May 1, 2012
Interviewed by: David Snow
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Life-Science Investimentos

Brazil’s underdeveloped life-sciences ecosystem spells both challenge and opportunity, according to João Paulo Poiares Baptista, Managing Director for life-sciences venture capital firm Burrill & Company.

Having raised a $125-million venture fund targeting Brazilian life-sciences investments, Baptista is excited by the opportunities while fatigued by the tough sell. In an exclusive Privcap interview, Baptista describes Brazil’s venture landscape; the dearth of biotech opportunities and abundance of healthcare opportunities; and the need for more applied research, better IP management at Brazilian universities, and more management with experience building and selling companies.

Brazil’s underdeveloped life-sciences ecosystem spells both challenge and opportunity, according to João Paulo Poiares Baptista, Managing Director for life-sciences venture capital firm Burrill & Company.

Having raised a $125-million venture fund targeting Brazilian life-sciences investments, Baptista is excited by the opportunities while fatigued by the tough sell. In an exclusive Privcap interview, Baptista describes Brazil’s venture landscape; the dearth of biotech opportunities and abundance of healthcare opportunities; and the need for more applied research, better IP management at Brazilian universities, and more management with experience building and selling companies.

Privcap: What is unique about Brazil’s venture capital ecosystem?

Joao Baptista, Burrill & Company: The market is not that much willing to invest in VC. And at the same time, does not allow VC managers to really develop. You have to have in mind that our first VC funds were really very small.

There’s a kind of trauma in the market that we all had, and I went through that process. My very first fund was a very small fund. We went through hell running those funds, because they were very small. Actually the management fee wouldn’t pay for the cost of managing the fund.

The fact is, whomever had some experience with VC decided to give up because it’s very hard really. Most of our LPs in this country look at VC, and they assume that because it’s VC the funds will have to be small and that simply doesn’t pay. Doesn’t pay for a fund manager.

This is one aspect. And another aspect is also very important is most of our, and I don’t want this to be read in the wrong way, I’m not criticizing the market. Absolutely not. But the fact is these recent players, they are finally popping out, these recent fund managers, most of them come from the banking industry.

So they actually do not have the expertise, the profile, to run VC funds. This is different type of people.

Privcap: Please describe the fundraising for your new $125m Brazil fund.

Baptista: I had the experience to raise a recent fund. We just started the end of last year. And it took us over two years. Actually over two and half years. And it’s a very tough process just to raise a VC fund. Add up the fact that we were dealing with a totally different industry, a new industry here in this country – that was life sciences. So it was really a kind of a chicken and egg situation. There’s not many proposals. The people that have experience in VC left VC, really trying to do private equity. There’s a certain type of trauma for them, as I had in the past.

I think it’s just a matter of time when I mean, the other players will start to realize that the market is getting more mature, that the LPs are willing to finally invest in bigger funds. I think the scenario will change.

Privcap: What are some of the challenges of life-sciences venture investing in Brazil?

Baptista: We have quite a broad approach when we talk about life sciences. Traditionally, if you look at borrowing company funds, our global funds, the funds that dedicated in the US for instance, they basically focus on biotechnology, and some in pharmaceutical industry, and naturally some medical devices and more recently in digital health.

Here in this country, the approach has to be slightly different. In the sense that we don’t have that many investment opportunities in biotech. We do have some interesting opportunities in biofuels, but human biotech, as we have in the US or in Europe, there’s not that many opportunities.

On the other hand, what we have also is huge opportunities in the area of health care services. So our approach in this country is slightly different, in the sense that we are focused definitely on the human biotech, drug development, new therapies. We are focused in biofuels, but we are definitely also focused on health care services.

Now what we see in terms of human biotech is a totally different scenario from what we were used to seeing in the US. In the sense that the stage that this industry is here in this country is definitely much, much early. What we don’t have really much is applied research. So basic research, very rich basic research. Lot of investment made by the government in this area, but really most of this research never gets to the market.

So what Brazil doesn’t have up to now is really the capacity to help this new research, good quality research to become a product or a service. So going through the whole process, this is really something that is missing in this country. This is one aspect.

The second aspect is, besides the fact that the Brazilian government directly or through some agencies like FINEP and others have been helping to develop the infrastructure for these industries, the fact is that we are still very far from what certain developed countries offer – the infrastructure, labs, network systems. We have a huge lack of that.

So we had actually to develop a different approach also to invest in that type of project. Typically, one of our funds in the US wouldn’t invest in basic research. Here in Brazil, we will invest in basic research. But we had to develop a different strategy to approach that type of investment.

It’s not only a matter of investing, it’s a matter also of building a portfolio. It’s key to the success of a fund like this one to have a very, very good portfolio strategy. So we are dealing with really different universes.

Another aspect that is very important is management. US for instance, or even in Europe, but mainly in US what you see, is there’s a lot of people– lot compared to Brazil, really– that went through the process of heading a company, a start-up, helping the company to grow and do an IPO or sell it or whatever, and exit, with a lot of experience of going through the whole process.

What is very interesting, specifically in this area, we don’t have this here in Brazil. So if you need a good manager, a good CEO for a company like this, you simply don’t find it. Or you have to bring it from somewhere, or train it here.

Not only a matter of the CEO or CFO that has the experience to deal with this industry. Some do have experience dealing with start-ups, but this industry, it’s a different animal. So management is also an issue.

Another issue that we have is in US, or in Europe again for that matter, researchers have cases for them to look up to. Researchers are familiar with the concept of venture capital, of venture investing, of going through the process, of selling the companies, doing IPOs. So these researchers in this country, they   are simply not familiar to the process.

The other issue that we have is Brazilian universities are not used to deal with IP. So this is a long process also. Most of the Brazilian universities don’t even have– which is natural at this point, I believe– a rule, a strategy, a policy, an approach, how to deal with IP.

Privcap: What makes you most excited about the life sciences opportunity in Brazil?

Baptista: There’s really a lot of things happening in this country in terms of research. Really brilliant research. What one can see as a problem– and it is a problem– because of the stage, we see it also as an opportunity. Really help to build up an industry in this country.

So this is really a huge challenge, and we are very excited with this challenge. And also if you look at the other areas like health care services, this is a country that is growing very fast. And the demand of quality services is really growing every year, and in rates that are well over the GDP growth.

So this is really creating a new, huge opportunity to introduce new services in this country. And naturally, on biofuels there’s a lot of innovation, as you know, happening in this country.

And really it’s not an easy country. There’s a lot of still bureaucracy that we have to deal with. But once you get in, I mean you actually can have a group of LPs supporting your activity and betting that everybody will make money and we’ll have a structural impact in the country.

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