Webcast: Venture Capital inbrazil

1 Patrick Arippol, Founding Partner, DGF Investimentos Renata Guinther, Head of Investment, FINEP Rodrigo Menezes, Partner, Derraik &

Menezes Advogados Cristiane Nascimento, Project Manager ABVCAP Susana Garcia-Robles, Principal Investment Officer MIF/FOMIN

Webcast:

Venture Capital

in

Brazil

Supported By

Organized By Institutional Support

2

AGENDA

Renata Guinther, Head of Investment, FINEP

The Brazilian Innovation Agency

Susana Garcia-Robles, Principal Investment Officer in charge of MIF Early Stage Equity

Group, MIF/FOMIN

The MIF and its Catalytic Role Building a VC Industry in Brazil

Rodrigo Menezes, Partner, Derraik&Menezes Advogados

Structuring VC Investments in Brazil

Patrick Arippol, Founding Partner, DGF Investimentos

Título da Apresentação

FINEP –

Brazilian Innovation Agency

•

Mission:

To promote Brazil’s social and economic

development through public support to science,

technology and innovation in companies,

universities, technology institutes and other public

or private institutions

.

•

Instruments

•

Grants

•

Loans

•

Investments

•

Strategic Orientation

Research

Institutes &

Universities

INOVAR Program

In the year 1999, FINEP conducted a diagnosis on the obstacles

and challenges faced by technology-based SMEs to access

finance through innovative financial instruments like seed and

venture capital investments.

As a result of this, FINEP approached the Multilateral Investment

Fund (MIF) to work together on a program to be called.

Main Gaps Detected at the time

No effective bridge between investors

and SMEs

Too few national investors in VC/PE

asset class

Limited regulatory framework and legal vehicles for

on-shore VC/PE investments No VC industry

representation Poor market for

IPOs

Too few GPs with track record

Inovar was created to stimulate the formation of innovative

companies and help them gain access to capital.

Goals:

•

Develop an ecosystem conducive to VC investment

• Forge relationships among Brazilian and international institutions

• Increase local sources of capital/investors

• Facilitate the creation of new local VC funds and fund managers

Instruments:

INOVAR Achievements

Number of partners

working with INOVAR grew from 4 to 17, 11 of which are pension

funds

Fund Process

‐

13 calls for VC/PE fund proposals and 6 calls for Seed funds proposals

‐

241+ proposals received and 110+ approved for due diligence

‐

161 investors have participated in panels to evaluate fund proposals

‐

Inovar Investors represent around 10% of Brazil’s GDP

‐

$223M from FINEP and $1.90B from other investors in 26 funds (FINEP’s portfolio)

VENTURE, SEED and IPO FORUMS

‐

36 Forums: 19 Venture, 11 Seed and 6 IPO

‐

4000+ screened companies and 345 coached and presented to investors

‐

$1B+ invested in 75 innovative companies through the Seed, Venture and IPO

Forum

‐

90+ Angel – investors attracted to 2 Seed Forums

Scalability

‐

Cost of program was $16,4M, of which $3,7M was contributed by MIF

‐

INOVAR facilitated $1B+ in investment in SMEs

‐

Leverage of 5.37:1 for Innovation; 7.97:1 from private sector investors and 9,18:1

global

Current Gaps

Investment

Committees

in Vc funds

Best Practices

Early-stage

still needs

fostering

INOVAR as a Public Policy Program

Key Drivers:

•

Innovation and Financial Return

•

International Partnerships: FUMIN/IADB ; LAVCA ; ILPA

•

Local Partnerships: ABVCAP ; BMF&BOVESPA

Lessons Learned:

•

Dedicated team.

•

Simple models.

•

As many positive externalities as possible.

•

Stick to your project’s fundamentals.

•

Focus on achieving the projected results.

•

FINEP is well positioned to prospect and originate investment

opportunities in innovative companies and, in being fully

committed to increasing the innovation rate in Brazilian

companies, we see Venture Capital as one of the best strategic

instruments to achieve this goal.

•

The most interesting thing about Inovar is the possibility to

affect change on a national scale through a program that has

been seasoned for 12 years and provided great track record.

Thank You!

Renata Guinther

Investment Area Superintendent

FINEP – Brazilian Innovation Agency

MCTI – Ministry of Science, Technology and Innovation

14

AGENDA

Renata Guinther, Head of Investment, FINEP

The Brazilian Innovation Agency

Susana Garcia-Robles, Principal Investment Officer in charge of MIF Early Stage Equity

Group, MIF/FOMIN

The MIF and its Catalytic Role Building a VC Industry in Brazil

Rodrigo Menezes, Partner, Derraik&Menezes Advogados

Structuring VC Investments in Brazil

Patrick Arippol, Founding Partner, DGF Investimentos

DRAFT

THE MIF AND ITS CATALYTIC ROLE BUILDING

A VC INDUSTRY IN BRASIL

SUSANA GARCIA-ROBLES

MARCH 2013

DRAFT

₁₆

.

Building the Seed and Venture Capital Industry of LAC

for over 16 years

The Multilateral Investment Fund (MIF): an independent trust fund (1993) and managed by the IDB. Mandate for high risk and innovation. It supports private sector development through equity investments, debt, and technical assistance.

The MIF was a pioneer in the VC industry, entering in 1996 when it was virtually non-existent in LAC, helping rebuild it through subsequent business cycles in the Region, and was instrumental in developing the industry.

Historically, the MIF has been the largest early stage investor with the widest regional coverage:

– We have invested in more than 66funds in the Region.

– Since 1996 the MIF has invested approx. US$ 260 M in LAC, catalyzing US$ 1.2 B.

Over the years the MIF has invested in 38 first-time fund managers covering a wide variety of sectors, including Information and Communication Technologies, Life Sciences, Clean Technologies, Technology applied to Agribusiness, among others.

Today the MIF hasa portfolio of 52 funds, 45 active funds and 7 pending their first closing, and is a leading provider of lessons learned and experiences for new investors in LAC.

We go where we see a market opportunity and basic conditions (a conducive ecosystem): multi-sector, and sector agnostic (although tech is where we have a portfolio valued today at 2X), and with no quotas for a given country, only focused in LAC.

DRAFT

₁₇

.

BRAZIL: A LABORATORY OF EXPERIENCES AND LESSONS

LEARNED

The MIF started its activity in 1998 and never retrenched in spite of crises or volatility. Instead, the MIF bet on supporting local first-time fund managers to create a local VC industry.

BRAZIL became a laboratory of experiences and lessons learned for the MIF. What we did in Brazil helped the MIF support VC in other countries in the Region.

Since 1998, the MIF has been one of the main supporters of the Seed and VC industry in Brazil, investing directly in VC funds and implementing programs to improve the VC ecosystem through the INOVAR I and II initiatives. The MIF has historically supported 17 funds. As of 2012, the MIF only has four funds that are actively investing or about to start operations: Burrill, Performa, C-Ventures, and Vox. The other funds will be finishing their lives within the next two years.

It is important to mention that MIF’s current portfolio in Brazil is performing well and the MIF is expecting a net gain in the Brazilian portfolio.

The INOVAR I Program supported VC funds starting in 2001, launching calls for funding proposals and matching institutional investors with promising funds. In 2007, MIF approved INOVAR II, a follow-on program, which also has calls for seed fund proposals, as well as focusing on attracting angel investors to the industry. The selection of funds is performed through a competitive process and using rigorous due diligence standards. MAIN CONTRIBUTION: new local and first-time fund management companies supported, training in international bets practices, pension funds’ investments.

DRAFT

₁₈

.

BRAZIL’S VC INDUSTRY

Brazil as a pilot test: The MIF took the INOVAR concept to other countries: Chile,

Colombia, Peru, Jamaica, Costa Rica. The MIF partnership with ABVCAP is also

intended to transfer knowledge on how to build VC associations in other countries.

Lessons learned: i) innovation wasn’t always welcome if the product was pioneer; this is

changing now , ii) good number of fund management companies, investors and

potential investments to jump- start the industry made the industry take off even if small

at the early stage, iii) market is huge: a pro (you don’t need to go outside Brazil to grow

your company) and a con (you don’t need to go outside Brazil to grow your company).

Brazil today: i) having developed a local VC/PE industry because overseas investors

were not that interested in Brazil a few years ago, the challenge is now how to adapt it

to best international practices (e.g, IC composition; different sector funds under the

same fund management company looks like lack of a strategy to the foreign investor); ii)

early stage financing remains a challenge.

DRAFT

₁₉

.

BRAZIL AND THE REST OF LAC

Chile and Uruguay: need to go global due to their small markets.

Colombia: like Brazil 10 years ago, strong government support.

Argentina: very innovative and exporting entrepreneurs.

Peru: only a few PE funds, lack of government support for early

stage.

Mexico: finally taking off, a new generation of fund managers.

Central America: more traditional investments, use of mezzanine

financing.

WHY CONTINUE INVESTING IN BRAZIL?

Need to grow angel networks and seed investment.

Need to foster commercialization of the innovation produced in

academic centers.

Great potential: natural resources, a growing middle class that

demands services and products.

DRAFT

₂₀

.

THANK YOU

21

AGENDA

Renata Guinther, Head of Investment, FINEP

The Brazilian Innovation Agency

Susana Garcia-Robles, Principal Investment Officer in charge of MIF Early Stage Equity

Group, MIF/FOMIN

The MIF and its Catalytic Role Building a VC Industry in Brazil

Rodrigo Menezes, Partner, Derraik&Menezes Advogados

Structuring VC Investments in Brazil

Patrick Arippol, Founding Partner, DGF Investimentos

Structuring VC investments in Brazil

Structuring VC investments in Brazil

•

Investment structure

•

Transaction Documents

•

Rights, Preference and Privileges of VC investors

•

Pay attention to...

Investment Structure

•

Local or Foreign vehicles

•

Holding companies or investment funds

•

Brazilian target or foreign target with an operational entity in Brazil

•

Equity or Convertible debt

Rights, Preference and Privileges of VC

investors

•

Preferred shares with voting rights

•

Tag Along / Drag Along / ROFR

•

Liquidation preference

•

Anti-Dilution Protection

•

Non Compete and permanence of Founders

•

Put Option

•

Appointment of members of BOD / officers

•

Registration Rights

Rights, Preference and Privileges of VC

investors

•

Protective Provisions

•

Restriction on transfer of shares

•

Approve distribution of dividends

•

Amendment to company by-laws’

•

Approve Stock Option Plans

•

Approve unbudgeted expenditures

•

Approve loans or offer guarantees

•

…

Transaction Documents

•

NDA

•

Term Sheet / MOU / LOI

•

Investment and Subscription Agreement

•

Shareholders Agreement

•

By-laws

Pay attention to...

•

Tax issues

•

Labor matters

•

Intellectual Property

•

Litigation

Thank you

Email: [email protected]

Derraik & Menezes Advogados

São Paulo • Rio de Janeiro

30

AGENDA

Renata Guinther, Head of Investment, FINEP

The Brazilian Innovation Agency

Susana Garcia-Robles, Principal Investment Officer in charge of MIF Early Stage Equity

Group, MIF/FOMIN

The MIF and its Catalytic Role Building a VC Industry in Brazil

Rodrigo Menezes, Partner, Derraik&Menezes Advogados

Structuring VC Investments in Brazil

Patrick Arippol, Founding Partner, DGF Investimentos

Documento Interno e CONFIDENCIAL – Versão #2

Current Venture Capital Market

in Brazil – “A VC’s ViewPoint”

DGF Inova /

DGF Investimentos

ABVCAP Webcast

March, 27th, 2013

32

Documento Interno e CONFIDENCIAL – Versão #10

Introducing DGF Investimentos – Practice Areas

DGF BIOENERGY 1 Status: Investing Size: R$ 300M Vintage: 2009 DGF GROWTH 2 Status: Raising Size: R$ 300M Vintage: 2013 DGF GROWTH 1 Status: Invested Size: R$ 100M Vintage: 2007

Mid S

iz

ed

Co

mpan

ies

Sector

_Spe

cific

Inn

ov

ativ

e

Start

-ups

Size: R$ 22M Vintage: 2002 DGF Early Stage 2 Status: Launching Size: R$ 50M Vintage: 2012 Mid Sized Companies Special Thesis Early Stage GROWTH CAPITAL

33

Documento Interno e CONFIDENCIAL – Versão #10

Introducing DGF Investimentos – Highlights

Import / Export Software Tax Software Developer CRM Software Developer IT Infra-Structure Outsourcing

Exits Portfolio

Software for mobile ticket sales B.I. Solution for Healthcare On-demand printed products Corp. Expanse Mngt. Software Telecom R&D Outsourcing

34

Documento Interno e CONFIDENCIAL – Versão #10

CRITERIA & DIRECT SOURCING

Criteria (“sweet spot”):

 STAGE – Revenues of U$1-3M with proven business cycle and profitability potential

 BUSINESS MODEL – Consistent and with attractive dynamics (recurring revenue, etc)

 GROWTH – Potential >U$50M revenues in 5yr

 TEAM – Stellar entrepreneur and team

 INNOVATION – Innovative company

 TICKET – Invest U$1-5M per company

 EXIT – Clear exit opportunities

Sample Investment Theses:

 Enterprise mobile software platforms

 High-growth Cloud & Saas plays (long-tail)

 SaaS solutions to drive on-line customer acquisition for small and medium companies

 Highly scalable web platforms in healthcare

 Business Intelligence applications

 Value-added distribution of virtual goods (retail)

Introducing DGF Inova: Criteria & Pipeline

SNAPSHOT

Pipeline Status since launch

 U$25M fund launched in January 2012

 913 companies analyzed

 2 investments completed

 Direct-sourced projects (from 30% to 70%)

Segment Representation among top prospects:

 E-Commerce infrastructure: 18,5%

 Cloud/SaaS: 15,4%

 Web 2.0 / Internet Advertising: 13,8%

 Health-Web: 12,3%  Mobile: 10,8%  Financial Technologies: 7,7%  IT-enabled Services: 6,1%  Online Media: 6,1%  Education: 4,6%  Other: 4,6%

35

Documento Interno e CONFIDENCIAL – Versão #10

Myths Worth Dispelling:



VC investing in Brazil is similar to VC in Silicon Valley

(Risk of “One Size Fits All” Approach)



The moment for good VC Investments in Brazil has passed

(Risk of “Following the Herd”)

Topics: Current Venture Capital Market in Brazil

– “One VC’s ViewPoint”

36

Documento Interno e CONFIDENCIAL – Versão #10

 Dispelling Myth#1: VC investing in Brazil is similar to VC in Silicon Valley

 YES – Bring Insights from a Mature into a Maturing Market

 Sector-specific support for global technology companies

 Increase direct sourcing and specialization

 Best practice / governance at global levels

 NO – Use the Same Investment Approaches

 Only “proven models” are worth investments: great local and BRIC-specific

business models

 “Spray and pray”: portfolio company monitoring is more demanding

 Pay US-valuations: exit markets command different valuations

 Assume follow-on investors will “be there” for good companies: don’t be so

sure – better be ready for follow-ons

 Good companies will find exits: Again don’t be so sure. Best to find

companies with multiple paths to exit, and help them reach significant scale

One VC’s ViewPoint –

Risk of “One Size Fits All” Approach

37

Documento Interno e CONFIDENCIAL – Versão #10

 Dispelling Myth #2: The moment for good VC Investments in Brazil has

passed

 Local VC eco-system has matured: specialized law firms, etc

 Critical mass has been reached for companies to “hit it out of the park” –

consumption (e.g. mobile phone users), entrepreneur quality, etc

 Moderate economic down-cycle in Brazil is already creating interesting

investment opportunities (cherry-picking of Series B investments)

One VC’s ViewPoint –

Risk of “Following the Herd”

38

Don

´

t miss our next Webcast:

Confirmed panelists:

Cesar Collier, Managing Director, Siguler Guff

Cristiano Gioia Lauretti, Partner, Kinea Investimentos Fernando Borges, Managing Director and Co-Head of the Carlyle South America / Vice Chairman, ABVCAP

Thank you for your participation!

See you at the ABVCAP Conference next month!

15-16 April 2016 – São Paulo

Cristiane Nascimento [email protected] 39 Supported By Organized By Institutional Support