Webcast: Venture Capital inBrazil
Patrick Arippol,
Founding Partner,
DGF
Investimentos
Renata Guinther,
Head of
Investment,
FINEP
Rodrigo Menezes,
Partner, Derraik &
Menezes
Advogados
Susana GarciaRobles, Principal
Investment
Officer
MIF/FOMIN
Cristiane
Nascimento,
Project Manager
ABVCAP
Supported By
Institutional Support
Organized By
1
AGENDA
Renata Guinther, Head of Investment, FINEP
The Brazilian Innovation Agency
Susana Garcia-Robles, Principal Investment Officer in charge of MIF Early Stage Equity
Group, MIF/FOMIN
The MIF and its Catalytic Role Building a VC Industry in Brazil
Rodrigo Menezes, Partner, Derraik&Menezes Advogados
Structuring VC Investments in Brazil
Patrick Arippol, Founding Partner, DGF Investimentos
Current Venture Capital Market in Brazil – “A VC’s ViewPoint”
2
March 2013
Título da Apresentação
FINEP – Brazilian Innovation Agency
•
Mission: To promote Brazil’s social and economic
•
Instruments
development through public support to science,
technology and innovation in companies,
universities, technology institutes and other public
or private institutions.
•
Grants
•
Loans
•
Investments
•
Strategic Orientation
Research
Institutes &
Universities
Companies
INOVAR PROGRAM
INOVAR Program
A little bit of history...
In the year 1999, FINEP conducted a diagnosis on the obstacles
and challenges faced by technology-based SMEs to access
finance through innovative financial instruments like seed and
venture capital investments.
As a result of this, FINEP approached the Multilateral Investment
Fund (MIF) to work together on a program to be called.
Main Gaps Detected at the time
Too few GPs with
track record
Poor market for
IPOs
No VC industry
representation
No effective bridge
between investors
and SMEs
Too few national
investors in VC/PE
asset class
Limited regulatory
framework and
legal vehicles for
on-shore VC/PE
investments
INOVAR Program
Inovar was created to stimulate the formation of innovative
companies and help them gain access to capital.
Goals:
• Develop an ecosystem conducive to VC investment
• Forge relationships among Brazilian and international institutions
• Increase local sources of capital/investors
• Facilitate the creation of new local VC funds and fund managers
Instruments:
INOVAR Achievements
Number of partners working with INOVAR grew from 4 to 17, 11 of which are pension
funds
Fund Process
‐ 13 calls for VC/PE fund proposals and 6 calls for Seed funds proposals
‐ 241+ proposals received and 110+ approved for due diligence
‐ 161 investors have participated in panels to evaluate fund proposals
‐ Inovar Investors represent around 10% of Brazil’s GDP
‐ $223M from FINEP and $1.90B from other investors in 26 funds (FINEP’s portfolio)
VENTURE, SEED and IPO FORUMS
‐ 36 Forums: 19 Venture, 11 Seed and 6 IPO
‐ 4000+ screened companies and 345 coached and presented to investors
‐ $1B+ invested in 75 innovative companies through the Seed, Venture and IPO
Forum
‐ 90+ Angel – investors attracted to 2 Seed Forums
Scalability
‐ Cost of program was $16,4M, of which $3,7M was contributed by MIF
‐ INOVAR facilitated $1B+ in investment in SMEs
‐ Leverage of 5.37:1 for Innovation; 7.97:1 from private sector investors and 9,18:1
global
‐ Inovar has become a benchmark for other LatAm Countries in fostering VC
Current Gaps
Early-stage
still needs
fostering
Investment
Committees
in Vc funds
Best Practices
INOVAR as a Public Policy Program
Key Drivers:
• Innovation and Financial Return
• International Partnerships: FUMIN/IADB ; LAVCA ; ILPA
• Local Partnerships: ABVCAP ; BMF&BOVESPA
Lessons Learned:
• Dedicated team.
• Simple models.
• As many positive externalities as possible.
• Stick to your project’s fundamentals.
• Focus on achieving the projected results.
• Stay ahead of the market.
FINAL REMARKS
•
FINEP is well positioned to prospect and originate investment
opportunities in innovative companies and, in being fully
committed to increasing the innovation rate in Brazilian
companies, we see Venture Capital as one of the best strategic
instruments to achieve this goal.
•
The most interesting thing about Inovar is the possibility to
affect change on a national scale through a program that has
been seasoned for 12 years and provided great track record.
Thank You!
Renata Guinther
Investment Area Superintendent
FINEP – Brazilian Innovation Agency
MCTI – Ministry of Science, Technology and Innovation
[email protected]
AGENDA
Renata Guinther, Head of Investment, FINEP
The Brazilian Innovation Agency
Susana Garcia-Robles, Principal Investment Officer in charge of MIF Early Stage Equity
Group, MIF/FOMIN
The MIF and its Catalytic Role Building a VC Industry in Brazil
Rodrigo Menezes, Partner, Derraik&Menezes Advogados
Structuring VC Investments in Brazil
Patrick Arippol, Founding Partner, DGF Investimentos
Current Venture Capital Market in Brazil – “A VC’s ViewPoint”
14
THE MIF AND ITS CATALYTIC ROLE BUILDING
A VC INDUSTRY IN BRASIL
SUSANA GARCIA-ROBLES
MARCH 2013
ABVCAP WEBCAST-VENTURE CAPITAL IN BRAZIL
DRAFT
Building the Seed and Venture Capital Industry of LAC
for over 16 years
The Multilateral Investment Fund (MIF): an independent trust fund (1993) and managed by the IDB.
Mandate for high risk and innovation. It supports private sector development through equity investments,
debt, and technical assistance.
The MIF was a pioneer in the VC industry, entering in 1996 when it was virtually non-existent in LAC,
helping rebuild it through subsequent business cycles in the Region, and was instrumental in developing the
industry.
Historically, the MIF has been the largest early stage investor with the widest regional coverage:
– We have invested in more than 66 funds in the Region.
– Since 1996 the MIF has invested approx. US$ 260 M in LAC, catalyzing US$ 1.2 B.
Over the years the MIF has invested in 38 first-time fund managers covering a wide variety of sectors,
including Information and Communication Technologies, Life Sciences, Clean Technologies, Technology
applied to Agribusiness, among others.
Today the MIF has a portfolio of 52 funds, 45 active funds and 7 pending their first closing, and is a leading
provider of lessons learned and experiences for new investors in LAC.
We go where we see a market opportunity and basic conditions (a conducive ecosystem): multi-sector, and
sector agnostic (although tech is where we have a portfolio valued today at 2X), and with no quotas for a
given country, only focused in LAC.
DRAFT
16.
BRAZIL: A LABORATORY OF EXPERIENCES AND LESSONS
LEARNED
The MIF started its activity in 1998 and never retrenched in spite of crises or volatility. Instead, the MIF bet on
supporting local first-time fund managers to create a local VC industry.
BRAZIL became a laboratory of experiences and lessons learned for the MIF. What we did in Brazil helped the
MIF support VC in other countries in the Region.
Since 1998, the MIF has been one of the main supporters of the Seed and VC industry in Brazil, investing
directly in VC funds and implementing programs to improve the VC ecosystem through the INOVAR I and II
initiatives. The MIF has historically supported 17 funds. As of 2012, the MIF only has four funds that are actively
investing or about to start operations: Burrill, Performa, C-Ventures, and Vox. The other funds will be finishing
their lives within the next two years.
It is important to mention that MIF’s current portfolio in Brazil is performing well and the MIF is expecting a net
gain in the Brazilian portfolio.
The INOVAR I Program supported VC funds starting in 2001, launching calls for funding proposals and matching
institutional investors with promising funds. In 2007, MIF approved INOVAR II, a follow-on program, which also
has calls for seed fund proposals, as well as focusing on attracting angel investors to the industry. The selection
of funds is performed through a competitive process and using rigorous due diligence standards. MAIN
CONTRIBUTION: new local and first-time fund management companies supported, training in international bets
practices, pension funds’ investments.
DRAFT
17.
BRAZIL’S VC INDUSTRY
Brazil as a pilot test: The MIF took the INOVAR concept to other countries: Chile,
Colombia, Peru, Jamaica, Costa Rica. The MIF partnership with ABVCAP is also
intended to transfer knowledge on how to build VC associations in other countries.
Lessons learned: i) innovation wasn’t always welcome if the product was pioneer; this is
changing now , ii) good number of fund management companies, investors and
potential investments to jump- start the industry made the industry take off even if small
at the early stage, iii) market is huge: a pro (you don’t need to go outside Brazil to grow
your company) and a con (you don’t need to go outside Brazil to grow your company).
Brazil today: i) having developed a local VC/PE industry because overseas investors
were not that interested in Brazil a few years ago, the challenge is now how to adapt it
to best international practices (e.g, IC composition; different sector funds under the
same fund management company looks like lack of a strategy to the foreign investor); ii)
early stage financing remains a challenge.
DRAFT
18.
BRAZIL AND THE REST OF LAC
Chile and Uruguay: need to go global due to their small markets.
Colombia: like Brazil 10 years ago, strong government support.
Argentina: very innovative and exporting entrepreneurs.
Peru: only a few PE funds, lack of government support for early
stage.
Mexico: finally taking off, a new generation of fund managers.
Central America: more traditional investments, use of mezzanine
financing.
WHY CONTINUE INVESTING IN BRAZIL?
Need to grow angel networks and seed investment.
Need to foster commercialization of the innovation produced in
academic centers.
Great potential: natural resources, a growing middle class that
demands services and products.
DRAFT 19.
THANK YOU
For more information, please contact Susana Garcia-Robles ([email protected])
DRAFT
20.
AGENDA
Renata Guinther, Head of Investment, FINEP
The Brazilian Innovation Agency
Susana Garcia-Robles, Principal Investment Officer in charge of MIF Early Stage Equity
Group, MIF/FOMIN
The MIF and its Catalytic Role Building a VC Industry in Brazil
Rodrigo Menezes, Partner, Derraik&Menezes Advogados
Structuring VC Investments in Brazil
Patrick Arippol, Founding Partner, DGF Investimentos
Current Venture Capital Market in Brazil – “A VC’s ViewPoint”
21
Structuring VC investments in Brazil
© 2013
Structuring VC investments in Brazil
• Investment structure
• Transaction Documents
• Rights, Preference and Privileges of VC investors
• Pay attention to...
Investment Structure
• Local or Foreign vehicles
• Holding companies or investment funds
• Brazilian target or foreign target with an operational entity in Brazil
• Equity or Convertible debt
Rights, Preference and Privileges of VC
investors
• Preferred shares with voting rights
• Tag Along / Drag Along / ROFR
• Liquidation preference
• Anti-Dilution Protection
• Non Compete and permanence of Founders
• Put Option
• Appointment of members of BOD / officers
• Registration Rights
Rights, Preference and Privileges of VC
investors
• Protective Provisions
• Restriction on transfer of shares
• Approve distribution of dividends
• Amendment to company by-laws’
• Approve Stock Option Plans
• Approve unbudgeted expenditures
• Approve loans or offer guarantees
• …
Transaction Documents
• NDA
• Term Sheet / MOU / LOI
• Investment and Subscription Agreement
• Shareholders Agreement
• By-laws
Pay attention to...
• Tax issues
• Labor matters
• Intellectual Property
– Software
• Litigation
– Consumer claims
• Other areas (regulatory, anti-corruption, environmental, etc.)
Thank you
Email: [email protected]
Derraik & Menezes Advogados
São Paulo • Rio de Janeiro
www.derraik.com.br
AGENDA
Renata Guinther, Head of Investment, FINEP
The Brazilian Innovation Agency
Susana Garcia-Robles, Principal Investment Officer in charge of MIF Early Stage Equity
Group, MIF/FOMIN
The MIF and its Catalytic Role Building a VC Industry in Brazil
Rodrigo Menezes, Partner, Derraik&Menezes Advogados
Structuring VC Investments in Brazil
Patrick Arippol, Founding Partner, DGF Investimentos
Current Venture Capital Market in Brazil – “A VC’s ViewPoint”
30
Current Venture Capital Market
in Brazil – “A VC’s ViewPoint”
DGF Inova /
DGF Investimentos
Patrick Arippol
Director
[email protected]
ABVCAP Webcast
March, 27th, 2013
Phone: +55 11 3521 3700
www.dgf.com.br
Documento Interno e CONFIDENCIAL – Versão #2
Innovative
Start-ups
Introducing DGF Investimentos – Practice Areas
DGF Early Stage 1
DGF Early Stage 2
DGF GROWTH 1
DGF GROWTH 2
Status: Exiting
Size: R$ 22M
Vintage: 2002
Status: Launching
Size: R$ 50M
Vintage: 2012
GROWTH
CAPITAL
Special
Thesis
Sector
Specific
Early
Stage
Mid Sized
Companies
Mid Sized
Companies
Status: Invested
Size: R$ 100M
Vintage: 2007
DGF BIOENERGY 1
Status: Investing
Size: R$ 300M
Vintage: 2009
32
Documento Interno e CONFIDENCIAL – Versão #10
Status: Raising
Size: R$ 300M
Vintage: 2013
Introducing DGF Investimentos – Highlights
Portfolio
Exits
Software for mobile ticket sales
Import / Export Software
Tax Software Developer
CRM Software Developer
IT Infra-Structure Outsourcing
B.I. Solution for Healthcare
On-demand printed products
Corp. Expanse Mngt. Software
Telecom R&D Outsourcing
33
Documento Interno e CONFIDENCIAL – Versão #10
Introducing DGF Inova: Criteria & Pipeline
CRITERIA & DIRECT SOURCING
Criteria (“sweet spot”):
SNAPSHOT
Pipeline Status since launch

STAGE – Revenues of U$1-3M with proven
business cycle and profitability potential

U$25M fund launched in January 2012

BUSINESS MODEL – Consistent and with
attractive dynamics (recurring revenue, etc)

913 companies analyzed

2 investments completed

GROWTH – Potential >U$50M revenues in 5yr

Direct-sourced projects (from 30% to 70%)

TEAM – Stellar entrepreneur and team

INNOVATION – Innovative company

TICKET – Invest U$1-5M per company

EXIT – Clear exit opportunities
Sample Investment Theses:
Segment Representation among top prospects:

E-Commerce infrastructure: 18,5%

Cloud/SaaS: 15,4%

Web 2.0 / Internet Advertising: 13,8%

Health-Web: 12,3%

Enterprise mobile software platforms

Mobile: 10,8%

High-growth Cloud & Saas plays (long-tail)

Financial Technologies: 7,7%

SaaS solutions to drive on-line customer
acquisition for small and medium companies

IT-enabled Services: 6,1%

Highly scalable web platforms in healthcare

Online Media: 6,1%

Business Intelligence applications

Education: 4,6%

Value-added distribution of virtual goods (retail)

Other: 4,6%
34
Documento Interno e CONFIDENCIAL – Versão #10
Topics: Current Venture Capital Market in Brazil
– “One VC’s ViewPoint”
Myths Worth Dispelling:

VC investing in Brazil is similar to VC in Silicon Valley
(Risk of “One Size Fits All” Approach)

The moment for good VC Investments in Brazil has passed
(Risk of “Following the Herd”)
35
Documento Interno e CONFIDENCIAL – Versão #10
One VC’s ViewPoint –
Risk of “One Size Fits All” Approach

Dispelling Myth#1: VC investing in Brazil is similar to VC in Silicon Valley


YES – Bring Insights from a Mature into a Maturing Market

Sector-specific support for global technology companies

Increase direct sourcing and specialization

Best practice / governance at global levels
NO – Use the Same Investment Approaches

Only “proven models” are worth investments: great local and BRIC-specific
business models

“Spray and pray”: portfolio company monitoring is more demanding

Pay US-valuations: exit markets command different valuations

Assume follow-on investors will “be there” for good companies: don’t be so
sure – better be ready for follow-ons

Good companies will find exits: Again don’t be so sure. Best to find
companies with multiple paths to exit, and help them reach significant scale
36
Documento Interno e CONFIDENCIAL – Versão #10
One VC’s ViewPoint –
Risk of “Following the Herd”

Dispelling Myth #2: The moment for good VC Investments in Brazil has
passed

Local VC eco-system has matured: specialized law firms, etc

Critical mass has been reached for companies to “hit it out of the park” –
consumption (e.g. mobile phone users), entrepreneur quality, etc

Moderate economic down-cycle in Brazil is already creating interesting
investment opportunities (cherry-picking of Series B investments)
37
Documento Interno e CONFIDENCIAL – Versão #10
Don´t miss our next Webcast:
Confirmed panelists:
Cesar Collier, Managing Director, Siguler Guff
Cristiano Gioia Lauretti, Partner, Kinea Investimentos
Fernando Borges, Managing Director and Co-Head of the
Carlyle South America / Vice Chairman, ABVCAP
38
Thank you for your participation!
See you at the ABVCAP Conference next month!
15-16 April 2016 – São Paulo
Cristiane Nascimento
[email protected]
Supported By
Institutional Support
Organized By
39