December 28, 2015
Interviewed by: Privcap
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Understanding Small Brazilian Companies

Sao Paolo-based venture capital firm Performa Investimentos has found the recipe for success in taking Brazilian companies global, before they become too big at home. Founding partner Eduardo Grytz says the key is to get angel investors from Israel and Silicon Valley.

Sao Paolo-based venture capital firm Performa Investimentos has found the recipe for success in taking Brazilian companies global, before they become too big at home. Founding partner Eduardo Grytz says the key is to get angel investors from Israel and Silicon Valley.

Taking Brazilian Companies Global before They’re Too Big
With Eduardo Grytz of Performa Investimentos

Mike Straka, Privcap: Welcome to Privcap. I’m joined by Eduardo Grytz from Investimentos Performa in Brazil. Welcome to Privcap.

Eduardo Grytz, Performa Investimentos: Thank you very much. It’s a pleasure.

Straka: You picked a busy week to be here, didn’t you?

Grytz: That’s right. Generally, during this week in the year, the Brazilian Venture Capital Association and the Latin American Venture Capital Association promote events together—Brazilian and Latin American institutions and members of the venture capital and private equity ecosystem—to meet with international investors in New York in a series of events. So, we’ve been here, in the presence of former Minister Arminio Fraga, who gave a speech at ABVCAP. The LAVCA is full of people understanding what’s happing right now with Brazil, the region, and opportunities amidst the crisis. So, it’s been a very fruitful week.

Straka: A Chinese symbol for crisis is actually two symbols: one is danger and the other one is opportunity.

Grytz: That’s correct. It’s a great symbol to have in mind right now.

Straka: What are the opportunities amid this crisis that’s going on there?

Grytz: First of all, Brazil and Latin America have very large economies and a very large population base. Brazil alone has 200 million people. These people have to eat, to feed and to produce independently. So, the economies will continue to happen and now with a focus on efficiency and cost reduction. This opens a very good space for what Performa does right now, which is innovation investing. It’s the time to bring in new solutions that can allow more efficiency in industries like IT healthcare, ag-tech, and specifically agri-tech.

We have one of the largest agricultural industries in the world and one of the most sophisticated in terms of investments in productivity and efficiency. So, now is the right time to invest in infrastructure or commodities-related subjects in Brazil, as the Brazilian assets became cheaper at this very moment. But, in a five- or 10-year time, we expect that parody will prevail. The economy will not disappear. We have a mix of fiscal imbalance with the political crisis and both of them are not significantly serious to jeopardize institutions of the country or the long-term stability we have. So, it can be a good moment to capitalize on the opportunity in the crisis.

Straka: Are there certain parts of the culture that international investors need to understand before they go into Brazil and try to join funds or to buy companies?

Grytz: There are. International investors that know the region for a long time are okay. But, in any other case, Brazil and Latin America have many specificities culturally. The region is very relationship- based, so you depend on people indicating you to get to the right opportunities and situation on a business level. This is very important. When you come to the U.S., if you are good enough and have an opportunity to show, you can get to anyone and the door is open, at least for a first conversation. That’s not the case necessarily in Brazil and Latin America.

Bureaucracy is really, really high and significant. People don’t factor that correctly when they think about the time it takes to open up a company and to shut down a company. Labor costs and labor liabilities are very high. Tech costs are significant. How this composite impacts a business opportunity is not necessarily clear to a person who gets in in the first moment. A local partner helps build credibility when talking to other parties in Brazil and Latin America. All in all, it’s better—at least for the first 100 years (no, maybe five years, three years)—to be alongside a Brazilian or Latin American party to do a soft landing in the region.

Straka: One of your theses is to take Brazilian and Latin American companies global. How do you propose doing that in your next fund?

Grytz: What we see is the growing interest of international funds in themes where Latin America has a vocation into. For example, agriculture, healthcare and some segments in IT. In the region, we have the opposite. We have a lack of capital availability. Interest rates are very high. There is still not a significant number of venture capital funds, angel investors or agents. So, successful companies from Brazil and the region that manage to go into the next phase cannot find abundant local capital.

Performa, right now because of the profile of the partners—we have a French partner, an American partner, a partner focused on Silicon Valley and myself. I’m focusing in Israel. We have been developing, in the last four to five years, relationships with international venture capital firms so that we can bridge the companies we find best in the region. With these funds, when they reach a certain stage of maturity where they can receive international capital and grow their business not only in the region, but abroad.

We have three cases in our portfolio where we find a situation. One company we incorporated directly in the Silicon Valley from the start—a software company. We have a second company where we are negotiating an investment from an Israeli fund. And we have a company where we took ethanol technology from Belgium and brought it to Brazil, alongside the investment of three venture capital firms from Belgium. So, we have been specializing in building the case and building the format to make it happen in the last four to five years.

Straka: All right, can you give me an example of maybe one of your companies that you’ve invested in and exited? A value creation—how you take a company and you say, “OK, I want to create value to this company,” whether it’s inserting a new CEO or a new team or a new manufacturing workflow. Can you give me an example of something that you were successful in creating value for?

Grytz: For example, the software company [Go Boxy ?] that we incorporated in Silicon Valley. It’s from an entrepreneur, Christian, that, at 14 years old, was the youngest Microsoft-certified professional in the world. Then, at 19, he sold his company. Then, he had a health problem and decided to focus his energy and time productivity for himself. He learned everything about it. He’s a Mensa guy, a top-2% IQ person. He set up his own productivity-management system in theory and software.

So, in talking to him and knowing him, we liked him very much as an entrepreneur. But he didn’t know anything about venture capital investments and how to build up a company. We convinced him to separate, to spin off his software company from his consulting business. Then, we completely transformed a traditional computer base like Microsoft Word software into an SaaS model—mobile and with artificial intelligence and other features behind.

We took him to Silicon Valley to talk to some funds to help shape the model and we convinced him to incorporate his company directing into Silicon Valley. Now, this company is receiving investments from angel investors in the Silicon Valley. So, it’s proven. We had attraction in the company. We convinced American investors to join.  And my partner—Umberto, the board member for this company—was significantly involved in designing the strategy, building the case and constructing this opportunity in Silicon Valley. This is one case.

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