What a difference one year makes. Since showing noteworthy signs of a maturing tech ecosystem last summer, corporate venture in Latin America has begun to crescendo in just 12 months, led by Brazil.
According to LAVCA’s 2017 Latin American Startup Directory, of the 144 early-stage tech companies that received $1 million-plus in funding over at least two rounds and are still operating in Brazil, approximately one-sixth of them secured corporate venture capital (CVC) funding. While this might seem shy compared to half of the rounds in Silicon Valley, it is a significant step for the region and a clear sign that corporations are evolving fast from curiosity to actual action, with skin in the game.
Global giants that have also begun infusing more venture capital into Brazil and Latin America include CVC funds from global innovation brands like Cisco, Microsoft and Qualcomm. At the end of June, Naspers and Innova Capital invested a total of $53 million to fuel the growth of Movile, a leader in mobile marketplaces that in turn also acts as a corporate venture player in the region, with current investments like iFood. Naspers, a long-time investor in Movile, led the round that injected another $30 million into the company to accelerate its business across LatAm.
In May, SoftBank invested $100 million in Brazil-based 99, an on-demand ride-ordering platform. That new investment adds to the $100 million Series D round that 99 closed in the beginning of the year led by China-based Didi Chuxing. Founders Intelligence, a specialist digital agency based in the U.K. that advises large corporate and institutional investors on strategy and transformation, recently opened a Brazil office. The group is part of the Founders Forum, a global community of the most successful entrepreneurs, VCs, academics and select, inspiring CEOs.
Corporate venture capital in Brazil is bridging the gap between local and global giants and the smaller, scrappier startups in the region.”
— Flavio Pripas, managing director at Cubo
Local corporate investment in the region is also on the rise. For example, in May, Itaú, Brazil’s largest bank by market value, agreed to acquire a 49.9 percent stake in XP, Brazil’s third-largest brokerage firm, for $2 billion, and gradually increase its stake over time with an option to buy full control. According to Bloomberg, XP is being compared with Charles Schwab Corp. for bringing online investing platforms to the growing middle class in Brazil. XP accounted for 10.8 percent of the equity-trading volume in Brazil for the first three quarters of 2016, a notch up from 9.9 percent in the same period of 2015.
“Corporate venture capital in Brazil is bridging the gap between local and global giants and the smaller, scrappier startups in the region,” says Flavio Pripas, managing director at Cubo, a São Paulo-based tech hub and transformational project to foster entrepreneurship in Brazil. “During the last two years, we’ve seen an uptick in synergy between big companies and startups working together and corporate venture investments ballooning. Moving into 2019-2020, we expect even more investment activity and we’ll likely see more large corporations buying into entrepreneurial startups for learning, talent and R&D.”
An entrepreneurial hub in São Paulo expands
Since its launch in September 2015, Cubo has helped fast-track São Paulo’s startup scene and provide Brazil’s largest city and the economic capital of Latin America with an entrepreneurial hub that offers the same setup that American startup founders enjoy.
On August 23, Cubo announced that it is expanding from its current 50,000-square-foot space that holds 250 people, or up to 50 tech startups, to a facility that’s four times larger. During the first half of 2018, Cubo will move to its new headquarters in a 12-floor building in Vila Olímpia, the entrepreneurial heart of São Paulo, which will allow it to house more and larger startups, with more than 2,000 daily visitors, 210 resident companies and more than 1,250 people working there daily. Cubo will become the largest entrepreneurial center in Latin America and a lead example for other innovative hubs around the world.
The original Cubo, which connects its resident entrepreneurs with large corporations, academics and government officials and a slew of events designed to boost dialogue and Silicon Valley-like synchronicity, simply became too popular and outgrew itself in less than two years. Since its founding in September 2015, the startups that operate from Cubo have generated more than 650 new jobs, and more than 700 startups have applied to be part of Cubo. The co-working space has become a center of gravity for Brazilian entrepreneurism and mentorship, with more than 780 events held at Cubo in two years.
“One of the new trends in terms of synergy that we’ve seen at Cubo is more large corporations using startup’s technologies to improve back-office processes,” says Pripas. “With financial crisis still impacting the region, global companies want to reduce costs and improve efficiencies. Brazil is known for its bureaucracy, and a new crop of SaaS innovations help improve operations across legal, HR and IT departments.”
Rising interest in corporate innovation initiatives
Based on a May CVC Insights research paper (CVC-Insights-Project-Summary-Findings-and-Analysis-5-17-2017) by Bell Mason Group that was sponsored by Global Corporate Venturing (GVC), corporate venture capital has become entrenched as an essential corporate innovation tool that contributes significant strategic value and financial stability. There’s been a broadening of CVC charters and mandates to address larger “market-maker opportunities, and an increase in the size and reach of CVC programs to support between 40-60 investments per year.”
In early October, the GVC organization will host its second-annual Corporate Venture in Brasil conference in São Paulo, designed for international investors (CVCs and VCs) to connect with entrepreneurs in Brazil and encourage more corporate innovation initiatives. “The event is designed to explore opportunities for investors to connect with Brazil’s innovation and VC community with a special focus on agritech, mobile tech and auto-tech,” says James Mawson, editor-in-chief of Global Corporate Venturing.
Brazil’s startups will benefit from the wisdom of global companies and Silicon Valley-like synergy and synchronicity.
One relatively new example of corporate venture synergy with Brazilian entrepreneurs is the Algar Ventures Open, an open innovation program created by Algar Ventures that launched last year. It’s a partnership with the venture capital arm of Algar Group and Endeavor, the nonprofit organization headquartered in New York City that pioneers high-impact entrepreneurship in growth markets around the world. For those selected, the initiative connects entrepreneurs with Endeavor network mentors and Algar executives for mentoring, networking and business with Algar during a six-month program. Founded 86 years ago, Algar is a family-controlled corporate group based in Brazil with more than 23,000 employees that specializes in tourism, B2B technology, agribusiness, telecom and security systems.
“Our goal with Algar Ventures is to support businesses and entrepreneurs who aim to be bigger players in the Brazilian market,” says Clau Sganzerla, vice president of corporate strategy and innovation at Algar. “The first objective is to connect the chosen startups with our companies’ challenges, creating business opportunities that meet our clients' needs. The second is to find the best direct, early-stage investment opportunities for Algar Ventures, preferably in sectors that we know within our value chain. We chose to work with Endeavor to help with our screening process and startup mentoring because it’s an organization that has support for entrepreneurship in its DNA. They can help us to significantly accelerate identification of good opportunities, while improving our own corporate culture via our interactions with entrepreneurs at the most promising startups.”
As Brazil’s entrepreneurial ecosystem continues its significant expansion and more startups in the region attract new funding and create symbioses with large corporations, Latin America’s largest economy will revive, gain steam and create more jobs. Brazil’s startups will benefit from the wisdom of global companies and Silicon Valley-like synergy and synchronicity that has emerged in the region in recent years. It is a good start for CVC in the region, and clearly just the beginning.
Disclosure: Anderson Thees was previously an investor in Movile while serving as LatAm Investment Principal for Naspers. Cisco is an investor in the Redpoint eventures fund and a sponsor of Cubo.