July 10, 2013
Interviewed by: David Snow
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Twelve Years Backing Brazilian Growth

A Privcap Conversation with Sidney Chameh of Brazilian private equity veteran firm DGF Investimentos. Chameh details how the market has changed over 12 years, why entrepreneurs value help getting on the path to IPO and why private equity no longer needs to “sell” itself.

A Privcap Conversation with Sidney Chameh of Brazilian private equity veteran firm DGF Investimentos. Chameh details how the market has changed over 12 years, why entrepreneurs value help getting on the path to IPO and why private equity no longer needs to “sell” itself.

Twelve Years Backing Brazilian Growth

A Privcap Conversation with Sidney Chameh of DGF Investimentos

What do Brazilian entrepreneurs need today to get to the next level of growth?

Chameh: I understand that along with the capital they also need one or many items from the following list, governance, long term planning, a new capital structure, commercial leads, or new channels of sales. Even operational support so they need much more than only capital. And for us at DGF, that we are focused on growth capital we always invest in EBITDA positive companies and in a company that is EBITDA positive, it is really difficult to sell only capital, you have to sell something more in order to the entrepreneur to allow you to become shareholder.

Is the path to IPO an attractive offer for entrepreneurs?

Chameh: I think two things regarding this question. One, entrepreneurs learned about somehow bad experience by 2007, 2008, when many companies went public without being prepared to do so, so this is first part of your question. Not only the Bovis Pamais but the need or the challenge to become listed company so entrepreneurs are really considering do it your very good samples. We have always spoken about TOTUS, a Brazilian IT company that is listed that was formed by three-four companies, all VC backed so the entrepreneur has this idea of following the same strategy so I think the Bovis Formais is also helping the issue.

DGF has been investing in Brazilian growth businesses since 2001. What strikes you as an important difference in today’s opportunity?

Chameh: In 12 years time many things are different, I can highlight that today we don’t need as a firm to sell to the entrepreneur the concept of venture capital to day pretty much they know what we are talking about but today I think the Brazilian as an institution we have many good items or strength that turns the entrepreneur into potential candidates to receive these kinds of capital and again we don’t need to explain, we just need to convince the entrepreneur to allow us to invest as I mentioned. Many of them, they have a very good situation in terms of returns, they are EBITDA positive as we focus on this growth for market and they benefit from the help of many items as I just pointed to you. Today it is really different in terms of potential with the low inflation although we are facing today a kind of a little bit higher than forecasted inflation but I do think that the entrepreneurs are much better prepared to entertain a growth within the country. The country is showing a very good opportunity. Today Brazil has around more than four million companies and if you do two downs you are going to find a very compelling number, one item is number of companies growing in above 10% in sales, and another item is a company growing in number of employees above 20% a year for the last three years. If you combine these two items you are going to find some 30,000 companies so the Brazilian lower middle market as we rank, it is a fantastic market and we can for sure find very good opportunity as we did on our fund number two.

How is your performance lately?

Chameh: On our fund number two today we are currently running at IRR of 40% and we are fund raising, we are close to the final fund raising for our fund number three targeting 200 million dollars and we believe strongly that we are going to deploy this kind of capital without paying much higher valuation than we did in fund number two and we are going to have the same chance to deliver the same result. Why is that? Because we are very focused on investment processed, very disciplined investment process and we don’t diversify, we don’t do anything else but private equity, we don’t do MNA, we don’t do consulting, we don’t do money market funds, so this is the focus and today 12 years after founding DGF, this strategy is paying off.

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