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Adriana Cisneros - Roundtable Discussion on Innovation and VC/PE Development in Latin America


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Publication of World Trade Executive, about the participation of Adriana Cisneros in the roundtable “Innovation and VC/PE Development“ in Latin America, organized by the Americas Society and Council of the Americas.

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Adriana Cisneros - Roundtable Discussion on Innovation and VC/PE Development in Latin America

  1. 1. Published by WorldTrade Executive, a part of Thomson Reuters ISSN: 1936-248X VENTURE EQUITY LATIN February 2012 Volume XI, Number 3 In This Issue Roundtable Discussion on INTERVIEW Innovation and VC/PE Development Roundtable Discussion on Innovation and VC/PE Development in in Latin America Latin America 1 The Americas Society and Council of the Americas, which works with Burrill & Co. Sees Opportunity in leading international companies to navigate public policy challenges Heathcare, Biotechnology and and further business interests in the Americas, recently hosted a private Biofuels in Latin America 7 member roundtable in Miami on the VC/PE landscape in the region and opportunities for corporate venturing. “There is a lot of positive FINANCE energy in Latin America today. We believe that entrepreneurship and Don’t Believe the Hype: Brazil IPOs innovation are critical to long term growth and employment in the Face Hard Year 1 region,” says Susan Segal, President and CEO. M&A The four panelists also spoke to VELA in a roundtable discussion: BTG Pactual Buys Chile’s Celfin In   Latam Push 4 Moderator: Alyson Sheehan (Thomson Reuters) BONDS Participants: Adriana Cisneros, Vice Chairman, Cisneros Group of Petrobras Completes Largest Brazil Companies Bond Deal 5 Matthew Cole, Managing Partner, North Bay Equity Partners EQUITIES See Roundtable Discussion on page 10 Brazil Share Sales Seen Recovering After 2011 Slump 6 Don’t Believe the Hype: Brazil IPOs ROUND UP Itau to Spend $6.81 Billion to Take Redecard Private; Inter-American Face Hard Year Development Bank Fuels Impact Investing in Latin America; Gerdau By Guillermo Parra-Bernal (Reuters) Plans Sale of 40 Pct of Mining Unit; 9 Brazil’s once-hyped market for initial public offerings may not recover as swiftly as some bankers have been expecting, as an PE COMPETITION unpredictable economy and the risk of overpriced deals scare First Ever Wharton Latin America Private Equity Competition Turnout 16 investors away.  The hurdles facing tourism company Brasil Travel Turismo, which withdrew its IPO plan this month, and the Brazilian unit of Norway’s Seadrill, which is reworking the terms of its offering, WorldTrade Executive provide a chilling prelude to a market that many only recently thought was set for a hot year.  The International Business Information Seen for most of the last decade as a symbol of Brazil’s buoyant SourceTM See Don’t Believe the Hype on page 2
  2. 2. FinanceDon’t Believe the HypeContinued from page 1capital markets, IPOs have languished in the past Last year, investors drove the benchmark Bovespatwo years as prices sank for many names that index down 18 percent. Only 11 initial publicwent public. While most markets have gradually offerings were completed in 2011, with eight pricingrecovered from the global financial crisis of 2008, at the bottom or below the suggested price range,IPOs remain out of favor.  data by Ernst & Young showed. The trend underscores how investors in Brazil are That is a sharp drop from 2007, when more than 70still reluctant to take on risky bets like IPOs, the companies went public, and seven of every 10 dealsmechanism that small and sometimes inexperienced priced within the suggested range. In fact, Braziliancompanies use to raise capital. Instead, investors are companies raised more funds through IPOs betweenmore willing to pour money into existing equity and 2006 and 2008 than they did in the two precedingbonds, where it is easier to assess risks.  decades.“Why bother betting on a company you have never Foreigners on the Sidelinesheard of when you have so many other good namestrading on the stock exchange?” said Frederico Foreign investors, traditionally the biggest buyersMisnik, who helps oversee more than $40 million in of local IPOs because of their strong shareholdingassets at Humaitá Investimentos in São Paulo.  culture, snapped up more than three-fourths of such deals in 2006-2008, hoping the newly listed companies would deliver stellar profits.  Venture Equity Latin America But they are slowly moving to the sidelines as the Published by WorldTrade Executive, perceived quality of stock market debutants slipped. A Part of Thomson Reuters Foreign investors’ take of local IPOs fell to 56 percent P.O. Box 761 – 2250 Main St. Suite 100 last year, and analysts expect that percentage to keep Concord, MA 01742 falling.   Tel: 1-978-287-0301 Fax: 1-978-287-0302 “A more conservative mood has overtaken markets, Gary A. Brown, Publisher and you can be sure that many IPOs will be challenged,” said Paulo Dortas, an Ernst & Young partner who specializes in Brazilian IPOs. “Investors Editor: won’t abide by a price or a structure that doesn’t Alyson Sheehan, reflect the return they are aiming for.” Correspondents: Investors have also balked at what they deem as Elizabeth Johnson, timid government efforts to combat inflation, which reached seven-year highs during 2011. The central bank began cutting interest rates in August, after Dan Weil, five consecutive increases. Venture Equity Latin America is published 20 times a year Efforts to stem massive gains in Brazil’s currency, the by WorldTrade Executive, a part of Thomson Reuters. Venture real, led President Dilma Rousseff’s administration to Equity Latin America is a trademark of Thomson Reuters. raise taxes on some financial transactions, making it Subscriptions are $1495.00 per year. Entire contents copyright more expensive for foreigners invest in Brazil.  2012 by Thomson Reuters/WorldTrade Executive. Reprinting, transferring or forwarding contents, in whole, or in part, is a “The economic scenario has not been supportive of violation of federal and international copyright laws. To order or IPOs, either,” Dortas said.  for questions, please call (978) 287-0301 and ask for Subscriber Services. February 2012 Venture Equity Latin America
  3. 3. Finance Bond Bonanza Brasil Travel, the product of 35 mergers over the past year, remains an unknown for many investors. The lethargy afflicting IPOs in Brazil contrasts withrecord foreign inflows into the Bovespa and a frenzy Market sources told Reuters this month that bankersof Brazilian corporate bond sales abroad this year.  considered cutting the IPO’s suggested price to 850 reais a share and allowing existing shareholders toA record $7.2 billion of foreign money flowed into buy up to 50 percent of the deal, up from an initialthe Bovespa in January. Investors bought $15 billion 15 percent threshold.worth of corporate debt sales by Brazilian firms inthe year through this month.  The company first cut the price to 1,000 reais from a range of 1,250 reais to 1,650 reais on the day the IPOYet, some industry leaders are still betting big on was set to price. The next day, Brasil Travel askedIPOs.  regulators to cancel the request to become a publicly listed company. Edemir Pinto, chief executive officer of financialexchange operator BMFBovespa, expects up to 40 “What people want right now are plain vanilla deals,Brazilian IPOs to price this year, almost double the and companies with stories they know instead ofcombined 22 transactions of 2010 and 2011.   these obscure stories,” a Brazil-based banker told International Financing Review on the condition ofErnst Young’s Dortas, in contrast, sees no more anonymity. than 20 IPOs this year. Investors will use their cloutto push suggested price tags towards a level they Seadrill’s Seabras deal could attract a lot of interest,consider “fair,” he said.  should the company resolve its contractual problems with state-run oil giant Petrobras, Misnik said.Bankers at Itaú BBA and BTG Pactual, the two largest Unlike Brasil Travel, Seadrill is a well-knownBrazilian investment banks, remain hopeful that company with an established track record. activity will bounce back as the year progresses.  This month, Brazilian meatpacker JBS announced“Bond sales are leading the recovery, but I am plans to list its Vigor dairy unit on the São Paulosure that equity follow-ons will resume soon, and Stock Exchange. The 95-year-old company mighteventually IPOs will get their chance,” Sandy be more likely to entice investors like Misnik backSeverino, the head of BTG Pactual’s global bond to the IPO market. underwriting team, said in a phone interview fromNew York.  Reporting by By Guillermo Parra-Bernal. Additional reporting by Joan Magee in New York; Editing by ToddJosé Olympio Pereira, co-head of investment banking Benson and Lisa Von Ahn. at Credit Suisse Group in São Paulo, said in Decemberthat companies could assuage investor concerns by .......................................scaling down their fundraising goals.   On-Line Research Access toIn the case of Brasil Travel, that strategy did not work.Credit Suisse was one of the four banks handling Back Issues ofits IPO.       Nightlong Efforts Venture EquityThe collapse of the Brasil Travel deal, which originally Latin Americawas to raise 1.45 billion reais ($842 million), signalsthat investors will keep shunning companies with For details, please contactgreat ambitions but an insufficient track record, poor Jay Stanley atearnings visibility or vulnerability to a downturn, Jay.Stanley@Thomsonreuters.comHumaitá’s Misnik said.  or (978) 287-0391 ........................................ Venture Equity Latin America February 2012
  4. 4. MABTG Pactual Buys Chile’s Celfin In Latam PushBy Guillermo Parra-Bernal and Aluisio Alves (Reuters)  BTG Pactual, the Brazilian securities firm owned by a group of investors led by sovereign wealth fundsbillionaire financier Andre Esteves, is buying Chilean late in 2010, a low payout ratio and swelling tradingrival Celfin Capital for about $600 million as it seeks and dealmaking profits, have beefed up cash holdings,to win more investment banking and capital market Esteves said. advisory business in South America.  “We have enough capital for acquisitions,” he said, without elaborating. Esteves spoke besides senior partner Pérsio Arida, a Brazilian economist credited with helping the government tame hyperinflation in “The global agenda for Latin America the mid-1990s.  is gaining relevance in terms of investment inflows, and our goal A source with direct knowledge of the transaction told is to become regional leaders,” Reuters that BTG Pactual agreed to pay $600 million for all of Celfin, which would value the stock portion Esteves told reporters at the bank’s of the deal at about $355 million. The deal valued BTG headquarters in São Paulo’s financial Pactual shares at about three times book value, said district.  the source, who is not allowed to speak publicly on the matter.  Based on such numbers, the Celfin deal would value BTG Pactual at about $14.8 billion, almost 50 percentUnder the terms of the deal, Esteves and his partners more than the $10 billion valuation it got in Decemberwill pay $245 million in cash and give Celfin’s owners 2010, when investors led by buyout firm JC Flowersa 2.4 percent stake in BTG Pactual. The takeover makes Co, the two largest Asian sovereign wealth fundsBTG Pactual the largest independent investment bank and the largest Middle Eastern sovereign wealth fund,in Latin America, further extending its reach into fast- bought 18.6 percent of BTG Pactual. growing economies like Chile, Peru and Colombia.      Since it was formed it 2009, BTG Pactual has been on Banking Prodigya deal-making frenzy in Brazil and abroad as Esteves,a 43-year-old financial wunderkind, strives to turn Esteves, a mathematician who started as a computerthe firm into the largest investment bank in emerging technician at now-defunct Banco Pactual at age 21markets by the end of the decade.  before rising through the ranks to become its managing partner, sold the firm to UBS AG in May 2006 for“The global agenda for Latin America is gaining about $3.1 billion. He and some partners bought backrelevance in terms of investment inflows, and our goal Pactual for about $2.5 billion in 2009 and formed BTGis to become regional leaders,” Esteves told reporters Pactual. at the bank’s headquarters in São Paulo’s financialdistrict.  Esteves, alongside senior partners and some of BTG Pactual’s 1,300 employees, will own 80 percent of theBTG Pactual and Esteves himself have become a symbol firm after the Celfin deal. Forbes Magazine calculatesof Brazil’s growing economic might, competing neck- Esteves’ net worth at about $3 billion. and-neck with big global investment banks in a regionwith bustling capital markets and booming demand for He and his partners have long considered an initialwealth management services.  public offering to bulk up the bank’s capital, but postponed the plans because of volatility in globalThe bank has the financial muscle to undertake bigger markets. Last December, he said an IPO was stilltakeovers going forward as a $1.8 billion stake sale to possible in the medium term, without elaborating.      February 2012 Venture Equity Latin America
  5. 5. MAAt the news conference, Esteves said BTG Pactual In 2011, BTG Pactual topped merger and acquisitionsis growing regionally because a “flatter and more advisory rankings in Brazil for the second year in a row,integrated world” is demanding regional banks to as its focus on retail and other fast-growing segmentsgain a global character. The ability of BTG Pactual to resulted in $24.05 billion worth of announced deals,lure more investment inflows into Latin America will according to Thomson Reuters data. depend “on us building up a strong regional franchisewith global reach,” he said.  The firm advised on 52 deals last year. About $78.64 billion worth of deals were announced in Brazil lastThe deal, which has been in the works since at least year, down from $120.61 billion in 2010, while theAugust, may give BTG Pactual the proximity it needs to number of agreements rose to 745 from 698. win investment-banking and capital markets advisorymandates in Peru, Colombia and Chile - thanks to BTG Pactual’s investment-banking unit helped theCelfin’s contacts with companies and governments controlling shareholders of brewer Schincariol sell athere, Arida said.  50.45 percent stake to Japan’s Kirin Holdings for $2.5      billion.    Top Brazil MA Advisor The bank also advised Italian-Argentine giant TechintThe purchase still requires regulatory approval. Once Group on its $2.9 billion purchase of a 27.7 percentthe deal is completed, Celfin’s 15 main shareholders voting stake in Brazilian steelmaker Usiminas. will become BTG Pactual partners.  Reporting by By Guillermo Parra-Bernal and Aluisio Alves.With Celfin, BTG Pactual will have 129 billion reais ($75 Additional reporting by Cesar Bianconi and Brad Haynes;billion) in assets under management and handle about Editing by Todd Benson, Lisa Von Ahn and Tim Dobbyn.49 billion reais for wealthy investors.  BondsPetrobras Completes Largest Brazil Bond Deal  By Guillermo Parra-Bernal (Reuters) Brazil’s state-controlled oil company Petrobras sold billion in global bonds since the start of the year. The$7 billion of dollar-denominated bonds of different nation’s three largest listed banks and mining giantmaturities this month, in the country’s largest-ever Vale also sold debt over the past month. corporate debt offering.  Yields for the existing bonds were trading slightlyThe Rio de Janeiro-based company sold $1.25 billion below the price guidance, indicating that buyers couldof new three-year bonds yielding 3.051 percent, and profit if bond prices gained in future sessions. Bond$1.75 billion of new five-year bonds at a yield of 3.628 prices, which trade inversely to yields, gain when riskpercent, sources with direct knowledge of the deal told perceptions over the issuer ease. Reuters.  “It was a cost-effective strategy, much cheaperPetrobras also sold $2.75 billion and $1.25 billion of its than coming up with a new issue,” said Alfredoexisting notes due in 2021 and 2041, respectively, said Viegas, a director for emerging markets strategythe sources, who declined to speak publicly on the with Greenwich, Connecticut-based broker Knightplan. Petrobras will pay interest of 4.796 percent and Capital. 5.935 percent for both reopenings, respectively.  Proceeds from the debt sale will be used to fundBrazilian companies, taking advantage of a glut of Petrobras’ $224.7 billion, five-year investment plan - thecash and strong demand for emerging market debt largest in the oil industry globally. The plan aims to tapamong international investors, have sold about $13 See Brazil Bond Deal on page 6 Venture Equity Latin America February 2012
  6. 6. BondsBrazil Bond DealContinued from page 5some of the world’s largest deep-sea oil deposits and 30-year debt in April 2007, in what is still the region’salmost triple production by the end of the decade.  largest debt sale in global markets. The senior unsecured notes will likely be rated A3, the Petrobras’ funding plans are usually seen as a proxy forseventh-highest investment-grade rank, by Moody’s corporate lending trends in Brazil. The company willInvestors Service.  borrow about $47 billion from banks, investors and state development banks by the end of 2014.   Largest-Ever Brazil Debt Sale   About $29 billion of that will go to repay existing andPetrobras’ sale last year of $6 billion in notes was maturing debt, with the remainder going toward thethe largest-ever in Brazil at the time. The company company’s investment plan, executives said last year. raised about $10 billion from bond investors lastyear, including a sale of notes denominated in British The investment-banking units of Banco do Brasil, Itaupounds.  Unibanco Holding, JPMorgan Chase Co, Morgan Stanley Co and Banco Santander are managing theInvestors placed firm bids worth more than $25 billion, deal for Petrobras. in what one of the sources said was “a gigantic book”for a Latin American corporate issue. Venezuela’s state- Reporting by Guillermo Parra-Bernal. Editing by Jamesoil company PDVSA sold $7.5 billion of 10-, 20- and Dalgleish. EquitiesBrazil Share Sales Seen Recovering After 2011 Slump  By Guillermo Parra-Bernal (Reuters)Brazilian stock sales, which took their steepest-ever “The mainstream perception is that Brazilian equitiesplunge in 2011, will recover this year as risk-taking are cheap and that growth is at least taking place heregains traction and Europe’s debt crisis shows signs of - in a world that is barely expanding,” Kiraly said. “Buteasing, the group representing the local investment- investors will be selective and price-sensitive. Theirbanking industry said this month.  return won’t be hasty.” Investors who for most of 2011 piled up cash to cushion Initial public offerings and follow-on share salesthemselves from the deterioration of Europe’s fiscal tumbled not only because of concern over Europe, butwoes might snap up emerging market stocks and also as domestic policy uncertainty crippled demandbonds this year, said Alberto Kiraly, a vice president at for equities. industry group Anbima.  Throughout the year, domestic and foreign investorsTheir return will be gradual, he noted, adding that also balked at timid government efforts to combatpricey offerings may fail to lure their attention. inflation, which reached seven-year highs during 2011.Companies in Brazil raised 18.98 billion reais ($10.3 The central bank began cutting interest rates in August,billion) from the sale of new and existing shares in after five consecutive hikes. the domestic market last year, 87 percent less than in2010, Anbima said in a report this month.   The August cut, which was not expected by any of the February 2012 Venture Equity Latin America
  7. 7. Equities20 analysts surveyed by Reuters, kept investors wary indicator in 2006. In contrast, sales of fixed-incomeof unpredictable policy moves.  instruments such as bonds, notes and asset-backed securities rose to a record 93.68 billion reais. Foreign investors participated in 56 percent of equitysales in Brazil, down from an average 70 percent for Private placements, or sales agreed to by the issuer withmost of the past decade. The share of foreign investor a single investor or investment group, accounted forparticipation in IPOs and similar deals “should show 85 percent of bond sales in the domestic debt market,some improvement, depending on external market Anbima noted. conditions,” Kiraly said.    Reporting by Guillermo Parra-Bernal. Editing by MatthewThe amount of capital raised from stock sales is the Lewis. lowest since Anbima started gathering data for the     InterviewBurrill Co. Sees Opportunity in Heathcare,Biotechnology and Biofuels in Latin AmericaBy Dan WeilBurrill Co., a San Francisco-based private equity/ are finding more interesting opportunities in healthcareventure capital fund manager that focuses on life sci- delivery and healthcare services, not so much in drugences, has just completed the $125 million first close of discovery.its initial fund in Latin America: Burrill Brazil Fund I. There’s very interesting science and innovation here,Burrill, which opened a Rio de Janeiro office in 2009, but it’s still at the level of basic research, not so muchplans to ultimately grow the fund to $200 million. applied research beyond an early stage. So we’ve devel-The first capital infusion includes contributions from oped a strategy to deal with those opportunities.Brazilian investors, two major pharmaceutical andbiotechnology companies and two major multilateral VELA: What kind of things are you looking at inagencies in the region. Brazil?The firm also has plans for a $40 million fund focusing Hospitals and clinics are one thing. One clinic areaon Chile. It hopes to close on that by June 30, says Joao is service for chronic disease management, such asPaulo Poiares Baptista, Burrill’s Managing Director for diabetes and heart problems. That reduces the cost ofLatin America. the disease for health insurance plans. Another area is preventive medicine – check-ups with follow-ups.Baptista recently took time to chat with VELA aboutBurrill’s activity. Here’s what he had to say. We’re looking at some biotechnology at a basic level and biofuels too. Brazil is one of the world’s leadersVELA: What does the market look like for life sci- in biofuels. The level of investment in this area is veryences private equity and venture capital in Latin high. Our fund is very small. We plan to make invest-America? ments of $10 million-$15 million. So we’re looking for breakthrough technology.What we have found after two years of working hardhere is that the opportunities are slightly different from We have found a couple interesting opportunities,what you would find in the U.S. That’s true for Brazil but it’s early. We also have found opportunities in theand Chile. In the U.S., the focus is on drug discovery, U.S. for a technology that doesn’t make much sensecell therapies and digital health. In Latin America we in Brazil. See Opportunity in Latin America on page 8 Venture Equity Latin America February 2012
  8. 8. InterviewOpportunity in Latin AmericaContinued from page 7VELA: You like to invest as part of a syndicate. How’s VELA: Is there a strong scientific community inthe search for partners going? Brazil?Two years ago, we were skeptical about finding co-in- Yes. Many people there trained outside Brazil withvestors. But we are finding a number of Brazilian funds Ph.ds in the U.S. or Europe. The issue is resources. Youand LPs that are interested. We have been contacted by can’t compare Brazil to the U.S. and some EuropeanU.S. funds that are starting to look at Latin America. countries. It’s still far from that. But the governmentPeople want to be part of the explosive economic is offering support and investing more money in thisgrowth and explosive growth of the middle class in infrastructure – research programs. That’s helpingLatin America. researchers and institutions connect with the market. Biotechnology is a key priority for this government. VELA: Are you able to find many entrepreneurs in- The bureaucracy is tough. You have volved in life sciences? to know how to handle it. Brazil has a very good business environment, Entrepreneurs, yes, but management, not as much. but its interest rates are still too That’s an issue. high. That means no leverage is VELA: How does the sophistication of life scientists possible. in Brazil compare with that of those in the U.S.? In terms of technical knowledge, very well; in terms of knowing the market, not so well. In terms of knowl- edge of what’s happening worldwide, there are someThat expanding middle class creates huge demand for shortcomings. They know the science itself, but how itquality health service. The private sector isn’t ready to is being utilized elsewhere is the issue.provide this yet. So there are huge opportunities if youhave a proper strategy to get to market. VELA: Do you plan to eventually invest beyond Brazil and Chile?VELA: How do you see your investments developingover time? Yes, first we are focusing on Brazil and then Chile. But already we are talking to government-related investorsBrazil is reacting fast, so things will evolve quickly. in Colombia. That country is growing very fast, stabiliz-There are great opportunities for us. We can introduce ing after the violence of previous years and modern-services with top quality and innovation. At hospitals izing its laws and regulatory environment.we can bring new treatments for cancer from otherparts of the world. What happened in Brazil over the last 10-15 years is that it realized the importance of venture capital and specifi-Getting people from universities and research centers cally life sciences. Now governments in other countriesto go from basic research to applied research and to are putting together programs to support fund manag-then find a way to get to market is the key. It just takes ers like us. Peru and Colombia are the best.a small push. It’s about getting people to think a differ-ent way and establishing a global network. VELA: What are the biggest obstacles for your opera- tions in Brazil?VELA: When will you start doing deals? The bureaucracy is tough. You have to know how toWe will probably do two within the next three to four handle it. Brazil has a very good business environment,months. Our goal is for a minimum of two deals per but its interest rates are still too high. That means noyear and up to four. We have a very interesting pipe- leverage is possible. Also, the tax structure is veryline. complicated. It’s expensive to deal with it. February 2012 Venture Equity Latin America
  9. 9. Round UpRound Up Itau to Spend $6.81 Billion to Take Redecard Private and improve rural communities, according to IDB’sItau Unibanco, Brazil’s largest private-sector lender, official website.plans to spend as much as 11.77 billion reais ($6.81 bil-lion) to buy out Redecard, protecting the card payment In 2010, the IDB closed Paraguay’s first-ever interna-processor’s position in an increasingly competitive tionally syndicated loan without carrying political riskindustry, according to Reuters. or other guarantees, by providing a $40 million A/B loan to Banco Continental to help fund lending to smallItau Unibanco plans to buy the 49.99 percent of Rede- and medium-sized business, an official news releasecard it does not already own in a first step taking the states. Also in 2010, the IDB disbursed its first localcompany private, according to a securities filing this currency syndicated B Loan in Peru and completed amonth. The lender will offer 35 reais for each of the syndication with the longest tenor ever registered for336.39 million Redecard shares that currently trade on a financial institution in Ecuador. In 2011, partneringthe Sao Paulo Stock Exchange. with impact investors allowed the IDB to close its first syndication in Honduras and the first-ever subordi-Redecard shares have surged 84 percent in the past nated debt syndication in Ecuador.12 months, mainly after a yearlong restructuring planhelped bolster revenue, cut costs and stem market share Since 2010, the IDB has closed 10 transactions with alosses to larger rival Cielo and smaller competitors. dozen impact investors including Blue Orchard, Oiko- credit, Incofin, responsibility, Deutsche Bank SocialThe buyout would probably help Redecard face grow- Finance and the Calvert Foundation, according to theing competition in the $400 billion-a-year card pay- news release. Seventy percent of these syndicationsment processing industry. Some analysts have voiced have been in small and vulnerable countries includingconcerns that the entry of more competitors could Ecuador, El Salvador, Honduras and Paraguay. In thesedrive fees down and eat away at market share. Cielo deals, the IDB has acted as sole bookrunner and leadand Redecard together control more than 80 percent arranger and invested $146 million of its own resources,of the market. according to IDB.Itau Unibanco’s announcement came less than a week Gerdau Plans Sale of 40 Pct of Mining Unitafter Redecard posted a bigger-than-expected 31 per- Gerdau SA, the world’s second-biggest maker of longcent jump in fourth-quarter profit, to 456.94 million steel products, plans to sell 40 percent of its mining unitreais. for about $2.5 billion, Bloomberg News reported, citing a source familiar with the matter.Nine analysts polled by Reuters had forecast 402.2 mil-lion reais, on average. The Porto Alegre, Brazil-based steelmaker hiredRedecard Chief Executive Officer Claudio Yamaguti, Goldman Sachs Group Inc to manage the transaction,who has been at the helm of the company for the past Bloomberg reported, citing the source. The report saidyear, said this month that it would more than double Chinese and Japanese firms could be interested in buy-capital spending to 500 million reais this year to win ing the stake. more customers and improve operational efficiency.– By Guillermo Parra-Bernal and Alberto Alerigi Gerdau declined to comment on the Bloomberg story, citing a quiet period before the release of fourth-quarter Inter-American Development Bank Fuels earnings. An external public relations executive work- Impact Investing in Latin America ing for Goldman said the bank would not comment.Over the past 18 months, the Inter-American Develop- Efforts to reach a spokeswoman at Goldman Sachs’ment Bank (IDB) has mobilized approximately $110 media office in New York were unsuccessful. million in resources from these investors into the regionthrough its loan syndication program and by co-lending Gerdau has for the past year sought to sell a stake into finance projects that will improve housing conditions the unit, which has about 3 billion tonnes of iron orefor low-income populations, benefit female entrepre- deposits, to either raise more money to develop it orneurs, help small farmers become more productive See Round Up on page 10 Venture Equity Latin America February 2012
  10. 10. Round UpRound UpContinued from page 9bring in a partner with greater expertise in handling Shares of Gerdau posted their biggest jump since lateore mines. The steelmaker, which also uses scrap as October, gaining 4.5 percent in Sao Paulo trading. – Bythe main ingredient for its steel, has yet to reach self- Guillermo Parra-Bernal and Alberto Alerigisufficiency in iron ore. InterviewRoundtable DiscussionContinued from page 1 Finally, what you need is a regulatory and businessFaquiry Diaz Cala, President CEO, Tres Mares environment that is supportive of new ideas, andGroup that does not punish failure, which is conducive to risk-taking.John Price, Managing Director, Americas MarketIntelligence VELA: Do you have any view of which Latin countries possess the healthiest VC ecosystems right now? “One concern is that we are seeing a Matt: Just going by the numbers, Brazil represents great number of angel investors and roughly 40-50 percent of regional GDP but attracts even incubators but a significant over 75 percent of PE capital. In terms of VC lack of early stage growth capital, investment going to Latin America, it is probably attracting close to 90 percent. So, Brazil is 4 to 5 times those $5-10 million checks. For healthier than any other country in the region in terms entrepreneurs and start-ups of investment dollars on a GDP-weighted basis. Brazil coming out of the incubators and is certainly booming due to the fact that there is local accelerators, who have proof of innovation; a very large and growing technology concept, a viable product and are market; general agreement about maintaining a more transparent regulatory environment; and a risk- ready to grow, finding that $5-10 taking culture, which encourages entrepreneurs to million growth capital investment is build companies without the fear of failure. The rest tough. And that obviously hinders of the region is catching up, but in my view Brazil the complete VC ecosystem.” is still way ahead. – Faquiry Diaz Cala VELA: VELA has reported that Latin America’s VC ecosystem needs to have a continuum of angel investors, seed capital, early VC, growth capitalVELA: What constitutes a healthy VC ecosystem? and PE. Are there presently any weak links in this continuum, and how will this impact VC in theMatt: In Latin America, like everywhere else, a healthy future?VC ecosystem starts with innovation and proprietarytechnology. Another important ingredient is strong Faquiry: The ecosystem needs to have strongentrepreneurs building scalable businesses that continuity. One concern is that we are seeing a greatgenerate healthy returns on capital for investors. number of angel investors and even incubators butThen, a third important ingredient is investors, who a significant lack of early stage growth capital, thoseare willing to take risk on young companies and $5-10 million checks. There is great opportunity forunderstand the ins and outs of growing businesses. certain venture capitalists in this space, because they10 February 2012 Venture Equity Latin America
  11. 11. Interviewget to play where there are not a lot of competitors. the best ideas may not necessarily be the ones thatBut for entrepreneurs and start-ups coming out of are getting funded); and on the other hand, there arethe incubators and accelerators, who have proof of angels in such places as Argentina, Brazil and someconcept, a viable product and are ready to grow, others, who have had exits in the Latin Americanfinding that $5-10 million growth capital investment Web 1.0. Lets call them Latam Super Angels who areis tough. And that obviously hinders the complete now coming back to put money into new projects.VC ecosystem. In this case you have very smart money going into very good deals.Adriana: I think that there is a third element tothis. While Angel investors and seed capital are a While it’s become cool to be an angel investor in thevery important part of the VC ecosystem in Latin region, you need a lot more of them in the VC ecosystemAmerica, many of the companies in Latin America to take companies to the next level of development.are still run by family enterprises. Transcations areoften executed with business groups that know VELA: What are the pros and cons of the currenteach other. Security is always a concern and plays a VC phenomenon taking place in the region, wheremajor factor in many or most Latin countries to this local entrepreneurs import and locally adapt provenday. This fact will lead to the development of a unique business models from developed economies?VC modelin Latin America, which is something thatwe have to be watchful of. I will be curious to seehow this aspect of VC in the region pans out in thenext few years. “You will find in Latin America that there are angel investors, seedJohn: To add to Adriana’s point, you will find in capital and early VC – they are justLatin America that there are angel investors, seed not called by those names. They arecapital and early VC – they are just not called bythose names. the monies of friends and families who believe in your project.” – JohnThey are the monies of friends and families who Pricebelieve in your project. That is all well and goodif you have access to those people, but if you donot – if you come from a part of society that hasdifficulty gaining access to those people – then that’s John: That has actually been the standard businesswhere things break down. Therefore, a lot of or most model of innovation and new product developmentinnovation comes out of a smaller segment of society in Latin America going back as far as any of us canthan it would in a more liquid and structured market remember: from technology to sneakers to jewelry,like the U.S.’s. the norm has been to import what works in more fashionable markets like Europe, the U.S., JapanVELA: Are there official angel networks in place and Korea. If anything, Latin America is now stablein the region that could help larger segments of and affluent enough collectively to warrant uniquesociety gain access to capital? product development for the region on its own or as the first stop of global emerging market roll-out.Faquiry: There are several angel networks in placeor in the process of being built. Panama has recently VELA: How might a Latin American start-up gainseeing a very focused angel network, they have competitive advantage if they import a businessfunded a couple of companies. Mexico has some model?angel networks at times affiliated with very earlystage capital. There are a certain number of angel Matt: We have found that the best entrepreneurs innetworks composed of people with cash, but who the region have a very good understanding of themay not necessarily have start-up experience. nuances of local markets. They are able to develop and adapt not only technologies but more importantlyIt’s a two-fold situation: on the one hand, they business models, which are tailor-made for thoseare wealthy angels, who are getting together and markets, which is very difficult for multinationalputting their money into start-ups that they know companies (MNCs) to do. More and more MNCs arethrough their network (so, getting to John’s point, See Roundtable Discussion on page 12 Venture Equity Latin America February 2012 11
  12. 12. InterviewRoundtable DiscussionContinued from page 11arranging themselves around product and service VELA: Why are natural resources, mining servicesdelivery rather than geographical lines. Therefore, and agribusiness considered good industries forit is becoming increasingly difficult for MNCs to VC development in Latin America? Are therecustomize products for every single market or, others?in certain cases, cities within a market. The greatentrepreneurial companies that we see are those that Matt: In all three of those sectors, Latin America ishave a combination of a technology that has been a global player. The region is home to a quarter of the world’s arable land, about 30 to 40 percent of total mining investment and a big chunk of new oil and gas investment, as well. So, the money is there. The scale is there. Latin America is home to some “I actually think Latin sizeable homegrown public and private capital. Americans have a pretty high There are some serious companies that operate in level of resilience that makes all of those spaces, that have money, and that can them ideal entrepreneurs. The develop specific approaches, methodologies and technologies around exploration. most significant bottlenecks that I identify are probably regulation, Adriana: Something to add to that is that Latin access to technology, talent America now has a very important and big client and funding sources.” – Adriana – China – who has growing influence in these three Cisneros sectors. The demand is there, and players in these sectors in Latin America are very much aware that they have to evolve their companies very quickly if they are going to supply the Chinese with all the resources that they are going to need.adapted and in many cases improved upon and/orproprietary; that have that technology delivered in VELA: What are some bottlenecks to entrepreneuriala business model, which is directly customized for innovation in Latin America?the local market; and that have a business that isscalable, either in a large country like Brazil or across Faquiry: To me, fear of failure is the biggest hinderborders in Spanish-speaking Latin America, to create for a start-up activity. Once Latin Americans get pastthe type of potential exit value where investors and that, they will be free to swing for the fences, butentrepreneurs can generate very high returns on while cultural misgivings exist about what mightcapital. I believe that the tropicalization of venture happen if they fail, there is going to be a significantcapital investing is the most exciting thing happening Latin America today. John: Part of that fear of failure is due to the factAdriana: A very advantageous position to play in that the risks for both the entrepreneur and thethis whole game is to have the entrepreneur based early financiers are pretty high. Boiled down to onein Brazil, Colombia or Peru as well as an arm of the factor, the legal environment is feared by most to beoperation in the U.S. I have seen very successful too easily manipulated by those with more models where the creative arm is coming So if an entrepreneur has a great idea and takes itout of Latin America and the financial arm is coming to someone who might be a useful finance partnerout of the U.S. And it appears to be a very business- or strategic partner, his fear is that that person willhealthy relationship to have right now because of the steal his idea, and that his ability to take the conflictposition of Silicon Valley and emerging countries like to court is either going to be beyond his financialBrazil. I am seeing that trend more and more. means or just impossible.Faquiry: We are basically saying that pan-regional “me- Therefore, the person with the idea might not havetoo” business models, rather than country-specific “me the confidence to go looking for support. Instead,too” models, have much more legs to them. he might take his idea to Silicon Valley or another12 February 2012 Venture Equity Latin America
  13. 13. Interviewenvironment where he will be better protected. better, developing a new product. The competition is not coming solely from other traditional globalAdriana: I actually think Latin Americans have a competitors; it is coming from Latin Americanpretty high level of resilience that makes them ideal companies, which are better than global firms atentrepreneurs. The most significant bottlenecks understanding the local markets. Unfortunately,that I identify are probably regulation, access MNCs are reluctant to take on risk over a span of 10to technology, talent and funding sources. The or 15 years, which is what innovation requires, andtechnological aspect is particularly important. The so they are struggling to find the right formula. Therereality is that we do not have enough engineers in are different methods for, on the one hand, isolatingLatin America. Some countries are doing something an MNC from some of the risks of innovation but,to address this. Brazil just launched a government on the other hand, still retaining ultimate control ofprogram through which it plans to send 300,000 the output of that innovative process. Those kinds ofstudents who want to study engineering to technicalschools in the U.S. and abroad. The government hascreated large incentives for them so that they returnto Brazil to work as engineers. Some countries, like “Entrepreneurs should look for MNCsArgentina, have a significant number of engineersavailable. Other countries, like Venezuela, have to build their businesses around. Mynone. This educationaldisparity is something that theory is that all successful early-should be addressed. If there were a real push for stage companies are built on thea massivedevelopment of technical schools to the backs of large companies.” – Matthewregion, it would guarantee that Latin America would Colecontinue to grow as a healthy VC environment.VELA: Why do MNCs have a key role to play inthe VC space in Latin America? legal structures and formulas are only just beginningMatt: Entrepreneurs should look for MNCs to to emerge in Latin America, and there is a real needbuild their businesses around. My theory is that all for that emergence from both sides: the entrepreneursuccessful early-stage companies are built on the needs the certainty of a strategic exit partner, and thebacks of large companies. Microsoft was built on the MNCs need a way to innovate within Latin America.back of IBM; Google was built on the back of Yahoo; So, this is an exciting new frontier.Facebook was built on the back of the HarvardUniversity student database. Small companies A d r i a n a : T h e re a re t w o w a y s o f  l o o k i n gshould look for opportunities to partner with large at this. One, is trying to understand that the world ofcompanies in order to help large companies innovate, Latin America is changing very quickly, and that theto provide critical outsourcing services that MNCs way to innovate has evolved. That is lesson numberare not able or interested in doing themselves, and one. Then, it is important to understand the expand-to bootstrap their businesses, using the resources ing ecosystem of innovation through incubators inand/or the capital of MNCs, in an environment Latin America. Incubators offer a very interestingwhere VC is scarce. On the other side of the fence, exercise for both parties.MNCs in Latin America need to do more to supportthe VC ecosystem. It is very difficult to convince a For VC’s, it’s a neat opportunity to have a dialoguelarge company in Latin America to take a risk on a with a big corporation to see what buttons theysmall, promising technology for a variety of different want to push. But more and more, as these modelsreasons. However, MNCs have an opportunity to of business are developing, MNCs are also lookinglearn new tricks by being more open to partnering, to bring a model of strategic incubator into theircreating pilot programs and in other ways supporting companies. This is something that we are doing atemerging companies. Cisneros, as well.VELA: What kinds of entrepreneur- ial innovations are taking place that serve the BaseJohn: From the MNCs’ point of view, Latin America of the Pyramid (BoP) in Latin America?is increasingly becoming a market that is competitiveenough that they have to innovate. They cannot Faquiry: We are seeing quite a bit of activity takingjust import a product that works in other markets place with financial services and the delivery ofwithout either adapting or tropicalizing it or, even See Roundtable Discussion on page 14 Venture Equity Latin America February 2012 13
  14. 14. InterviewRoundtable DiscussionContinued from page 13financial services via mobile devices at the BoP. the way that business is owned and conducted inThis space will probably grow as savings products the region. Many family-owned  businesses wouldcontinue to grow along with consumers’ ability probably say that they have always been operatingto store money with more efficiency. Ultimately, with a VC mentality, just with a longer time horizon.microloans and credit products that are geared In general, family-owned businesses tend to projecttowards the masses will emerge, and once you have thirty years forward, and for some of the VC worldthat, the overall level of poverty in the region will that is actually a good thing, because we have thediminish significantly. stomach to wait things out . We don’t have to be as impatient; we see the value in having a longer time horizon. I think that the mentality of family-owned businesses is always going to be a nice compliment “Regardless of the VC ecosystem to the VC environment as it develops. in Latin America, families still play John: Sometimes, taking an idea from concept a very dominant role in the way that to market requires a level of stubbornness that a business is owned and conducted manager in a publicly traded company simply in the region.” – Adriana Cisneros cannot commandeer, and that only the top leaders of a family owned enterprise have both the time and the ability to push through without there being too much questioning. Often, that leads to the ruin of a family-owned company, but it can also lead toAdriana: I agree: that is the one of the most innovative break-throughs.interesting sector to be looking at right now. VELA: What is happening in the VC ecosystems ofJohn: Latin America, with the exception of Chile, Argentina, Chile and Colombia?is still a very under-banked region of the world,especially at the BoP. There is a significant number of Faquiry: Chile is interesting because we are beginningvery “bankable” clients there that own assets but that to see the creation of a start-up culture through theare just not banked, and the reason for that is two- government’s Start-up Chile program. Chileans needfold. First off, the brick and mortar infrastructure of the local funds to be willing to take risk and bringbanks leaves them very concentrated in the upper and those companies to the next level. Colombia is doingmiddle class neighborhoods of big cities. Secondly, things right. There is talk that President Santos maythe hierarchical culture of banks, where bankers and initiate a government-sponsored program akin tobank managers tend to come from the upper echelon Start-up Chile. In addition, the Colombian pensionof Latin American society, creates a disconnect when funds have significant amounts of money; if theytrying to service the working poor. So, historically it start putting that money to work in venture deals,has been non-traditional lenders that have walked we are going to have a very favorable environmentinto the BoP space: retailers, telephone companies, overall in Colombia.and even now telephone-based lending vehicles.These are the companies that are better at reaching Adriana: I agree. I too am a big believer in Colombiathe masses, and adding financial services to their and Peru.. People have to really pay attention to whatcore of business is easy to do. It is definitely the most is going on there, and the appetite to invest in thoseexciting area of BoP commerce and where you are countries should be something that we foster.going to see more and more development. VELA: What factors will allow Latin AmericanVELA: What is the role of family-owned companies start-ups to achieve successful exits?in the development of Latin America’s VCecosystem? Faquiry: The U.S. market for exits needs to stay strong. At the end of the day, if the start-up market inAdriana: Regardless of the VC ecosystem in Latin the U.S. slows down, we are going to see a significantAmerica, families still play a very dominant role in slow-down in Latin America, just like we saw at the14 February 2012 Venture Equity Latin America
  15. 15. Interviewend of the 1990s. We have to be very careful that we Matt: We have seen a lot of innovative companiesdo not get seduced too much by our own story that coming out of Brazil in the agribusiness sector that havethis time is different in Latin America. developed new technologies (not always proprietary but new technologies) regarding production processes,VELA: What are some factors that allow venturesto evolve into sustainable businesses in the longterm?John: The biggest one is a reliable source of revenue, “We have not seen proprietaryi.e. that MNC or large Latin American group that is technologies coming out of Latina natural buyer of your services or products. A lot oftimes, Latin American entrepreneurs are afraid to speak America, but we do have uniqueto the big Grupos in their own country, because they business models revolving aroundknow how much power they can wield in political and the service sector and geared towardsjudicial spheres. They actually feel more comfortable the bottom of the pyramid.” – Faquiryselling their services or seeking financing from an Diaz Calainternational company, but that is not sustainable inthe long run, because Latin America will continue to bevolatile for the foreseeable future and thus MNCs willcontinue to be fickle investors in Latin America. So, thekey to a more sound system is developing trust between as well as crop testing and certification. We have seen asmall and big companies inside Latin America. number of very interesting companies in the software sector, particularly banking software, coming out ofVELA: Are there any technologies unique to Latin Argentina and Uruguay. We have seen a cluster ofAmerica? businesses around the mining services sector coming out of Chile. Global venture capitalists are looking toFaquiry: We have not seen proprietary technologies Latin America perhaps not for outright innovation butcoming out of Latin America, but we do have unique certainly for very important product development andbusiness models revolving around the service sector mousetraps, and that is part of why the capital is nowand geared towards the bottom of the pyramid. flowing to the region. PRACTICAL INTERNATIONAL WTE CORPORATE FINANCE STRATEGIES WORLDTRADE EXECUTIVE The International Business Information SourceTM A concise briefing on tax, accounting and regulatory strategies essential to managing international corporate finance. W hether your transaction involves cross-border finance from Europe, the U.S. or emerging markets in Asia and Latin America, Practical International Corporate Finance Strategies is your best source for solid, trusted, timely advice on tax, accounting and regulatory strategies essential to managing international corporate finance. Topics range from governmental hurdles for regional tax planning and financing strategies, to regulatory issues such as antitrust, securities regulation or financial governance matters. For a FREE THREE issue trial, In each issue you will find out how to: contact Jay Stanley at u Optimize your international tax planning strategies. (978) 287-0391 u Successfully organize your business to avoid international legal and regulatory pitfalls. - or - u Manage currency fluctuation to reduce your risk. For more information go to: u Structure your enterprise to take advantage of local incentives and avoid regulatory hurdles. or call (978) 287-0301 Venture Equity Latin America February 2012 15
  16. 16. PE CompetitionFirst Ever Wharton Latin America Private EquityCompetition TurnoutBy Alyson SheehanIn an effort to position itself as a leading business school The two-round tournament began with each team ofwithin the private equity industry in Latin America, the MBA candidates showcasing their investment idea toWharton School of the University of Pennsylvania held the judges. Two teams were then selected from the firstits first ever Latin America Private Equity Competition round to move on to the second one, where they wereon February 4th at Huntsman Hall on the Philadelphia then given an original case to analyze and prepare withincampus, according to the Wharton Journal. a 90 minute timeframe. The original case designed by the judges revolved around a distressed salmon producer inThe participants of the competition were MBA candidates Chile, according to the Wharton Journal.from leading business schools around the country, includingChicago Booth, MIT-Sloan, Kellogg, Columbia GSB, London A Wharton team and a Kellogg team were selected toBusiness School, Harvard Business School, and Wharton participate in the second phase of the competition. Initself. The participants were asked to present “original the end, it was the Wharton team, composed of Henryand actionable investment ideas in Latin America” to a Heinerscheid (WG ’13), Abel Osorio (WG ’12), Juanfictitious “investment committee,” i.e. a team of judges, the Gonzalez-Goicoechea (WG ’12), and Jose Luiz GonzalezWharton Journal continues. The competition was judged by Pastor (WG ’12), who won. The team presented the idea ofrepresentatives from top private equity firms in the region, a buyout of a Peruvian car battery manufacturer in phaseincluding ACON Investments, Mesoamerica Partners, one; in phase two, they proposed a strategy of acquiringAmzak Capital, North Bay Equity and General Atlantic, the debt of the salmon producer’s company to then accessas well as the Inter-American Investment Corporation, the equity through a bankruptcy. Their combined levels ofPresident of the Latin America Venture Capital Association, qualitative and quantitative analyses in both rounds ledand Wharton Professor of Finance, Stephen Sammut. to a first prize check worth $2,000. Subscribe to Venture Equity Latin America A publication of WorldTrade Executive, a part of Thomson Reuters ___ Please sign me up for one year of Venture Equity Latin America delivered by email to the address below at $1495.00/ 20 issues plus the Mid-Year and Year-End Deal Reports which provide a summary of activity in the region. ___ Check enclosed, made payable to: WorldTrade Executive P.O.Box 761, Concord, MA 01742 U.S.A. ___ Bill me (fax form to 1-978-287-0302) ___ Please bill my credit card: VISA - MC - AMEX (circle one) Name on card:_____________________________________________________________ Card number:_________________________________________ Exp. Date:____________ Name: ____________________________________ __________________________________________ Title: __________________________ Company: ____________________________________________ Street address: ________________________________________________________________________ City:___________________________State/Province:_________________Postal Code:______________ Country:___________________________ Email :_______________________________________________________________________________ Telephone: ___________________________________________________________________________ Conditions: With this subscription the above–named person agrees not to reprint, transfer or forward the contents of any or all email documents received from WorldTrade Executive, or accessed via the website to other local or international offices within his or her company or to third parties. Copyright 2012 Thomson Reuters/WorldTrade Executive16 February 2012 Venture Equity Latin America