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Professor Brian Butler. Class at university FBV in Recife Brazil

Professor Brian Butler. Class at university FBV in Recife Brazil

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    part 4: Global entrepreneurship class part 4: Global entrepreneurship class Presentation Transcript

    • Global Entrepreneurship Developing Global Mindset for Entrepreneurs
    • Brian David Butler Teaching: Brian Butler is currently a professor with Forum-Nexus, which is co-sponsored by the IQS Business School of the Ramon Llull University in Barcelona, and the Catholic University of Milan. He teaches classes on International Finance and Global Entrepreneurship in brian.butler@forum-nexus.com Europe every July and January. briandbutler@gmail.com LinkedIn/briandbutler Skype: briandbutler In Miami, Brian has taught Finance, Economics and Global Trade at Thunderbird’s Global MBA program in Miami. He previously worked as a research analyst at the Columbia University Business School in New York City.
    • Brian David Butler International: A global citizen, Brian was born in Canada, raised in Switzerland (where he attended international British school), educated through university in the U.S., started his career with a Japanese company, moved to New York to work as an analyst, married a Brazilian, and has traveled brian.butler@forum-nexus.com extensively in Latin America, Asia, Europe and North briandbutler@gmail.com LinkedIn/briandbutler America. Skype: briandbutler Brian currently lives in Recife, Brazil where he is teaching classes on ―Global Entrepreneurship‖ at the university ―Faculdade Boa Viagem‖.
    • KookyPlan – wiki for Entrepreneurs
    • Global Entrepreneurship: developing the global mindset for entrepreneurs Class #4 Saturday April 17th, 2010
    • Schedule for today 1. First ½ - Finance 2. After break ▫ Discussion about Group Projects ▫ Presentation of homework – transferrable ideas 3. Continue - Finance of startups (part A)
    • Group Project - proposals • Group 1 • Group 2 • Group 3 • Roberta • Pedro • Luiza • Diogo • Rodrigo • Arthur • Carol • Augusto • Italo • Ana Maria • Juliana • Emanuel • Transferrable Idea: Clube de Estrelinha • Transferrable Idea: • Transferrable Idea: assigned: TIVO • Countries: assigned: NET FLIX ▫ Brazil to USA • Countries: ▫ USA to Brazil • Countries: ▫ Clube ▫ USA to Brazil Estrelinha ▫ Tivo ▫ Other ideas? ▫ shopping cart, ▫ Or others?
    • Group Project • First step – • Second step: ▫ you need to get my approval for which project you wish to • MARKET RESEARCH: submit ▫ Divide up your team to conduct ▫ I need to SEE example of thorough market research – working in other country – ▫ Including full analysis of what photos, website, reviews by makes the business work in magazines, news articles, etc foreign country, with estimates ▫ Send me by email of cost, profits, business model ▫ Including PEST analysis comparing factors between countries ▫ Including full analysis of competition in new country and full cost/ profit analysis of market potential
    • Group Project – Step 1 • Getting approval for your project • If you do not have a project of your own approved, or one in mind… you might consider one of the following (pre-approved) projects…. • TIVO, or NETFLIX • Localization to Brazil…
    • • NET FLIX • TIVO • http://en.wikipedia.org/wiki/Netflix • http://en.wikipedia.org/wiki/Tivo • Netflix (NASDAQ: NFLX) is a service offering online flat rate DVD • TiVo is a brand and model of digital and Blu-ray disc rental-by-mail and video recorder (DVR). TiVo was video streaming in the United introduced in the United States and States. is now available in New Zealand, Canada, Mexico, Australia, Taiwan, and the UK. TiVo DVRs provide an electronic television programming schedule, whose features include Season Pass recordings which record every episode of a series, and WishList searches which allow the user to find and record shows that match their interests by title, actor, director, category, or keyword.
    • Group Project – know your audience • Assume the reader of your report will be an investor that might invest in your project. • Assume that you might want to do this project yourself (at the end of this semester). • The Group Project should result in a professional-looking document that you could take to present to investors (assuming you needed to raise money to follow your business plan)
    • Group Project – know your audience ▫ Assume that you would really consider doing this project, and assume that I am a Finance professional with money to potentially invest in your project. Your job is to convince me to invest in your project. ▫ Create a viable marketing and business plan for this market-entry project into the USA. Careful analysis needs to be made to see if it would work before I would be willing to invest in your idea. ▫ Make sure to read CH 4 from the book (digital sent by email)
    • Opportunity Analysis Plan • First step (before you make a full-fledged business plan) 1. Describe the idea and its competition, 2. Market analysis: Assess the domestic and international market for the idea, including profit and cost estimates 3. Team analysis: An assessment of the entrepreneur and the team, and 4. Next-step analysis: A discussion of the steps needed to make the idea the basis for a viable business venture. Textbook: ―International Entrepreneurship‖, Hisrich, Ch4
    • Group Project Assignment – for next week • #1. Form Group • Please divide up the project among your team, ▫ and email me back (by next WEDNESDAY) outlining who is going to work on which part of this project (who is going to research what?) ▫ Note: you don’t have to do the actual research all by next class, but you MUST have met with your group, discussed the case, and divided the task of who will research what…
    • Individual presentations • Each student is to present their ―transferrable idea‖ to the class
    • Individual presentations • Before we begin… • One comment: ▫ Use PEST analysis to look for why a business might NOT work when transferred from ONE country to ANOTHER
    • Transferrable idea - P.E.S.T analysis (or PESTLE) • use this framework to look for reasons that the "transferable" idea might not work here: ▫ i.e. what is Economically, or socially, or technologically different about Brazil that might make the idea NOT transfer well.... • The PEST analysis tool is a framework for critically analyzing quickly whether or not a foreign market entry will have a chance or not.
    • Transferrable idea - P.E.S.T analysis (or PESTLE) • Political factors, ▫ What is different in the new country that might make the business NOT work? ▫ Different laws? Different regulations? Different taxes? tax policy, labour law, environmental law,trade restrictions, tariffs, and political stability. Political factors may also include goods and services which the government wants to provide or be provided (merit goods) and those that the government does not want to be provided (demerit goods or merit bads). Furthermore, governments have great influence on the health, education, and infrastructure of a nation.
    • Transferrable idea - P.E.S.T analysis (or PESTLE) political • ecological/environmental issues • current legislation home market • future legislation • international legislation • regulatory bodies and processes • government policies • government term and change • trading policies • funding, grants and initiatives • home market lobbying/pressure groups • international pressure groups • wars and conflicts
    • Transferrable idea - P.E.S.T analysis (or PESTLE) • Economic factors ▫ What is different in the new country that might make the business NOT work? ▫ Do consumers have less spending money? Is currency weaker? What is different? Consider economic growth, interest rates, exchange rates and the inflation rate. These factors have major impacts on how businesses operate and make decisions. For example, interest rates affect a firm's cost of capital and therefore to what extent a business grows and expands. Exchange rates affect the costs of exporting goods and the supply and price of imported goods in an economy
    • Transferrable idea - P.E.S.T analysis (or PESTLE) economic • home economy situation • home economy trends • overseas economies and trends • general taxation issues • taxation specific to product/services • seasonality/weather issues • market and trade cycles • specific industry factors • market routes and distribution trends • customer/end-user drivers • interest and exchange rates • international trade/monetary issues
    • Transferrable idea - P.E.S.T analysis (or PESTLE) • Social factors ▫ What is different in the new country that might make the business NOT work? ▫ What social values are different? What cultural habits are different? Include the cultural aspects and include health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety. Trends in social factors affect the demand for a company's products and how that company operates. For example, an aging population may imply a smaller and less-willing workforce (thus increasing the cost of labor). Furthermore, companies may change various management strategies to adapt to these social trends (such as recruiting older workers).
    • Transferrable idea - P.E.S.T analysis (or PESTLE) social • lifestyle trends • demographics • consumer attitudes and opinions • media views • law changes affecting social factors • brand, company, technology image • consumer buying patterns • fashion and role models • major events and influences • buying access and trends • ethnic/religious factors • advertising and publicity • ethical issues
    • Transferrable idea - P.E.S.T analysis (or PESTLE) • Technological factors ▫ What is different in the new country that might make the business NOT work? ▫ What level of technology are people in the new country familiar with? What standards to they use? Include aspects, such as R&D activity, automation, technology incentives and the rate of technological change. They can determine barriers to entry, minimum efficient production level and influence outsourcing decisions. Furthermore, technological shifts can affect costs, quality, and lead to innovation.
    • Transferrable idea - P.E.S.T analysis (or PESTLE) technological • competing technology development • research funding • associated/dependent technologies • replacement technology/solutions • maturity of technology • manufacturing maturity and capacity • information and communications • consumer buying mechanisms/technology • technology legislation • innovation potential • technology access, licencing, patents • intellectual property issues • global communications •
    • Transferrable idea - P.E.S.T analysis (or PESTLE) • You may also want to consider… • Legal factors include discrimination law, consumer law, antitrust law, employment law, and health and safety law. These factors can affect how a company operates, its costs, and the demand for its products. • Environmental factors include weather, climate, and climate change, which may especially affect industries such as tourism, farming, and insurance. Furthermore, growing awareness to climate change is affecting how companies operate and the products they offer--it is both creating new markets and diminishing or destroying existing ones.
    • Global Entrepreneurship: developing the global mindset for entrepreneurs Class #4 Saturday April 17th, 2010
    • Homework for this week • One group assignment – cancelled. Will re-assign this task next week • 2 individual assignments • Due Dates: ▫ If you want feedback PRIOR to next class… you must email me the homework before WEDNESDAY at midnight (before next class) ▫ Otherwise, all homework is due at the start of our next class, Saturday
    • Homework #1 • Find company abroad that has raised money ▫ What problem are they addressing? How solving? ▫ What trend are they getting in front of? ▫ If you were to localize that business to Brazil, would the same problem exist? Same solution be appropriate? Are the same trends important in Brazil? (Include a PEST analysis.) • Plan on taking that business model to Brazil (creating a similar business in Brazil) ▫ You will need to raise money (either in Brazil or from foreign sources of capital) ▫ I will be the VC (venture capitalist) ▫ Your job; convince me to invest – in 5 minutes To turn in: ▫ Maximum 1 page – word document – submit by email to : briandbutler@gmail.com Be prepared to present your analysis in Class (with class review) To present in class: ▫ 5 minutes to convince class to invest in your project
    • Homework #2 • Dream Company: • What would you do if you won the lottery? But, you could only spend the money on creating a business… what business would you create? ▫ Tell me 1-3 ideas ▫ What if I told you the $$ would only be available to ―high growth‖ business, but if you had an idea with big enough growth potential, then UNLIMITED money was available To turn in: ▫ Maximum 1 page – word document – submit by email to : briandbutler@gmail.com
    • Remember our discussion of the 3 types of entrepreneurs? 1. Local for local 2. High growth 3. Global Question – why do ―high growth‖ companies attract the Venture Capital?
    • Angel investor: Risks: • Chances of success: • approximately 30%: • Rule of thumb for VC investments: of 10 deals.... 4 will die....3 will do ok..... and only 3 will be a success • And only 1 will be a BIG success (BIG payout ….paying for other failures) http://kookyplan.pbworks.com/
    • If you won the lottery? • What would you do with the money? • Note: money IS available!! • Next: case study of company raising money for their venture in China….
    • Finance: Case study to introduce the topic
    • Funding a new business – case study • Fion Lin and C. A. Lin are unlikely entrepreneurs. The pair—who share the same surname but are not related— gave up well-paying careers in the venture capital industry to launch a chain of what they call wellness cafes in a part of the world where junk food seems to reign supreme. • ―We strongly believe that wellness is going to be the next big thing,‖ Mr. Lin said. (Trend, get ahead of it!) • ―If we position ourselves right, we can take advantage of the inevitable boom in the wellness industry as baby boomers get older and Generation X becomes more aware of what they eat and drink.‖ Textbook: ―International Entrepreneurship‖, Hisrich, Ch4
    • Funding a new business – case study • After 2 years of market research and feasibility studies, Mr. Lin, who is chief executive, and Ms. Lin, who is president and chief operating officer, discovered a market for healthy food that could be served quickly, consumed in comfortable surroundings, and sold at affordable prices. Textbook: ―International Entrepreneurship‖, Hisrich, Ch4
    • Funding a new business – case study • They set up Kosmo, testing the waters with an outlet in Shenzhen. This was followed by a two- story location at a busy street corner in Lan Kwai Fong, where a series of businesses had failed in recent years. • Two years later, there are three outlets of Kosmo in Beijing, four in Hong Kong, and five in southern China. The company opened 40 outlets (restaurants) between 2007 and 2008 and will move into overseas markets in the next 5 years. Textbook: ―International Entrepreneurship‖, Hisrich, Ch4
    • Funding a new business – case study • ―Our short-term target is to become the number one wellness lifestyle brand in China,‖ Ms. Lin said. ―In the longer term, we want to become the leading wellness lifestyle brand globally.‖ ▫ Note: they are dreaming BIG (not just local) Textbook: ―International Entrepreneurship‖, Hisrich, Ch4
    • Funding a new business – case study • Mr. Lin said raising cash to fund the venture had never been a problem. ―It wasn’t that difficult to raise money for Kosmo,‖ he said. ―There is money out there, but you have to be different and not a copycat, and you have got to identify a market gap and then fill it.‖ Textbook: ―International Entrepreneurship‖, Hisrich, Ch4
    • Funding a new business – case study • How did they raise the money? ▫ started by holding talks with people they had met to find out whether anyone shared their values. ▫ Then put together a business plan with revenue models and projections of how those models could support sustainable business growth. ▫ They made formal presentations to the people they had identified as having the most potential, and 90% came on board. Textbook: ―International Entrepreneurship‖, Hisrich, Ch4
    • Funding a new business – case study • Types of investors available: • Banks ▫ When it comes to financing start-ups, banks in Hong Kong are reluctant to lend money to entrepreneurs without a good track record. ▫ So, Banks were NOT a great source of capital for their startup • Self funding ▫ Apart from putting their own money into a venture, new business owners can consider borrowing money from family and friends, which is known as bootstrapping. ▫ Good potential source of initial funding, but limited, and has trouble of being too close to family Textbook: ―International Entrepreneurship‖, Hisrich, Ch4
    • Funding a new business – case study • Types of investors available: • Angel investors ▫ They can also look for angel investors—successful businessmen willing to invest in a new enterprise. ▫ Great source of startup capital for MANY entrepreneurs • Venture capitalists— ▫ companies that fund new enterprises with considerable growth potential—are another option. ▫ Professional investors in startups, but its difficult to get their attention due to lots of entrepreneurs competing for their $$ Textbook: ―International Entrepreneurship‖, Hisrich, Ch4
    • Funding a new business – case study ―Venture capitalists are usually looking for something to invest in for 3 to 4 years,‖ said Hanson Cheah, managing partner at AsiaTech Ventures. ―Because of the risk they are taking they would expect a very large return. They would want their investment to grow four times in 4 years.‖ Textbook: ―International Entrepreneurship‖, Hisrich, Ch4
    • Approaching Venture Capitalists • Many people approach venture capitalists with innovative ideas, but they need a viable business plan if they want to be taken seriously. • In addition to having a competitive edge in a growing market, they should have a management team with the right potential. Textbook: ―International Entrepreneurship‖, Hisrich, Ch4
    • Approaching Venture Capitalists • Most important, there needs to be significant room for growth and that is what Mr. Lin and Ms. Lin got right. “Venture capitalists wouldn’t be interested in a restaurant, but they would be interested in a chain of restaurants,” Mr. Cheah said. ―Unless the business can grow at between 20% and 30% per year, most investors would not be interested and it is unlikely that a single outlet could sustain that kind of growth.‖ Textbook: ―International Entrepreneurship‖, Hisrich, Ch4
    • Finance: Inspiration: a look at money available
    • Finance: • Intro to the role of finance for entrepreneurship • Topics to cover: ▫ Terms and definitions to know, understand ▫ Venture Capital, Angel finance, seed funding, bootstrap funding ▫ Incubators, Business plan challenges, YCombinator ▫ Lessons for entrepreneurs: what kinds of firms are attracting global Venture Capital?
    • Inspiration - raising $$ Gemvara Raises $5.2 Million For Custom Jewelry Shopping Online • 07 Apr 2010 ▫ Back in July 2008, we wrote about a company called Paragon Lake that had raised $5.8 million to put kiosks in jewelery stores to help you design custom jewelry. Earlier this year, the company got a new name (it’s now called Gemvara), its CEO departed (it’s now being led by founder Matt Lauzon), and it has a new business model: it’s now a consumer facing site that allows users to create their own custom jewelery from the comfort of their home. ▫ Today, the company is announcing that it has raised another $5.2 million in Series B funding. The new round was led by Highland Capital Partners and Canaan Partners, who both led Gemvara’s Series A round.
    • Inspiration - raising $$ • Quirky Raises $6 Million For Social Product Development Platform • 07 Apr 2010 ▫ Quirky, a social network for product development, has raised $6 million in Series A funding
 led by RRE Ventures, with Village Ventures, Contour Venture Partners, Lowercase Capital and a small group of angel investors participating in the round. ▫ Prior to the closing of this round, Quirky had raised $1.6 million in seed capital from friends and family. ▫ As we reported in our initial review of the site, Quirky is a platform for product ideas that are born on napkin doodles and in other unorthodox ways. The site then tries to use crowdsourcing to develop the product, by engaging participants in collaborating on every aspect of product creation – from ideation, design, naming, manufacturing, marketing, to sales. It’s like a social network for product development.
    • Inspiration - raising $$ • Quirky Raises $6 Million For Social Product Development Platform • Founded by serial entrepreneur Ben Kaufman (he created mophie and kluster), Quirky lets users submit their product idea for $99. Users can also vote, rate, and influence other people’s product ideas. Every week users can post ideas on quirky to be rated by the quirky community. After a seven day evaluation period, the quirky community chooses one product from the pool of submitted ideas to move forward through the process. Quirky’s community engages and contributes to every part of the product’s development, weighing in on everything from naming to logo selection to packaging. • Since the site’s launch last summer, the platform and its community have helped developed 12 different products, including a cord untangler, and a portable mug spoon. The new funding will be used towards the construction of a full-scale rapid prototyping shop, the hiring of a global sales force, greater retail distribution, 24-hour design and engineering capacities, and added interactive collaboration tools. • Quirky is similar to one of Kaufman’s previous ventures, NameThis, and other sites IdeaBlob and Innocentive. • CrunchBase Information: quirky
    • Be inspired – see what kinds of companies are getting $$ funded Key source of inspiration… Tech Crunch is awesome!!
    • Be inspired – see what kinds of companies are getting $$ funded VentureBeat.com Key source of inspiration… if you see how much $$ is being raised each week!
    • Be inspired – see what kinds of companies are getting $$ funded Sign up for the weekly newsletter email!!
    • Finding Venture Capitalists • Don’t just ―find‖ them, ENGAGE them in discussions on twitter: Twitter: follow VC's and Angels on Twitter: • Angel Investors • Atlas Venture • August Capital • Baroda Ventures • Best Buy Capital • Benchmark Capital • Betaworks • Bessemer Venture Partners • Clearstone Venture Partners • DFJ Growth Fund • Emergence Capital Partners • Full list found here: http://venturemaven.com/venrock
    • Finding Venture Capitalists • External Links to Research VC firms ▫ Pratts Guide: the best source available - go to your local library and look for this book. ▫ Website http://www.crunchbase.com/financial- organizations (listed alphabetically) ▫ Website: http://punctuative.com/vcdb/ find by geography, and school background ▫ Peer-review website called TheFunded. But beware, the reviews are by entrepreneurs (many of which were told "no"), so know that the information as biased, and might not reflect happily funded entrepreneurs experience. That said, the site does give some much needed insight and reviews of VC's.
    • Finding Venture Capitalists • startup incubators • model: introduce new companies to Venture Capitalists...offering startups seed funding, guidance, and connections in exchange for equity. ▫ DreamIt Ventures’ ▫ Y Combinator ▫ TechStars,
    • Finding Venture Capitalists • Florida • see more: Venture Capital in Florida and for entrepreneurs, see startups in Florida
    • Finding funding sources • For social ventures • List of funding resources - LINKS: • Latin America ▫ ACCION International ▫ Americas Society ▫ Amigos de las Américas ▫ Institute of the Americas ▫ Intercultural Center for Research and Education ▫ Organization of American States ▫ Pan American Development Foundation ▫ Partners of the Americas ▫ Resource Center for the Americas • • More at: http://kookyplan.pbworks.com/Investing-in- socially-good-projects
    • Money available: for BIG ideas (with great teams) In Brazil…
    • Private Equity in Brazil • Blackstone prepares Brazil fund • Blackstone Group is gearing up for a $675 million fund set to invest in Brazil, contributing $500 million of its own capital. The fund will invest in infrastructure, civil construction, food, health and education. Reuters • Schwartzman said global market turbulence was not affecting its Brazilian plans or its ties with local partner Patria Investimentos, which already has two funds in Latin America's largest country http://www.altassets.com/
    • Recent headlines – of fundraising for Brazilian Private Equity (PE) • Brazilian PE fundraising to triple for year to June 2011 • Category: Brazil | Publishing date: 14 Apr 2010 • Brazil-based private equity funds could raise up to $15bn from investors by mid-2011, driven by a growing economy and increased financial risk- taking, according to Reuters. http://www.altassets.com/
    • “Private Equity” Industry Angel Venture Private Equity Investors Capital funds
    • PE and VC – whats the difference? • PE (private equity) can refer to the entire Industry (which includes both PE and VC), or just to Private Equity fund • Private Equity = a general term to describe the industry. PLUS, its also a fund-specific term to define investments in more mature funds, as described here: ▫ ―Enquanto o venture capital está relacionado a empreendimentos em fase inicial, o private equity está ligado a empresas mais maduras, em fase de reestruturação, consolidação e/ou expansão de seus negócios.‖ http://www.abvcap.com.br/UpLoad/Arquivo/S obre%20o%20setor.pdf
    • Recent headlines • Advent raises largest ever Latin America PE fund with $1.65bn close • Category: Latin America | Publishing date: 12 Apr 2010 • Advent International has closed its latest Latin American fund on $1.65bn, making it the biggest ever private equity fund to be raised for the region. http://www.altassets.com/
    • Recent headlines • Brazilian buy-out funds (PE) sitting on $9bn in dry powder • Category: Brazil | Publishing date: 01 Mar 2010 • Brazilian private equity funds are poised to spend billions, spurred by what people familiar with the country say is the strongest investment environment for 20 years. Brazilian buy-out groups have $9bn in dry powder to deploy in the country, according to Bloomberg, who cited representatives of the country’s private equity and venture capital association, Abvcap. http://www.altassets.com/
    • Recent headlines • Carlyle makes first Brazil deal with $250m buy-out (PE) of holiday package firm CVC • Category: Brazil | Publishing date: 08 Jan 2010 • The Carlyle Group has made its maiden private equity investment in Brazil, acquiring CVC Brasil, said to be the largest tour operator in Latin America. http://www.altassets.com/
    • Recent headlines • Banco Bradesco, Banco Espírito Santo establish Brazilian private equity firm 2bCapital • Category: Private Equity News | Publishing date: 17 Sep 2009 • Banco Bradesco and Banco Espírito Santo have partnered to create 2bCapital, a new private equity fund manager targeting Brazil. 2bCapital will be controlled on an equal basis by the subsidiaries BRAM - Bradesco Asset Management and Espírito Santo Capital, according to a statement. http://www.altassets.com/
    • Money available… • “Foreign direct investment will jump 74 percent this year to $45 billion, matching the record in 2008, ▫ as the country builds houses, subways, railroads, roads, hotels and stadiums for the soccer and Olympic games” ▫ Goldman Sachs Group Inc. Chief Economist Jim O’Neill said at a conference in Rio de Janeiro on Feb. 22. http://vc-brazil.com/blog/
    • Money available… • “The word is out that there are considerable amounts of money looking for a home so the sellers tend to ask for high valuations,” ▫ said Mark Mobius, who manages $34 billion in emerging market assets at Singapore-based Templeton Asset Management Ltd. http://vc-brazil.com/blog/
    • Money available • If you have good, original ideas • With a solid business plan • Money is surely available…
    • 4. Venture Capital Finance in Brazil: A look at the Brazilian VC industry
    • Private Equity Firms in Brazil: • International Firms with PE operations in Brazil: ▫ Citi (based in Miami) ▫ Blackstone Group (see news article here) - partnership with: Patria Investimentos http://kookyplan.pbworks.com/private+equity+in+Brazil
    • Funds in Brazil • Big Players – PE active in Brazil ▫ Rio Bravo Investimentos, run by former central bank President Gustavo Franco. ▫ Grupo Santander Brasil ▫ Arminio Fraga - the former Brazilian central banker’s fund company Gavea Investimentos Ltda ▫ San Francisco-based Paul Capital Partners ▫ Axxon Group in Rio de Janeiro ▫ Carlyle Group, the world’s second-largest private equity firm, plans to invest $1.2 billion in Brazil in five years ▫ Templeton Asset Management Ltd. http://vc-brazil.com/blog/
    • Funds in Brazil • Startup VC funds ▫ Ideiasnet, ▫ Monashees, ▫ Criatec, ▫ FIR, ▫ Confrapar http://vc-brazil.com/blog/
    • Funds in Brazil • Government Funds ▫ BNDES, ▫ FINEP ▫ Previ, Petros, Funcef e Fapes já tem parte de seus ativos aplicados em VC/PE. • ―As primeiras ações realizadas pelo governo para o desenvolvimento da atividade de venture capital datam de 1974, por meio de programas do Banco Nacional de Desenvolvimento Econômico e Social (BNDES) e, em 1976, pela Financiadora de Estudos e Projetos (Finep).‖ http://www.abvcap.com.br/UpLoad/Arquivo/Sobre%20o%20se
    • Funds in Brazil • Government Funds ▫ BNDES, ▫ FINEP ▫ Previ, Petros, Funcef e Fapes já tem parte de seus ativos aplicados em VC/PE. • ―As primeiras ações realizadas pelo governo para o desenvolvimento da atividade de venture capital datam de 1974, por meio de programas do Banco Nacional de Desenvolvimento Econômico e Social (BNDES) e, em 1976, pela Financiadora de Estudos e Projetos (Finep).‖ http://www.abvcap.com.br/UpLoad/Arquivo/Sobre%20o%20se
    • Helping Entrepreneurs in Brazil • Instituto Gênesis PUC-Rio • Sebrae • http://www.portaltudoemfamilia.com.br
    • Private Equity Firms in Brazil: • Local Brazilian Firms • Axxon Group • Bradespar • Companhia Riograndense de Participaçoes (CRP) • CVC Opportunity Equity Partners • Decisão Gestão de Fundos (DGF) • Dynamo Venture Capital • Eccelera do Brasil • FIR Capital Partners: new fund 2008: $150 million; high tech focus: Draper Fisher Jurvetson partner in Brazil • Forma Inc • GP Investimentos (see article below): new fund 2008: $2,000 million (is this right? wow!) • Icatu Equity Partners • IdeiasNet • Itamby • ITC Ventures http://kookyplan.pbworks.com/private+equity+in+Brazil
    • Private Equity Firms in Brazil: • Local Brazilian Firms - continued • Jardim Botânico Partners (JB Partners) • Latin Tech Capital Inc. • Mercatto Venture Partners • Multicapital • Pátria Private Equity - partnership with: Blackstone Group (USA) • Patrimônio Investimentos e Participaçóes Ltda. • Rio Bravo • Stratus Investimentos Ltda. • Sul America Capital Partners • The Southern Cross Group Brazil • TK Partners • TMG Capital Partners • Trivèlla Investimentos • Votorantim Ventures http://kookyplan.pbworks.com/private+equity+in+Brazil
    • Venture Capital activity in Brazil • ABVCAP's president, Luiz Eugenio Junqueira Figueiredo, says that 15-20 venture capital (VC) groups now exist in Brazil and that they have raised between 500 million and a billion reais since the year 2000.
    • Venture Capital = “capital empreendedor”
    • About ABVCAP (www.abvcap.com.br): • Brazilian Association for Private Equity & Venture Capital (ABVCAP) • The ABVCAP was founded in 2000. It is a nonprofit institution geared toward the development, stimulus and dissemination of long-term investments in the real sector of the Brazilian economy, from investment and capitalization vehicles for companies, corporate projects and infrastructure in Brazil. Therefore, ABVCAP operates like a representative entity in Brazil for private equity and venture capital.
    • About ABVCAP (www.abvcap.com.br): • It is ABVCAP's mission to expand and improve the several long- term investment fronts in Brazil, in tune with the main international practices on the subject, when applicable to the Brazilian market and conditions. In this context, ABVCAP's mission stands out due to its strategic and essential integration with capital markets as a formulating agent and important driver and recycler of assets/companies on the stock exchanges. • For more information: ▫ Monique Azeredo: ABVCAP Press Liaison ▫ 55 (21) 3970-2432 // mazeredo@abvcap.com.br ▫ ABVCAP: Associação Brasileira de Private Equity & Venture Capital ▫ Avenida Rio Branco, 123, sl. 806 ▫ CEP.:20040-005 - Rio de Janeiro - RJ - Brasil ▫ Tel: + 55 21 3970 2432 ▫ Fax: + 55 21 2292 5607
    • About LAVCA (Latin American VC association) • LAVCA's mission is to promote the growth of the venture capital and private equity industry in Latin America through research, education, networking, best practices, and the advocacy of sound public policy. LAVCA is a not- for-profit trade association serving a core membership of venture capital and private equity fund managers. • • For more information about LAVCA, please visit www.lavca.org. • partnership with Brazil: http://www.lavca.org/lavca/allpress.nsf/0/22F8 27D6A517B6258625730C006B201C
    • About ABDI (www.abdi.com.br): • Brazilian Agency for Industrial Development (ABDI) • The Agency was founded in December 2004. Its mission is to promote Brazilian technological and industrial development by increasing competitiveness and innovation. ABDI's main focus is in the guidelines and strategies set forth by the Industrial, Technological and Foreign Trade Policy (PITCE) for which it is the coordinator, articulator and promoter. • For more information: Marcia Oleskovicz: ABDI Press Liaison • 55 (61) 3962-8700 // marcia.oleskovicz@abdi.com.br • road show to attract foreign investors: • http://www.lavca.org/lavca/allpress.nsf/43119c4ae488f44886256fc80000 5ff2/d267cf8a8a23a6ed8625726800695bbf?OpenDocument
    • http://vc-brazil.com/blog/
    • Challenges to VC industry in Brazil Challenges – high “hurdle rate”
    • Venture Capital is relatively “late” coming to Brazil…why? • Traditional high interest rates (fighting stubbornly high inflation) • High interest rates has been a BARRIER to the development of a local Venture Capital industry… who can explain why?
    • Venture Capital is relatively “late” coming to Brazil…why? • Because… • Think like an investor… if you could earn 18% in safe bank deposits, or publicly traded bonds, stocks (relatively safer than Venture capital, because of the ―liquidity‖… can pull money out quickly)… why would you take the EXTRA risk and invest in a startup. • Contrast this with USA… where interest rates are near zero. Note that PE/VC industry thrives on low-interest economies (where local investors look for extra yield)
    • Private Equity Firms in Brazil: • Local Challenges (high Cost of Capital) • One of the major difficulties of private investing in Brazil is the relatively high cost of capital, and hence the high hurdle rate (see our discussion on WACC) when analyzing investment opportunities. http://kookyplan.pbworks.com/private+equity+in+Brazil
    • • ―When looking at a private investment, it is important to also keep one eye on the returns that can be achieved in the stock market. Equity investors have a choice about where to put their money. On one hand, they can easily invest in the stock market, and achieve the expected average return (using an ETF, they would get the "market return", and would assume the "market risk"). The benefit of investing in the stock market is that it is very liquid, transparent, and efficient. They can take their money out at any time. Also, because the companies publish all of their financial data online, it's easy to check their balance sheets, and compare them vs other companies in the market. This is not true with private companies. • With private companies, investors should receive a premium over what the market is returning because they are assuming additional risk (less liquidity, less transparency, etc). http://kookyplan.pbworks.com/private+equity+in+Brazil
    • Challenges in Brazil But, in Brazil there is a problem in that ordinary investors have come to expect 10-11% returns as normal (average) for assuming very little risk. With the stock market booming in recent years (it was the top performer in the past 12 months), there is an environment where local investors are facing a very large hurdle when analyzing local private investments. If more money can be made in the stock market, many local investors are hence wondering what incentives they might have to invest in riskier (and less liquid) assets. http://kookyplan.pbworks.com/private+equity+in+Brazil
    • Opportunity for Foreign PE capital • This creates an opportunity for foreign investors, who may be more patient, and more willing to finance deals that Brazilians are not. • Similar to situation back in the mid 1990's when Japanese investors had a much lower cost of capital than US competitors, and were therefore more willing and able to consider investing in projects that paid back in a longer time period. • If the WACC is too high, then local investors are discouraged from looking at long-term investments (because the discount rate compounds and makes it difficult to pay back). • But, competitors (foreigners) with lower WACC are able to look at longer-term investments, and be more patient in their investment analysis. http://kookyplan.pbworks.com/private+equity+in+Brazil
    • Limited time only… • While the VC industry is starting to boom in Brazil (as a result of recently falling interest rates)… • … what do you think will happen to the Venture Capital industry in Brazil … IF interest rates go back up? http://kookyplan.pbworks.com/private+equity+in+Brazil
    • Finance: Intro to finance for entrepreneurship
    • Learn to think like an investor… • Most students ask: ▫ ―how can I raise money for my idea from Venture Capitalists?‖. ▫ It’s a good question, but easier to answer if your flip it around, and consider the question from a VC’s point of view: • Why would a VC invest? ▫ Put yourself in their shoes…
    • Class discussion • Cash Flows • Valuation ▫ How do you value an IDEA (may not even be a company yet?) ▫ NPV (net present value) of what? ▫ Options • Risk • Risk capital • Expect big payoff (4x money in 4 years?)
    • Making yourself more attractive to investors… • Goal of the entrepreneur (Raising money) should be to LESSEN the risk for the VC. • How to (appear to be) less risk? ▫ Have a GREAT TEAM (at least one partner with years of substantial experience in industry, or recognizable expertise) ▫ Sustainable competitive advantage ▫ Blue ocean strategy – new market, new product ▫ Original idea • But, note… VC’s hear ―original ideas‖ and ―blue ocean strategies‖ all day long! So, how do you really stand out, and how do you really ―lesson‖ the risk for investors: ▫ Have a great TEAM!!!
    • Finance: Sample startup – creating shares and getting started:
    • Issuing Shares – attracting investors (and partners) • In order to accommodate equity financing, two things have to happen: • 1. You must convince the investor you have a worthwhile enterprise • 2. You must have a business entity that can accommodate investment— that is, you must do the paperwork with your partnership, limited liability company, or corporation to officially grant ownership interests to investors. http://kookyplan.pbworks.com/issuing-shares
    • Issuing Shares – attracting investors (and partners) • Corporations are the ideal means for making an investment. Shares can be issued to reflect ownership interests, and state laws provide for different level of stock ownership— for example, nonvoting and voting shares. • But isn’t forming a corporation a little too pretentious for an invention? No, it isn’t. Corporation law facilitates the formation of very small, liberally regulated corporations http://kookyplan.pbworks.com/issuing-shares
    • Attraction to investors of investing in a startup corporation • ―In general, when it comes to investment, there is something about owning speculative stock in a real corporation that appeals to the adventurous capitalist in most of us. http://kookyplan.pbworks.com/issuing-shares
    • Dividing the Pie With Strategic Partners • Probably the most important question that arises when granting equity to strategic partners is what percentage of the shares of the company the inventor should grant to each partner. • There is one simple answer to this question: • As little as possible while still respecting the profit motive of the investor. http://kookyplan.pbworks.com/issuing-shares
    • Dividing the Pie With Strategic Partners • If you give up a big chunk of stock to early partners, you almost certainly won’t be able to attract the right capital later on. • Thus, when your product is ready to ―roll out,‖ you will be severely handicapped by not having sufficient finance, and your enterprise will remain ―small potatoes,‖ that is, an interesting little business that could have made it big http://kookyplan.pbworks.com/issuing-shares
    • Dividing the Pie With Strategic Partners • Carried to its extreme, you might believe that an offer of one percent of your company is fair. • Not so. • An offer of one percent would likely insult the intelligence of any potential strategic partner and kill any deal before it got beyond the exploratory conversation. http://kookyplan.pbworks.com/issuing-shares
    • Dividing the Pie With Strategic Partners • Ten percent of a startup company is the kind of minimum talking figure that might attract me if I were a designer or patent attorney. • But only if that ten percent were in some equitable relationship to the amount of stock you claimed for your own, as the founder, and for the other partners. http://kookyplan.pbworks.com/issuing-shares
    • Dividing the Pie With Strategic Partners • The mechanism for ―dividing the pie‖ is that of issuing stock or shares. • For example, suppose you start out with a declaration that your corporation has 100 shares. These shares represent its total value at the time you incorporate. • The true value may be nothing or even negative at this time, but that’s not the point. http://kookyplan.pbworks.com/issuing-shares
    • Dividing the Pie With Strategic Partners • Now, you take in three equal partners who are each given 10 shares in exchange for their contributions. You hold 21 shares. The remaining 49 shares are held ―in the treasury,‖ which may be only an envelope in your milk- crate file at this time. This is an example of the humble beginning of a corporation that at least has defined who owns how much. http://kookyplan.pbworks.com/issuing-shares
    • Dividing the (shares) “pie” Sales partner 1 partner 2 partner 3 You keep Keep in Treasury
    • Finance: Attracting Angel investors
    • Dividing the Pie With Strategic Partners • Some angels will want 51 percent so that they can control the company and kick out any partners who are not effective (or even kick out some who are effective in order to kick in their own people). • Other angels will want a substantial chunk, but not control, preferring that the control, and the burden of succeeding, remain with the entrepreneur and his or her strategic partners. http://kookyplan.pbworks.com/issuing-shares
    • Dividing the Pie With Strategic Partners • Thus, it seems prudent to never yield more than a total of 49 percent except in the most desperate circumstances. • In other words, you and all of your partners should hold at least 51 percent forever, if possible. (The more successful you become, the less likely you’ll be able to hold onto that 51 percent. Not necessarily a bad situation.) http://kookyplan.pbworks.com/issuing-shares
    • Dividing the Pie With Strategic Partners • How Much Equity Does an Angel Want? • Angels want a piece of your business— usually represented by corporate shares. • angel investors typically receive 21% equity in the businesses in which they invest. However, of course, an angel who wants to control the business will seek a majority stake. http://kookyplan.pbworks.com/issuing-shares
    • Dividing the Pie With Strategic Partners • The actual amount an angel wants from your company depends on how much the investor is placing into the business and how your invention business • is valued. Typically, the investment equals a percentage of the business value. So, if your invention business is valued at $100,000, an angel would, as a very general rule, expect to pay $25,000 for a 25% ownership interest. http://kookyplan.pbworks.com/issuing-shares
    • Dividing the Pie With Strategic Partners • Obviously, there are a few challenges here. • One is to determine the appropriate market value for your invention business— a difficult task considering the speculative nature of many inventions, especially inventions that have not yet been market-tested. • Another challenge is not only to determine what the company is worth at the time of investment, but also to consider its value at the time when the angel plans to cash in— for example, the value of the company when it is sold in five years. http://kookyplan.pbworks.com/issuing-shares
    • Dividing the Pie With Strategic Partners • But keep in mind that the investor is going to be looking for a return between 20% and 50% annually. • So, if an investor puts in $250,000 for a onequarter interest of a business valued at $1,000,000 and expects to cash out in five years with a 40% per year return, your business would have to be worth $5,400,000 in five years in order for the angel to receive $1,350,000 (a 40% return on $250,000 over 5 years). http://kookyplan.pbworks.com/issuing-shares
    • Dividing the Pie With Strategic Partners • Also, angels may want more than an ownership interest. They may want management power, a right for future financing— for example, to buy more shares at a fixed price or to prevent their ownership rights from being diluted— and/ or some degree of control over the venture. • Making these decisions may be beyond the skill of an inventor. Seek advice when you are asked to make concessions such as creating voting classes, ceding control or power to board members, or granting management control, particularly if you intend to keep a majority interest and control over the board. http://kookyplan.pbworks.com/issuing-shares
    • International IQ moment Inspiration from global travels
    • Potala Palace, Lhasa (Dalai Lama's palace) • Now a Chinese museum, the Potala Palace was traditionally the seat of the Dalai Lama, Tibetan Buddhists' spiritual leader. Famous for its imposing white walls surrounding the inner red palace, the building sits at 3,700 meters or over 12,000 feet. The Potala Palace is located in Lhasa, the capital of the Tibetan Autonomous Region.
    • International IQ • Understand sensitivity of ―Tibet-issue‖ to Chinese politics internationally • Unrest, politics, riots, Olympics • Relations with US, Obama, Europe
    • Homework for this week • One group assignment – cancelled. Will re-assign this task next week • 2 individual assignments • Due Dates: ▫ If you want feedback PRIOR to next class… you must email me the homework before WEDNESDAY at midnight (before next class) ▫ Otherwise, all homework is due at the start of our next class, Saturday
    • Homework #1 • Find company abroad that has raised money ▫ What problem are they addressing? How solving? ▫ What trend are they getting in front of? ▫ If you were to localize that business to Brazil, would the same problem exist? Same solution be appropriate? Are the same trends important in Brazil? (Include a PEST analysis.) • Plan on taking that business model to Brazil (creating a similar business in Brazil) ▫ You will need to raise money (either in Brazil or from foreign sources of capital) ▫ I will be the VC (venture capitalist) ▫ Your job; convince me to invest – in 5 minutes To turn in: ▫ Maximum 1 page – word document – submit by email to : briandbutler@gmail.com Be prepared to present your analysis in Class (with class review) To present in class: ▫ 5 minutes to convince class to invest in your project
    • Homework #2 • Dream Company: • What would you do if you won the lottery? But, you could only spend the money on creating a business… what business would you create? ▫ Tell me 1-3 ideas ▫ What if I told you the $$ would only be available to ―high growth‖ business, but if you had an idea with big enough growth potential, then UNLIMITED money was available To turn in: ▫ Maximum 1 page – word document – submit by email to : briandbutler@gmail.com
    • Mid-term Exam – May 8th, 2010 Note: you should start preparing now… Exam: May 8th, 2010: -- 830 am-10am • 1.5 hrs to take exam • Mixture of ▫ Multiple choice ▫ Short answer (15 words max) ▫ Essay (half page max) • How to prepare ▫ Study all slides from my lectures