 6% Biotechnology 5% 3% 2009 Retail 4% 4% 2005-2008 Financial Services Entertainment/Tourism 4% Civil Construction/Real Estate 4% Education 3% Extractive Industries 2% Food and Beverages 2% Infrastructure - other 1% Communication 1% * Various Industries: E.g.: Chemicals, Mechanicals, Electric, Metallurgic, Packaging, Textiles. Sample 2005-2008: 394 investments ** Various Services: E.g.: Call Center, Consulting. Sample 2009: 95 investmentsCopyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 18. Value of Investments by Sectors of Economic Activity 2005 - 2008 (Includes New and Follow-on Investments) Food and Beverages 24% Various Industries* 14% Civil Construction/Real Estate 13% Retail 12% Financial Services 11% Energy and Oil 4% Education 4% Communication 4% Agribusiness 3% IT and Electronics 3% Pharmaceutical/Medical/Aesthetics 3% Entertainment/Tourism 2% Extractive Industries 2% Infrastructure - other 1% Sample 2005-2008: US$ 6.3 bn: Transportation and Logistics Services, Biotechnology and Various Services represent less than 1% each * Various Industries: E.g.: Chemicals, Mechanicals, Electric, Metallurgic, Packaging, Textiles. ** Various Services: E.g.: Call Center, Consulting.Copyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 19. Value of Investments by Sectors of Economic Activity 2009 (Includes New and Follow-on Investments) Energy and Oil 54% 39% 10% Financial Services 14% 9% Entertainment/Tourism 11% 6% Extractive Industries 8% 5% Transportation and Logistics Services 7% 5% Education 6% Including all investments 3% Agribusiness 4% Infrastructure - other 2% Excluding one US$ 0.765bn Various Services** 2% investment in energy Pharmaceutical/Medical/Aesthetics 1% transmission Food and Beverages 1% Retail 1% Various Industries* 1% IT and Electronics 1% Civil Construction/Real Estate 1% Sample 2005-2008: US$ 6.3 bn: Transportation and Logistics Services, Biotechnology and Various Services represent less than 1% each Sample 2009: of 95 investments (100%) with a total value of US$ 3.1 bn. Communication and Biotechnology represent less than 1% each * Various Industries: E.g.: Chemicals, Mechanicals, Electric, Metallurgic, Packaging, Textiles. ** Various Services: E.g.: Call Center, Consulting.Copyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 20. Portfolio Companies by sector of economic activity 2009 Sector No. of Companies % Cumulative % IT and Electronics 103 20.5% 20.5% Civil Construction/Real Estate 69 13.7% 34.3% Energy and Oil 56 11.2% 45.4% Various Industries 55 11.0% 56.4% Communications 33 6.6% 62.9% Retail 26 5.2% 68.1% Agribusiness 25 5.0% 73.1% Transportation and Logistics Services 20 4.0% 77.1% Food and Beverages 19 3.8% 80.9% Infrastructure - other 19 3.8% 84.7% Financial Services 16 3.2% 87.8% Pharmaceuticals, Medicals and Aesthetics 15 3.0% 90.8% Biotechnology 14 2.8% 93.6% Various Services 10 2.0% 95.6% Education 8 1.6% 97.2% Entertainment / Tourism 7 1.4% 98.6% Extractive Industries 7 1.4% 100.0% Total 502 100.0% * Various Industries: E.g.: Chemicals, Mechanicals, Electric, Metallurgic, Packaging, Textiles. ** Various Services: E.g.: Call Center, Consulting. NOTE: The sample contains 502 companies with information about their sector of economic activity in 2009 .Copyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 21. Frequency of Portfolio Companies by Stage 2009 PE - Growth 36,5% VC - Early Stage 20,9% Start-up 13,1% Seed 7,6% 2009 PE - Later Stage 6,9% VC; 47% PE Gr; 36.5% PIPE 6,2% PE Lat; 6.9% VC - Later stage 5,0% Other; 10.1% Mezzanine 2,1% Greenfield 1,6% Distressed 0,2% NOTE: The sample contains 502 companies, of which 436 companies reported information about the stage of the company in 2009 .Copyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 22. Portfolio Companies by geographic distribution 2004 2009 Region/State No. of Companies % of Total No. of Companies % of Total Southeast 195 64.1% 387 80.0% SP 127 41.8% 274 56.6% RJ 39 12.8% 75 15.5% MG 28 9.2% 34 7.0% ES 1 0.3% 4 0.8% South 83 27.3% 54 11.2% PR 15 4.9% 24 5.0% RS 38 12.5% 18 3.7% SC 30 9.9% 12 2.5% Northeast 16 5.3% 30 6.2% PE 5 1.6% 9 1.9% CE 3 1.0% 8 1.7% BA 5 1.6% 5 1.0% Others 3 1.0% 8 1.7% Center West 9 3.0% 7 1.4% North 1 0.3% 6 1.2% TOTAL 306 100.0% 484 100.0% NOTE: The sample in 2009 contains 502 companies, of which 484 companies reported information about the state in which the investment occurred in 2009.Copyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 23. EXITS
  • 24. Exits by Sector Divestitures by sector of economic activity (2005-2008 vs. 2009) IT and Electronics 35% 27% Civil Construction/Real Estate 10% 6% Financial Services 8% 4% Energy and Oil 8% 5% 8% Various Industries* 22% Various Services** 5% 2% Education 5% 2% Food and Beverages 5% 3% 5% 2009 Communication 9% 3% 2005-2008 Extractive Industries 1% Transportation and Logistics Services 3% Pharmaceutical/Medical/Aesthetics 3% 3% Retail 4% 3% Biotechnology 4% Infrastructure 1% Entertainment/Tourism 1% Agribusiness 4% NOTE: The sample contains 180 divestitures (113 total and 67 partial) in the 2005 – 2008 period and 40 divestitures (31 total and 10 partial) in 2009 reporting information about the sector of ecomic activity at the time of divestiture.Copyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 25. Exits: Numbers of divestments by Stage Divestitures 2005 - 2008 Divestitures 2009 Distressed Greenfield 2% Seed PIPE 5% Start-up 3% Start-up 2% 2% PIPE 5% Mezzanine VC - Early 19% 5% Stage 27% Mezzanine VC - Early 3% Stage 27% VC - Later Stage PE - Later PE - Later 5% Stage PE - Stage PE - 23% Growth 37% Growth 18% 17% NOTE: the sample contains 180 divestitures (113 total and 67 Partial) from 2005 – 2008 and 41 divestitures (31 Total and 10 Partial) in 2009 with information about the stage of the company development.Copyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 26. Exits by Mechanism Divestitures between 2005 and 2008 Divestitures in 2009 by exit mechanism by exit mechanism Write-off IPO Write-off IPO 7% 11% 10% 17% Buyback 18% Buyback 20% Public Trade Sale Secondary 29% Sale 3% Public Trade Sale Secondary 28% Private Secondary Sale 10% Private Sale 32% Secondary Sale 15% NOTE: the sample contains 151 divestitures (107 total and 44 partial) from 2005 – 2008 and 40 divestitures (30 total and 10 partial) in 2009 with information about the exit mechanism.Copyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 27. GOVERNANCE
  • 28. Governance: Mgrs & Investors – Lifetime and limitations for new funds Possibility of fundraising for a new Limited investment vehicle before exiting the CVM Type Holding Other Total Partnership current vehicle Not 7 - 2 - 9 Yes, at any time 31 9 7 4 51 Yes, but only after the investment period of 14 1 6 - 21 the vehicle Yes, but only after the vehicle has invested a certain percentage of its commited 18 1 12 2 33 capital Total 70 11 27 6 114 Lifetime of the existing funds 2004 2009 Lifetime (year) # of vehicles % # of vehicles % 3 and 4 - - 7 4.3% 5 and 6 9 9.3% 16 9.7% 7 and 8 24 24.7% 49 28.1% 9 and 10 33 34.0% 58 34.1% 11 to 20 7 7.2% 11 7.0% None 24 24.7% 35 21.1% Total 97 100.0% 176 100.0%Copyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 29. Governance: Mgrs & Investors – Term Sheet Conditions Most common restrictions: Geographical area of investment 48 14.2% Stage of investment 45 13.3% Exit of Partners and Managing Partners of the PE/VC Organizations team 47 13.9% Investment in assets, projects or companies abroad 40 11.8% Investment in other asset classes 30 8.9% Funds committed to this vehicle cant be invested in portfolio companies of another vehicle of this PE/VC 25 7.4% Organization Admission of new Partners and Managing Partners in the PE/VC Organizations team 20 5.9% Investment (such as LPs) in other vehicles of the PE/VC Organization 17 5.0% Investment in public traded assets 16 4.7% Hedging activity by fund managers 17 5.0% Investment in companies using debt instruments 12 3.6% Investment in to a fund of another PE/VC Organization 11 3.3% "Leveraged Buyout“ deal structuring 10 3.0% NOTE: Sample of 54 investment vehicles.Copyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 30. Governance: Mgrs & Investors – Term Sheet Conditions 2004 2009 Decision models for investments and divestitures approval # of vehicles % # of vehicles % Blind pool (GP total control) 27 28% 19 15% Total control of investors 7 7% 1 1% Mixed Investment Committee with simple majority 23 24% 32 25% Mixed Investment Committee with qualified majority 17 18% 38 30% Mixed Investment Committee by consensus 13 13% 13 10% Pledge fund 6 6% 8 6% N/A 4 4% 1 1% Other 0 0% 16 13% Total 97 100% 128 100% NOTE: Number of investment by type of decision model for investment. Sample of 62 PE/VC Organizations which responded for 128 vehicles. LP’s right to co-invest in CVM Holding Direct Investment Limited Partnership Other Total portfolio companies Yes, it’s a fully guaranteed right 35 5 2 11 - 44 Yes, but only under certain 24 5 - 9 4 36 conditions No. The investors are forbidden to directly co-invest in any of the 17 2 - - - 16 porfolio companies Other 13 - - 6 1 15 NOTE: Response from 111 vehicles. Total 89 12 2 26 5 111Copyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 31. Governance: Mgrs & Investors – Fund Expenses and Management Fees Costs and Expenses to be paid by Management Fees Operational expenses of the PE/VC Organization (GP) (eg, wages, rents, etc.). 94 22.1% Costs of constitution, mergers, incorporations, divisions or vehicles liquidation 30 7.1% Costs incurred in evaluation and analysis of unrealized investments (eg, Due Diligence, etc.). 36 8.5% Contract of third parties to provide legal, tax and accounting services and consultants for analysis 39 9.2% and recommendation of investment opportunities Vehicles administrator service 43 10.1% Audit expenses of the Vehicless financial statements 31 7.3% Fees and commissions related to investment and divestiture operations 20 4.7% Fees, taxes or state contributions on the assets, rights and obligations of the Investment Vehicle 35 8.2% Expenses with printing, mailing, publication of reports, forms, correspondence and communications 47 11.1% to Investors (LPs) Permanent specialized consulting services to support operations (eg. Tecnology, Biotechnology 26 6.1% consultant etc.). Coverage on losses not paid by insurance policies 20 4.7% Others 4 0.9% NOTE: Sample of 50 PE/VC organizations wich responded for 110 vehicles.Copyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 32. Governance: Mgrs & Investors – Management Fee Levels Management Fee PE/VC Organization is both Manager and PE/VC Organization is only the Manager of 2004 Administrator the Vehicle (2009) of the Vehicle (2009) (Administrator is a third party) Fees (%) Committed Committed Committed # of # of # of % Capital % % Capital % % Capital % vehicles vehicles vehicles (US$ MM) (US$ MM) (US$ MM) No Fees 25 26% 950 17% - - - - - - - - 0 < x < 0.5 3 3% 40 1% 1 6% 1,437 1% 5 14% 1,149 32% 0.5 <= x < 1 2 2% 250 4% 0 0% 0 0% 3 8% 603 17% 1 <= x < 1.5 7 7% 1,380 25% 1 6% 287 14% 8 22% 614 17% 1.5 <= x < 2 30 31% 1,400 25% 5 31% 1,213 61% 5 14% 401 11% 2 <= x < 3 21 22% 590 11% 8 50% 471 24% 13 36% 751 21% x >= 3 2 2% 10 0% 1 6% 7 0% 2 6% 57 2% N/A 7 7% 960 17% - - - - - - - - Total 97 100% 5,580 100% 16 100% 1,992 100% 36 100% 3,576 100% NOTE: The Administrator and the Manager figures are present in the Brazilian CVM PE/VC vehicle regulation. Management fees structures were analyzed separately for the PE/VC organizations that are both Administrator and Manager of the investment vehicle (a sample of 16 vehicles), and for those who are only the Manager and the Administrator is a third party (a sample of 36 vehicles).Copyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 33. Governance: Mgrs & Investors – Management Fee’s Calculation Basis Administrator Manager Basis of Management Fee 2004 (2009) (2009) No. of No. of No. of During Investment Period After Investment Period % % % vehicles vehicles vehicles Committed Capital Committed Capital 26 27% 8 12% 4 10% Committed Capital Paid-in Capital 2 2% 1 1% 1 3% Committed Capital NAV or Equity Value 8 8% 14 21% 11 28% Committed Capital Investment at Cost 2 2% 15 23% 11 28% Paid-in Capital Paid-in Capital 9 2% 1 1% 0 - Investment at Cost Investment at Cost 6 9% 2 3% 0 - NAV or Equity Value NAV or Equity Value 12 12% 17 26% 5 13% Expense Budget Expense Budget 2 2% 0 - 0 - Others 2 2% 7 11% 7 18% N/A 28 29% 25 39% 22 56% Total 97 100% 90 100% 61 100% NOTE: The Administrator and the Manager figures are present in the Brazilian PE/VC regulation issued by the CVM.Copyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 34. Governance: Mgrs & Investors – Carried Interest & Hurdle Rate 2004 2009 Index Rate (%) No. of No. of % % vehicles vehicles 10 or + 3 3% 6 6% IGPM 6 < x < 10 8 8% 6 6% 6 or - 19 20% 13 12% 10 or + 4 4% 20 19% IPCA 6 < x < 10 0 - 25 24% 6 or - 0 - 11 10% INPC 6 to 12 4 4% 7 7% 10 or + 3 3% 1 1% US$ 6 < x < 10 8 8% 4 4% 6 or - 4 4% 1 1% Other 6 6% 8 8% 38 39% 3 3% N/A Total 97 100% 105 100%Copyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 35. Governance: Mgrs & Investors – Carried Interest &Timing 2004 2009 Performance Fee Administrator Manager (%) # of # of # of % % % vehicles vehicles vehicles 0<x<5 0 0.0% 2 5.4% 2 2.9% 5 <= x < 10 1 1.5% 1 2.7% 1 1.4% 10 <= x < 20 3 4.5% 2 5.4% 10 14.5% 20 60 90.9% 31 83.8% 53 76.8% 20 < x < 25 1 1.5% 0 0.0% 0 0.0% x >= 25 1 1.5% 1 2.7% 3 4.3% Total 66 100% 37 100% 69 100% Performance fee payment methodology # of vehicles % After the divestiture period 36 29% After the investment period 7 6% Deal by Deal 24 19% In the end of the vehicle ("Total Return") 44 35% Others 14 11% Total 125 100%Copyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 36. Governance: Business Environment Quality of Corporate Governance perceived by the PE/VC Organization Received proposals Very Low Analysed proposals Low Medium Selected proposals before investment High Very high Selected proposals after investment 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% NOTE: Sample of 82 PE/VC organizations.Copyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 37. Governance: Business Environment – The Value of Governance Premium over investment cost PE/VC organizations are willing to pay Arithmetic Std. Deviation Minimum Maximum Stage Average (%) (%) (%) (%) Total 13.1% 9.2% 0.0% 32.0% Venture Capital 17.3% 11.4% 0.0% 32.0% Private Equity 13.0% 10.3% 0.0% 30.0% Venture Capital and Private Equity 11.0% 7.5% 0.0% 20.0% N/A 13.2% 6.2% 5.0% 20.0% NOTE: Sample of 49 PE/VC organizations. 8 of them informed they would pay zero for good corporate governance practices. Premium over investment cost PE/VC organizations estimate they effectively paid Arithmetic Std. Deviation Minimum Maximum Stage Average (%) (%) (%) (%) Total 16.2% 9.4% 0.0% 30% NOTE: Sample of 42 PE/VC organizations.Copyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 38. Governance: Type of Port. Cos & Financial Instruments Type of company % Limited Liabilities Companies 12 20.7% Closely Held Corporation 40 69.0% Public Corporation 6 10.3% TOTAL 58 100.0% Financial Instruments used in investee companies Common stocks with subscription rights (warrants) 2% Redeemable common stocks 4% Other 8% Debt instruments 29% Prefered stocks 31% Plain common stocks 65% NOTE: Sample of 52 PE/VC organizations.Copyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 39. Governance: Port. Cos. – BoD Composition Port. Cos. Members by Average Age (%) of Total BoD Membership category (years) Inside 110 55.3% 46.1 Outside 57 28.6% 41.2 Independent 32 16.1% 42.1 NOTE: Sample of 40 investee companies. Outside Independent Background Quantity % Quantity % Professional Outside Director 6 11.8% 9 25.7% Professional Independent Director 5 9.8% 13 37.1% Portfolio Companys Former Executive 4 7.8% 0 - Angel Investor 0 - 0 - Family Office Representative 0 - 0 - Mezzanine Fund Representative 4 7.8% 5 14.3% Bondholders Representative 0 - 0 - Financial Institution Representative 0 - 0 - Member of other PE/VC Organization 0 - 1 2.9% Member of responding PE/VC Organization 17 33.3% 5 14.3% Co-Investor Representative 7 13.7% 1 2.9% Representative of the responding PE/VC Organization 6 11.8% 0 - Other 2 3.9% 1 2.9% Total 51 100.0% 35 100.0% NOTE: Sample of 104 investee companies.Copyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 40. Governance: Port. Cos. – BoD Composition Executive officers, participation on BoD and shareholding Portfolio Companies % of members of the Board % of shareholders Executives as Inside Directors CEO/President 58.8% 76.1% Chief Financial Officer (or Adm.) 9.8% 14.3% Sales Director 11.8% 22.5% Industrial Director 7.8% 10.5% HR Director 2.0% 3.0% Director of Investor Relations 2.0% 3.0% IT Director - 2.9% Others 7.8% 17.4% NOTE: Sample of 49 investee companiesCopyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 41. Governance: Port Cos – BoD Composition Participants in BoD committees and sub-committees BoD Committe 1 st Most Frequent 2 nd Most Frequent 3 rd Most Frequent Managing Partner of the Strategic CEO / President Board of Directors Members PE/VC Organization (GP) Managing Partner of the Research & Development CEO / President Board of Directors Members PE/VC Organization (GP) Managing Partner of the Risk CEO / President PE/VC Organization (GP) Nomination / Managing Partner of the Board of Directors Members CEO / President Remuneration PE/VC Organization (GP) Human Resources CEO / President Board of Directors Members Managing Partner of the Audit Financial Director Board of Directors Members PE/VC Organization (GP) IT Financial Director CEO / President Legal External Consultants Board of Directors Members Finance Financial Director Managing Partner of the Marketing CEO / President Board of Directors Members PE/VC Organization (GP) Acquisitions/New Managing Partner of the CEO / President Board of Directors Members Businesses PE/VC Organization (GP) Managing Partner of the Industrial Operation CEO / President Commercial Director PE/VC Organization (GP) NOTE: Sample of 17 investee companiesCopyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 42. Governance: Port Cos – BoD Compensation and Performance Remuneration of BoD members Remuneration Are members paid? related to performance Members All None Some Insiders 23.5% 50.0% 50.0% 33.30% Outsiders 41.2% 22.2% 50.0% 33.30% Independent 35.3% 27.8% 0.00% 37.50% NOTE: Sample of 25 PE/VC organizations Performance Evaluation of key persons Is there performance evaluation? Key persons Formal Informal No Members of the 3.6% 14.3% 82.1% board CEO 54.5% 15.2% 30.3% Executive 55.9% 14.7% 29.4% Officers NOTE: Sample of 34 PE/VC organizationsCopyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 43. Governance: Fd Mgrs & Port Cos – Veto Power by minority fund managers Minority Fund Managers’ Veto Power Yes Other 22,727% No Key person hiring 40,909% Payment of bonuses to executives 50,00% 39% Dividends 54,545% Estrategic Planning 68,182% Annual Budget 86,364% 61% Indebtedness 86,364% Capital Budget 90,909% Acquisitions 95,455% Merger 95,455% NOTE: Sample of 22 PE/VC organizations Incentives and/or penalties related to the executives performance Loss of control by the entrepreneur 0% Positive adjustment in the percetage 12.5% of participation Replacement of key executives 25% Earn-out 50% Stock Options 56.3%Copyright © 2010. Fundação Getulio Vargas - GVcepe. NOTE: Sample of 16 PE/VC organizations
  • 44. Governance: 100 Day Plan Main disruptions in the First 100 Days Yes No 41% 59% NOTE: Sample of 32 PE/VC investee companies Others 10.5% Resolution of environmental contingencies 26.3% Full redesign of business model 31.6% Supply Chain 31.6% Resolution of tax, labor and / or social… 36.8% Marketing Strategy 52.6% Structure of Human Resources 57.9% Financial Strategy 57.9% Management Control 63.2%Copyright © 2010. Fundação Getulio Vargas - GVcepe. NOTE: Sample of 19 PE/VC investee copanies
  • 45. Governance: 100 Day Plan Leadership Main Reasons PE/VC Organization 04% (GP) Partner or Manager Responsible Other 10.5% for the Deal 13% Review of Goals Occurrences Need for involving "First 100 days" management task 29% all hierarchical 21.1% force composed by levels 31% Invested Companys and PE/VC Organization (GP)`s 69% members Competitive environment 31.6% Yes Others change No Need for 54% proprosing more challenging targets 47.4%NOTE: Sample of 32 PE/VC investee companies to the investee PE/VC Organization (GP) Partner or company Manager not Responsible for the NOTE: Sample of 19 PE/VC investee companies Deal NOTE: Sample of 24 PE/VC investee companiesCopyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 46. Governance: Monitoring Activity Time spent by PE/VC Organizations on monitoring* 250 200 193 150 144 100 80 69 58 63 50 41 42 39 7 8 12 7 12 6 6 0 Participation on the Board of Participation in the technical Members of the PE/VC Total Directors committees of the Board of Organization (GP) allocated Directors to the team of the invested company Venture Capital Private Equity Private Equity e Venture Capital Real Estate and Others NOTE: Numbers are average time in hours/month/investee company spent in monitoring activity. Sample of 33 PE/VC investee companiesCopyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 47. Governance: Monitoring Activity Direct contact with executive officers of portfolio company*: HR Director 16% Marketing Director 16% IT Director 18% Others 24% Industrial Director 26% New Business and Expansion Director 29% Chief Controller 32% Commercial Director 39% Chief Administrative Officer / CFO 87% CEO / President 97% NOTE: Direct contact of managing partners of the PE/VC Organization with executive partners of the investee company for the monitoring activity. Sample of 38 PE/VC investee companies.Copyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 48. THE ROAD AHEAD
  • 49. The Road Ahead Making dreams...Copyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 50. The Road Ahead ... Come True!!!Copyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 51. The Road Ahead PE/VC Portfolio Companies Geographic Distribution Incubators and Tech Parks Source: Plonski (2009)Copyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 52. Closing the Gap: Potential for PE/VC investment in innovative opportunities PE/VC Portfolio Companies Geographic Distribution Incubators and Tech Parks Source: Plonski (2009) Source: Plonski (2009)Copyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 53. Educating Entrepreneurs on PE/VC The FGV & ABDI InitiativeCopyright © 2010. Fundação Getulio Vargas - GVcepe.
  • 54. PE&VC Portfolio Companies in 24/26 Sectors 4/6 Programs in Strategic Areas Complexo Tecnologias deHealth Industrial Communications Nuclear Defense Industrial da Complex Informação e Nanotecnologia Nanotechnology Biotecnologia Biotechnology and IT Energy Industry Saúde Comunicação Programs to consolidate and expand leadership 7/7 Petróleo, Oil,Aerospace Complexo Pulp and Chicken andAeronáutico Industry Natural gas and Gás natural Bioethanol Bioetanol Mining Mineração Steel Beef e Petroquímica Petrochemicals Paper Programs to strengthen competitiveness 13/13 Higiene, Automotive Textile and Lumber and Personal Care Civil Complexo de Capital goods Perfumaria Construção Civil Services Industry Clothing Furniture and Cosmetics Construction Serviços e Cosméticos Leather and Education and Shipbuilding Footwear Agroindústrias Agribusiness Biodiesel Biodiesel Plastics OUTROS OTHERSSource: GVcepe and ABDI - Productive Development Policy (PDP)
  • 55. Brazil, the country of the future is now!Copyright © 2010. Fundação Getulio Vargas - GVcepe.