Corporate Venture in Brasil: Day One

Like a stone’s impact on a still pond, it is hard to see how far the ripples will go, but after the first day’s Corporate Venture in Brasil 2016 conference it is clear the government’s Apex-Brasil investment agency has helped spark a substantial change in attitude and understanding about how corporations can support the innovation capital ecosystem.

Over dinner after his keynote on the first day, Everson Lopes, managing partner of co-creation site Hive Brasil, said: “Do not underestimate the impact the first event 12 months ago has had in Brazil.

“Through these Corporate Venture in Brasil conferences corporations here now know about how to go about developing venturing as part of an innovation strategy.”

At the time of the inaugural Corporate Venture in Brasil conference in October 2015, Brazil’s state development bank BNDES had visited 20 corporations over the previous few months to discuss the issue of corporate venturing and held a breakfast meeting for 50 CEOs and chief financial officers at the 2015 Corporate Venture in Brasil event.

Their C-suites’ starting positions then were not encouraging. As Leonardo Pereira, head of investment funds at BNDES, said in his opening keynote to the 2015 conference: “Many of the boards did not know about open innovation or corporate venturing.”

This, therefore, has begun to change. Working with Global Corporate Venturing as partner, Apex-Brasil had more than 500 registrations for its second conference this month, including more than 100 from international corporations that are active or considering investing in the country, such as Microsoft, Google, BASF, Siemens, SAP, Bosch, Evonik, Applied Materials, UPS, Yamaha and Qualcomm.

Jayme Queiroz, investment director at Apex-Brasil, said in his closing remarks to the first day of the 2016 conference that it was tracking 120 Brazilian corporations “interested in corporate venturing,” an increase of more than 50% in the past 12 months.

While few corporations have set up specific funds, Queiroz said these 120 “interested” corporations were looking at how open innovation through partnering, accelerators and corporate venture capital could complement their other strategies.

Larissa Macedo, innovation manager of Algar Agro, the agriculture subsidiary of Brazil-based conglomerate Grupo Algar, gave the final keynote on the first day of the conference, explaining how her company was allocating the majority of its earnings before interest, tax, depreciation and amoritsation (Ebitda, a metric of free cash in a company) for “innovation”.

This year, the company set up Algar Ventures with R$291m ($93m) to invest in entrepreneurs, either as minority direct investments in early-stage companies through accelerators, or indirectly as a limited partner in VC funds, she added.

At about the same time, Brazil-based insurer Porto Seguro had started Porto Capital. Its first fund, Porto Edge Growth I, has R$400m of capital to invest primarily in medium-sized companies with revenues between R$50m and R$150m.

Vinícius Scaramel, then-CEO of corporate-backed accelerator and VC Brasil Ventures, who this month took an innovation manager position at construction supplier InterCement, surveyed 68 corporations in partnership with Apex-Brasil this summer about their views on innovation, and investing in and working with startups.

Scaramel said* there had been a 16 percentage point rise in the number of corporations investing in startups.

In 2015, 59% of respondents had invested in zero startups but this year the number had fallen to 43%, with a commensurate rise in the number of corporations investing in one to five startups. And the models used to make these investments are increasingly world-class.

Peter Seiffert, head of corporate venture capital at Embraer and a member of Global Corporate Venturing’s Leadership Society advisory board alongside Wendell Brooks, president of Intel Capital, Sue Siegel, CEO of GE Ventures, and Jeffrey Li, managing partner of Tencent Investments, has in the past year made five investments through the FIP Aeroespecial fund managed by a third-party, William Coura, managing partner at PortBank.

The most recent deals included cybersecurity companies Clavis and Tempest, which raised R$4.5m and R$21.6m, respectively from the Aeroespecial fund, according to GCV Analytics data.

In an on-stage discussion between Seiffert, Coura and Lincoln Mattos, CEO of Tempest, the portfolio company explained how its investment had been “an opportunity to have Embraer as a client but also as a research partner”.

Mattos added the key challenge that Tempest faced in making the model a success was “being able to navigate the Embraer structure and access the right decision makers and strategic knowledge, and hence accelerate itself in the market”.

Similarly, an onstage discussion between Marc Puskaric, managing director of Bertelsmann Brazil Investments and head of the Germany-based media group’s corporate centre in Brazil; Guilherme Carlos, partner at VC firm Bozano Investimentos; and Thiago Feijão, CEO at portfolio company QMágico, moderated by Maria Isabel Moretti de Miranda, M&A director at Bertelsmann Brasil, looked at the interplay between a cornerstone corporate LP in a VC fund and how the two could help the entrepreneurs.

Feijão explained how Bozano’s founder had built the firm on understanding “the building blocks of the education ecosystem” and that “this thesis connects every portfolio company”. The 15 portfolio companies, through the VC fund, then work on delivering value for all the others.

By having Bertelsmann as the cornerstone LP in Bozano, this education ecosystem can then link into Bertelsmann Investments’ global venture ecosystem (see GCV profile from September here) which is also set up to share insights across geographies and market insights, Puskaric said.

Feijão gave the example of Bertelsmann’s investment in education company Udacity for how both companies had similar models, which created opportunities to learn from each other.

Puskaric eloquently explained that, from Bertelsmann’s perspective, using venture as a tool enabled the business to explore which, or all, of the new technologies disrupting education could be potential winners without losing focus on its core business.

This insight into why a firm is exploring a venturing strategy was at the core of a successful strategy, according to Flavio Pripas, director of the Cubo co-working space developed by Brazil-based Banco Itaú a year ago, and André Barrence, head of US-listed search engine provider Google’s Campus São Paulo co-working site set up in June.

In their fireside chat, Barrence said understanding “why” you want to engage with startups is the first step and Pripas agreed, adding: “There is no ‘one-size-fits-all’ model.”

Pripas said in its first year it had been “working closely with corporations [as well as Itaú] and teaching them to work with startups. That first year had involved it helping startups close more than 100 deals with corporations.

Similarly, Jesper Rhodes, chief marketing officer for Latin America at telecom equipment supplier Ericsson, and Renato Valente, country manager for Brazil at Telefonica Open Future, explained in another fireside chat how their crowdworking collaboration had helped students and entrepreneurs at the technical university Inatel.

Ultimately, investors and an ecosystem can only thrive when the entrepreneurial talent is there. In pitch sessions judged by corporate venturers Lutz Stoeber, investment director at Evonik Venture Capital, and Michael Stewart, principal at Applied Ventures, four Brazilian entrepreneurs showcased their companies.

The polished performances by BR Photonics, Solum, Sunew and Nano Vetores reflected well on the training provided through Apex-Brasil over the previous day and weeks beforehand.

The investors noted how the calibre of entrepreneurship had grown markedly over the past few years, along with the expertise and widening pool of investors.

The ripples from the second day of the Corporate Venture in Brasil 2016 conference are likely to spread even further.

*The full results of Brasil Ventures’ survey will be published by Scaramel at the second day of this year’s Corporate Venture in Brasil conference.