July 5, 2013
Interviewed by: David Snow
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The Brazilian Way of Innovation

What backgrounds do today’s Brazilian entrepreneurs come from? Are they seeking technology or business-plan innovation? Experts from DGF Investimentos, Multilateral Investment Fund and FIR Capital continue to discuss the ecosystem for innovation and venture capital in Brazil in the second part of the Brazilian Innovation series.

What backgrounds do today’s Brazilian entrepreneurs come from? Are they seeking technology or business-plan innovation? Experts from DGF Investimentos, Multilateral Investment Fund and FIR Capital continue to discuss the ecosystem for innovation and venture capital in Brazil in the second part of the Brazilian Innovation series.

The Brazilian Way of Innovation

Innovation and VC in Brazil 

David Snow, Privcap: We’re talking about the Brazilian ecosystem for venture capital and investment, it’s a very fascinating topic, all of you have been involved for many years as investors and certainly as investors in Brazil. I’m interested in your view of what Brazilian innovation looks like and maybe what should it look like given the stage that it’s in relative to maybe other parts of the world, maybe starting with a question first for Marcus, is a great investment or a great DC investment in Brazil typically going to be more of a business plan innovation where you’re taking preexisting tools and technologies and applying them to a specific sort of Brazilian situation? Or are you seeing more instances of, you know, invention and technological breakthroughs as a result of, you know, innovation and investment?

Susana Garcia-Robles, IADB: Yes I would say we see more business plan innovation than disruptive innovation I’m sure there was incredible innovation going on in some research centers, universities that they were lagging the commercial side and education is not focus on entrepreneurship in general in Latin America, Brazil is no exception, so those people who no doubt have the capacity to produce the disruptive technology either didn’t take the step to try to commercialize that or if they did they were met with skepticism and say are you crazy, you can’t do that. My hope is that, you know, with different initiatives more accelerators trying to nail concepts of entrepreneurs and then scale it up, you’re going to feel that financing gap, because venture capital fund is not going to invest 25,000 dollars in a company, but an accelerator will, and it will provide the mentoring and the strategic fuel see if that prototype can really become something bigger. So I think we’ll see a change in the next five years that we haven’t seen and the capabilities were always in this country it’s just that it’s difficult to create that ecosystem that we find so tight in Silicon Valley, you know, the research centers, the academic world, investors understanding risk, the entrepreneurs, so but this is going on a positive note in my view.

Snow: Patrick, as you look at your deal flow and the opportunities that are coming to you, what do the more impressive forms of innovation look like? Is there a theme or is it very diverse?

Patrick Arippol, DGF Investimentos: That’s a good question, well we tend to work in investment thesis, so we find areas in which you have a lot of under currents or substantial trends which are just going to change the dynamics of a specific industry and around those we end up looking for them to see opportunities. So we tend to be more proactive in our deal of how we seek opportunities. So what we see, we see all types of opportunities, we tend to focus more in specific as I mentioned thesis, but also IT and software as a whole, and it’s fine, we kind of see R&D that comes from universities as a subset or segment which we might find some interesting things but in our view probably maybe 20 percent of that in fact full disruptive startups are going come from that universe, and in our view we end up seeing more of the business model innovation, more than disruptive but concepts where you not necessary you’re not born in a lab, you’re in an essentially you build a very innovative concept and we tend to find more of those opportunities and there tends to be more… it’s a bit harder to find perhaps, there’s not a pole or an area which you can find these entrepreneurs, but the ecosystem allows, I guess nowadays you find them in a lot of different areas of the ecosystem as Susana and had mentioned – incubators, accelerators, events like the CAPS? event and so forth, so we tend to find them all over the place.

Marcus Regueira, FIR Capital: One interesting thing, Patrick, that just occurred to me, you two are going to agree, but the average age of entrepreneur in Brazil is older than what you might expect in different areas, in certainly in the Silicon Valley right. So those are people that have usually either come out of university and say, you know, I don’t want to do this anymore, not now, I want to have a business or certain other people that come out of the, have been employed dutifully employed, and then decide to be entrepreneurs and then they have, they create something inside a big company, the big company doesn’t want to bank their idea, they by the idea out, the rights, the property, the intellectual rights to it and they do it outside right, and I couldn’t agree more with you that technology that gets to trends and change trends of industries is something that especially with a fertile ground like this one for a market where you’re going to have a very high engagement in digital world in Brazil, already by now, by any standards in the near future, this is of course an area that these trends can be tested, can be pushed.

Arippol: If I may just on your point Regueira, the profile of entrepreneurs is changed a lot in Brazil recently. There’s the young 23-year-old entrepreneur that just got out of university or he’s a first timer and you see the de novo, which is the guy that won two startups and now he’s starting a third time, maybe hasn’t hit it well the first few ones but now he’s really motivated to make this one work. o we have the first timers, the de novo you have people who come out from industry – executives that know a lot about specific domain and then into the mix you throw in the foreign nationals who bring in, a view about a sector or just the aggressiveness or the, and in the end, it’s not like one versus the other will work, but especially in some cases we find there is an interesting combination, the combinations end up really working well because in the combinations you find the people who have the intellectual honestly to say okay, I understand this, or I have this sort of energy and I have this other person whose more down to the ground and has its feet in the ground a little bit, so they find the yin-yang if you will, but the counterpoints, those end up being, at least we don’t have yet the stories to tell of companies that went well.

Regueira: There is some cases right?

Arippol: There are some cases yeah, there are some cases.

Regueira: That we can think of this combination that looks like very attractive for the point of view of the GP.

Snow: Final question, just very briefly, there is this concept and it’s sometimes used to sort of a pejorative term but it’s the copycat startup it’s, you know, I’m going to create the Google of China or I’m going to create the Amazon of Argentina or whatever it is, was there that activity and is there that activity in Brazil and did it go well and do you expect that it will continue to go well, Patrick do you find companies that are essentially concepts taken from other markets and applied to the Brazilian market to be ever attractive?

Arippol: Yes, we do find a lot of those opportunities to be attractive, but I guess in the last few years, specifically from 2001 to the middle of last year 2012, maybe there was an excessive wave where there were a lot of similar bets, two, three plays trying to do the same thing in a market where either you’re going to have winner takes all, one company really do well and get established or you’re just going to have three players competing for a margin and just losing their shirt. Especially in Ecommerce which is one area in particular that this happened a lot, so you had a lot of product categories, which you have three-four companies, and it’s hard, you have to reach scale, there’s a lot of questions around it, now is it good for the market? Absolutely, there are some good companies that will generate from that wave absolutely, at the same time I think that investment thesis, I guess if you could call it the low hanging fruit, the copycats that can be done, there’s nobody doing it, I guess most of those have passed, there might be still some taking place, so I think it was a great wave that took place, not like the bubble far from it, right now the companies that are left, I guess in the next three years both investors and the companies that are out there, you’re really going to see who are going to be companies, they’re going to be the survivors and probably they’re going to be great success cases. Sorry, one last point, the Mercadolivre stayed for a long time, they were under the radar, they were not, people didn’t really know how they were going to succeed in the end they did extremely well. But obviously they went through a phase, they really had a staying power, and I guess one way to look at the market of Brazil, I know the market’s not the American’s, it’s the staying power who are the investors in the entrepreneurs that are really going be able to stay in the long haul to succeed.

Garcia-Robles: And there is also, you know, there are copycats and copycats, I think for example in another country when a fund presented to the investment company the copycat of a Groupon, because I know the culture of that country I was very skeptical and said are you sure they are going to take off, I mean my husband loves Groupon, but he’s American, we’re in the U.S. but here, no, no, Groupon is working out, well now Groupon is not working out, but–

Snow: Or it’s copycats.

Garcia-Robles: Yeah, you know, so but there are some copycats that really what they are doing is innovating in the way of adapting into a need of a market that Facebook wouldn’t know how to do it or the disruptive one from the U.S. wouldn’t know how to do it, so I think we have to detach the stigma of copycat, not talk about copycat, talk about adaptation of a technology and understand also the innovation process allows for that, you can cut the engine enough that at some point it will not be a copycat, it will be something unique but to get there you have to go through an iteration process that wasn’t real disruptive and all of a sudden you got disruptive.

Arippol: Maybe you should call it regional innovation versus copycat.

Snow: Yeah, don’t call it a copycat.

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