June 13, 2013
Interviewed by: David Snow
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Brazil’s Culture of Entrepreneurship

Experts from DGF Investimentos, Multilateral Investment Fund and FIR Capital discuss the ecosystem for innovation and venture capital in Brazil. How are the cultural perspectives and the domestic regulatory framework changing the dynamics of entrepreneurship in this growth market?

Experts from DGF Investimentos, Multilateral Investment Fund and FIR Capital discuss the ecosystem for innovation and venture capital in Brazil. How are the cultural perspectives and the domestic regulatory framework changing the dynamics of entrepreneurship in this growth market?

Brazil’s Culture of Entrepreneurship
Innovation and VC in Brazil

David Snow, Privcap: We’re joined today by Patrick Arippol from DGF Investimentos, Susana Garcia-Robles from Multilateral Investment Fund (MIF) and Marcus Regueira from FIR Capital. Welcome to Privcap today, thank you for being here.

We’re talking about a subject you know very well, innovation and venture capital and specifically innovation of venture capital in Brazil. We all want more of it and you’re all investing in it, and so I’m fascinated to hear about where Brazil is right now in developing it’s ecosystem and maybe how much further it has to go. Patrick, as someone who oversees early stage investing at DGF and as someone who has had a career in Silicon Valley and moved back to Brazil, what can you tell us about the stage in which Brazil finds itself as far as the ecosystem for innovation and venture capital?

Patrick Arippol, DGF Investimentos: Absolutely, well it’s light years really, the snapshot I have is from 2002 when I left Brazil doing startups here, and really learning how little innovation is really easy to pursue in terms of entrepreneurship. And nowadays it’s light years ahead so when I look at entrepreneurs that are going at it today, compared to myself and to other professionals, the ecosystem is a lot more robust. The critical mass is there so when technology, information technology which is one of the areas we need to invest in, we see the critical mass where you’re able to get a company off the ground, help the entrepreneur get to a significant level at which point they can see exits or to see interesting joint ventures. So I guess if I were to summarize my viewpoint of VC or entrepreneurship in the bubble years I guess and today is that it’s really light years ahead. Today if I were to compare with United States as I read what it was like in the 1980s, maybe early ’90s, it’s probably at about that stage, so there’s a long way still to go and develop the market but it’s substantially ahead of what it was like 10 years ago.

Marcus Regueira, FIR Capital: I would, first of all completely ditto, and the fact that the entrepreneurs in Brazil are much more aware of the need of governance, and management, and structure, and what venture capital is all about. There is a great difference in Brazil in the last six, seven years and thanks to MIF, thanks to some of the Brazilian government institution have been the association ABVCAP that all in a concerted effort with the regulators, with the association with the institutional investors, all in six, seven years have literally changed the landscape and turned Brazil in a clearly enabling environment, really differentiated I would say from certain emerging markets that investors, outside investors might have in mind.

Snow: Susana, what to you are some milestones as you look at, you know, the years that you’ve overseen sort of ecosystem development in Brazil, what strikes you as being very notable in recent developments?

Susana Garcia-Robles, Multilateral Investment Fund, IADB:
Yeah what Marcus said was really interesting because when we approved our first investment in 1998, his fund, innovation and the ecosystem was very different. So entrepreneurs who were not innovative paid the price when the market was not ready for them, so with that deal not to be then? No, because it really helped us to understand a lot of lessons of how you need to make the focus market assistance. But in 1998 the innovative program was not in effect, the universities and the research centers were not focused on commercializing their products, so for example, one of our investments in another fund, I mean the guy was great and to this day, he has a company that is unique, but he was so focused on being a researcher and not an entrepreneur, and the environment was not helping him go and take that leap. Today we have, Endeavor was not in the region, for example, it was with the MIF grant that Endeavor came to be in Latin American in 1998 and success and grants given to them. So today we have Endeavor we have the InnoVAR program, we have the 21 to 12 accelerators, we have seed funds, we have angel networks. So it is almost like peer pressure right, now you don’t have to apologize to be an entrepreneur. Before if you were an entrepreneur that was the final, ‘Oh you are in between jobs, the one you just were fired from and the one you’re looking to get.’ Now to be an entrepreneur, it’s something that gives you status, I want to do something that is innovative, that was non-existent in 1998.

Snow: So what does Brazil have in abundance and maybe what does it need more of? Maybe starting with Patrick.

Arippol: Well, to summarize I think that’s a great question and I absolutely agree with the points of Marcus and Susana, the environment is completely different and all those components, which I guess I was absent during those ten years — but you were very active in making and transforming it. But here and back, essentially if I were to abstract the main points, the most challenging and the most changing dynamics is probably the government regulation, the whole red tape. I guess one way to put it is that, to assess a number, how much of my time I spend in the startup and Silicon Valley thinking about administrative matters, at most was 10 percent, whereas here in Brazil perhaps 40 percent, with the whole labor tax issues with, you know, tax issues it just takes up a lot of your time, and this is obviously a much broader question than just startups, it affects all businesses of all sizes in Brazil.

So there is a very substantial change in the government now, there’s a lot of awareness of how important this matter is so that’s probably going to take time, but it’s just the most difficult dimension in my opinion just because it takes longer, there’s a whole process to it and so forth. There are a lot of variables out of the control I mean the most we can do is through the associations like ABVCAP and so forth. And the most changing dynamic I think probably would be the culture, because the culture has a lot of aspects and dimensions to it. If you’re a failure, I mean failure was never really accepted I think in the ’90s outside of the bubble, people who just came in to try to make a buck, you know, if you were doing startups you have to be a little crazy, something was not right or you didn’t get a job but some people did it for the craziness of it or whatever a lot of them are still doing it today.

Whereas today, I think maybe we’re on the other side of the pendulum where there’s probably entrepreneurs doing it for romanticism and they think it’s easy.

So we’re probably going to get a balance out of that, but the cultural aspect has changed a lot. I mean when I was in Silicon Valley with my startup entrepreneurs from Brazil, we could count on one hand, I mean, obviously we want to meet each other to drink a beer to talk about home and so forth, talk about soccer whatever, and nowadays the people have reached over 50 – so that exchange of insights and that cultural aspect of Brazilians saying, I’m going to plant my flag in Silicon Valley or the U.S. or another country and I’m going have a technologist be world class, that’s happened today, and that’s a very substantial cultural shift.

Garcia-Robles:

There are some things that are on my wish list for the Brazilian ecosystem. One would be that we still don’t have a lot of entrepreneurs who have failed, start again, be successful, becoming angel investors and give back to the community and stay in Silicon Valley to become mentors. So all of that breaks down a little bit in the entrepreneurial cycle because entrepreneurs need to have role models, need to have mentorship and need to have people who understand the challenges and the opportunities and therefore they invest well. I still think that we have a mass of angels with the good will but a lack of understanding of the equation of risk, investing in innovation and that at the end of the day, they have to know the yearly amount that they want to put into a startup is something that they are willing to lose in order to crank up the innovation engine.

So I see serial entrepreneurship as big issues, angel investors as big issues and the whole idea to not apologize. Be on a stage and say I started this company, I failed, I learned from these things, I started another one and the story ends on a good note. I still miss that in Brazil. I see it in other countries, not so much in Brazil. And the last thing that I’m seeing and goes along with what Patrick said. Once we grow this, Brazilians tend to be more isolated because this is a huge country, you don’t need a lot in the beginning, you don’t need to look at an international market because this market gives for a lot. But now the entrepreneurs are going global and Brazilian entrepreneurs understand that, so that’s very good because they are looking for national, regional and global connections. So that’s also very important because when you begin to talk cross-country you begin to get the gist of innovation.

Regueira: And let’s not forget right we are in an emerging country right. We have not emerged and so the industry has all those hiccups in the whole chain right, and if we have really astounding success in Brazil, these successes will push and will pull others successes. In the industry, the ecosystem will establish itself better. They’re still difficulty with follow-ons for the good companies in our portfolios right, and many times we have to go out and offer that to outside investors that sometimes have not ever invested in Brazil and are looking to Brazil right now, so the ecosystem needs more funds, needs more cycles as Susana says, successes and a recycling of this capital to make it true. On the other hand, that’s why the opportunities are here on a different way.

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