August 14, 2013
Interviewed by: David Snow
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VC Success Stories From Brazil

Wanted: Brazilian entrepreneurs “who are crazy but know how to pivot.” Experts from DGF Investimentos, FIR Capital and Multilateral Investment Fund share real stories of startup success from Brazil to illustrate the state of innovation in the Brazilian economy. Part 3 of Privcap’s thought-leadership series on venture capital in Brazil.

Wanted: Brazilian entrepreneurs “who are crazy but know how to pivot.” Experts from DGF Investimentos, FIR Capital and Multilateral Investment Fund share real stories of startup success from Brazil to illustrate the state of innovation in the Brazilian economy. Part 3 of Privcap’s thought-leadership series on venture capital in Brazil.

VC Success Stories From Brazil 
Innovation and VC in Brazil

David Snow, Privcap: We have been talking about innovation and venture capital in Brazil. It’s very useful to hear stories, to give illustrations of what’s really going on in the country and in the ecosystem for innovation, and Susana I know that you’re involved in lots of different early stage investments, not only in Brazil but across Latin America, is there any investment that you’ve been part of recently that indicates what’s really going on in Brazil right now?

Susana Garcia-Robles, IADB: I can truly say that the most innovative companies that I’ve seen in the Brazil were the ones that maybe were not truly accepted in the market five years ago when they were trying to use the cell phones to pay for vouchers and it was too innovative at the time and now, you know, they are totally improving their performance because it’s finally accepted, but in the time it was almost crazy to think that they were gonna make it, and it took, you know, a lot of hiccups and ups and downs, that one that I’m thinking of, and I won’ mention, even though you want me to mention the company, but many Brazilians will know which one I’m talking about, it was truly innovative at the time and it was in danger to truly lose as a company the change of establishing itself and what they had to do very quickly was realizing they started with a very aggressive business plan of delivering several products using cell phones from different markets. And then they realize now what the focus on just one product, one market and this is innovative enough and now it’s looking very good.

Snow: So you’re looking for more entrepreneurs who are crazy but know how to pivot?

Robles: Yes, absolutely.

Snow: Patrick, can you talk about maybe a deal that you’ve been working on recently or that you did that you think has a good story to help understand what’s really going on with the Brazilian ecosystem for innovation?

Patrick Arippol, DGF Investimentos: Yeah absolutely. I mean the one that is a recent investment is a company called Ingresse, which was our first investment from this fund, and it’s not even regional innovation, it’s more than that because basically it’s an example in the United States of a company called Event Brite and another one called Ticket Fly, which are companies that enable the sale of events through social networks to cell phones, and we’re really calling our attention to business model that from all products that you could eventually sell and promote though the internet, the most social product really is the event because it’s a business event, you want to know who else you’re gonna meet at these events. If it’s an entertainment event you want to make sure that, well if you’re a youngster and you want to meet or not meet your ex-girlfriend, well that information is helpful, it truly is and through these platforms you can really find very intelligently who’s going, do I want to go, you can do impulse purchasing, marketing through the cell phones, through mobile platforms, which as I had mentioned it’s, Brazil is an avid user of these technologies, so we find that we can really pivot and evolve technology beyond what’s been done in the U.S. and this is a young entrepreneur, 23-years-old and we helped complement the aspects of Brazil with other aspects and it’s doing extremely well, it’s an early stage investment so we can’t really cite it yet as an example of a case, but it’s by far I think the best position company in Brazil and we think in about 2 to 3 years we’ll be able to be more detailed in terms of what’s happened with that company and so forth. And if I may just quickly, and I’m going to mention this other company just because it’s an example of how regional and specific a business model innovation can be, on the other extreme, something very Brazil specific, which is we have an investment thesis too which is while Brazil has a lot of infrastructure problems, regulatory, so why not invest in a company that helps to solve one of those problems and one of our thesis, this is not myself, but it’s our growth group invested in the company called Mastersaf, which basically is a tax software company that helped companies be more effective in terms of managing their tax liabilities and so forth.

Regueira: Whole complexity of it.

Arippol: The whole complexity of it which is very substantial and that company did extremely well, we help them structure channels and start growing quite effectively and in the end, it was one of those situations where we got some interesting exit possibilities, well the company’s growing very nicely, we’d like to stay on and the entrepreneur said for that amount of money we want to exit. So in that situation we said, okay fine, we’ll exit of course because if the entrepreneur is exiting it really worked well, but that I guess is just one example of the other extreme of local innovation to solve Brazil specific issues.

Snow: So your thesis is not that Brazil tax will become less complex in the future?

Arippol: Well that’s wishful thinking I think to some extent but it might, it might very well happen but still it’s a substantial issue within the company.

Marcus Regueira, FIR Capital: I’d like to hitchhike on your description because we truly believe that where the money really is in terms of venture capital innovation Brazil is in this type of solution where you have a large market in Brazil that can absorb this type of thing and then you can globalize it once the company is already muscled up. So some of the cases that we have in our most recent fund is, for example, for distribution rich media in Brazil, a company that, you know, it’s called Samba Tech, it’s a company that us mortals, mortals will not hear about because it’s always inside the process. But it’s a company that’s literally today managing close to 80 percent of what there is in video and rich media movement in Brazil, both in portals and corporate education, university education, distance education, etc., in all there is around it not only distribution but ads in value added to the process, advertising, etc., you know, believe it or not in Brazil the advertising agencies still use huge tapes to send to global television and, you know, of course this whole thing can be digitized. So this is one example, the other example is we like to look at where Brazil has the comparative advantage in the world and then we look at the companies that have the competitive advantage within that competitive advantage, you know, Brazil is one of the largest mining exporter of iron ore exporters in the world and also the company that manages all these mines is a company that we decided to invest and to grow because this is clearly a global market. So we started in Brazil, we this company already had a sizeable percentage of the Brazilian market, it was, not an note, you know, 40, not 23 but that came out of corporate with a product, developed it and in this company is in Australia, in Peru, in Chili and South Africa, etc., and then it went globally. It got the market; it grew in the Brazilian market, high technology for managing those huge excavators and trucks and, you know, trucks the size of a building. In what we call, managing the dirt out of the mines. So this is something that’s very Brazilian, you know, it could be very Australian, it could be very, you know, whatever you have, you know, large mines here and there and in this company now is spanning out to cargo, you know, infrastructure ports, etc., which is basically the same concept. So this is something that’s typically Brazil, looking at the Brazilian market and saying where can we be really truly leaders in that field and fill a vacuum of need for technology. Consumer internet business yes, Brazil is growing leaps and bounds, it’s going to be extremely attractive, one concern that we have in this market is that you are in an emerging market, this industry is developing, and you’re paying evaluation prices of U.S. and elsewhere so there is a little bit of disconnect between the expectations of a nation business in this area in Brazil, within the difficulties of doing business in Brazil, and the valuation of other, of our more developed market. But still, very attractive market as well but we’re not really focusing on this sector recently.

Snow: And just quick final question, Patrick, you know, Marcus was talking about maybe investing in companies that are gonna win first in Brazil but then can possibly go to other markets like mining in Brazil. Taking that mining in Australia without naming your social events, sharing ] startup, is that the kind of thing that you can foresee, you know, creating something that’s very successful for Brazilians to connect with each other and then taking that to other markets?

Arippol: Yeah absolutely, we were looking at an investment that I’m not sure if we’re gonna do but it was very much an idea, a company that has a great product for social media monitoring technologies and the thesis was exactly analyzing how could it be positioned in the U.S. and helping it to do that leap. It’s not that easy, I mean I was in the Valley during the 2002 and 2004 years in which a lot of Indian companies are starting to do that, well that’s no longer just do body shops out of India, let’s try to move up the chain and bring innovation built in India into the United States, and that equation of how to do it effectively so that it really looks like it’s a U.S. based company, it’s clear, it happened, it works and so eventually we are looking at companies that want to do this have a competitive advantage and we really try to, of course, raise the bar to say can it compete with the market place in the United States cause there obviously it’s an enormous market, very efficient so we have to make sure we have the muscle to do so, but we’re actively looking at those opportunities cause we think we can help those companies as well.

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