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Building the venture capital and private equity
industry in Latin America and the Caribbean.
Tags: LAVCA, Private Equity
By Patrick McGinnis
Private equity conferences offer a forum in which investors, be they GPs or LPs, can reflect on the state of their industry. Personally, I have watched the Latin American private equity industry evolve over the last decade in part by attending conferences.
After a bit of reflection, I have compiled a list of what I view as key takeaways from the 2011 LAVCA Summit. Read more
Tags: Brazil, LAVCA, Member firms, Venture Capital
By Vinod Sreeharsha
New York Times Dealbook
October 24, 2011 – When the investment firm Monashees Capital first called Juliano Ipolito, the co-founder of an online handicrafts marketplace, he assumed that he would have to visit the firm in São Paulo.
Brazilian investment firms have traditionally had distant relationships with the companies they finance and are held in low regard by entrepreneurs.
Instead, three Monashees partners, including the co-founders Eric Acher and Fabio Igel, jumped into a car and drove in blistering heat almost 60 miles to Campinas. They spent several hours with Mr. Ipolito and his wife, Monica Ipolito, co-founder of their start-up, Elo7, getting to know them and explaining their role in developing early-stage Internet companies.
Initially, the Ipolitos “did not want to do a deal,” Mr. Igel said, because “they did not need the money and they were happy.”
But the visits to Campinas continued and the relationship grew. Recently, more than seven months after that first call, Elo7 secured Series A financing from Monashees and the American venture capital firm Accel Partners.
The deal illustrates the emergence of an Internet start-up community in Brazil. Homegrown Monashees identified the entrepreneurs, developed the relationship and early on brought in a major Silicon Valley player as a partner to make a rare early-stage investment. That change in the investor-entrepreneur relationship here comes as United States venture capital firms are starting to take notice of Brazil.
During Brazil’s rise, several economic sectors have attained global prominence, but the Internet has been a notable exception. Nasdaq does not have a single Brazilian Internet company listed, and the country’s own exchange has very few.
This is not for a lack of talent. In 2000, Brazilian professors in Minas Gerais created Akwan Information Technologies, which was acquired by Google in 2005 and became the Internet giant’s research and development center in Latin America.
But today’s entrepreneurs are starting to believe their options are wider, so they are building companies for the long haul that can rival multinationals instead of getting consumed by them. This is changing in part because of firms like Monashees.
According to Claudio Vilar Furtado, an authority on Brazilian venture capital and private equity, and professor at Fundação Getulio Vargas, Monashees is among a small group of firms introducing “a new paradigm for the type of relationship that nurtures entrepreneurs in a very positive and value-increasing way.”
Other investment firms include Astella Investimentos, Ideiasnet and FIR Capital. All are filling the void of private sector financing for start-ups.
According to the New York-based Latin America Venture Capital Association, five of 32 venture capital and private equity deals in Brazil in the first half of 2011 were early stage, seed or incubator investments. In 2010, that ratio was 12 of 28.
Monashees today holds $70 million, up from $30 million in July 2010. Investments range from $500,000 to $5 million for the initial round. The most it has invested in a single company via multiple rounds is $7 million. One of the partners, Mr. Acher, says that the firm typically takes 30 percent ownership in a start-up, with a range of 20 to 40 percent.
In 2010, Mr. Acher said that the firm was likely to make just two to three investments per year, because of the time it took to develop relationships. But this year, Monashees has already made at least nine new investments in nine different Brazil-based start-ups. One these new companies, GetNinjas, an online marketplace for services that was founded by two Brazilians, Eduardo L’Hotellier and Diego Dias, began recently.
The unexpected surge in investment opportunities in Brazil for Monashees is partly because entrepreneurship is becoming more accepted as a viable career.
For example, Mr. L’Hotellier, who previously worked at McKinsey & Company and Bain Capital, had his pick of corporate jobs, but he chose entrepreneurship.
A second reason is that failure is becoming less of a stigma. Mr. Dias, for instance, tried to start a company in the past but says that, “I was with the wrong partners.”
Yet, after meeting Mr. L’Hotellier, he was willing to try again. Young Brazilians are also encouraged by their compatriots returning from the United States, like Julio Vasconcellos, a graduate of the University of Pennsylvania and Stanford Business School, who co-founded the country’s first daily deal site, Peixe Urbano, in Rio de Janeiro in 2010, backed by Monashees and Benchmark. Its initial angel investor was
Chamath Palihapitiya, who says he has participated in every financing round since.
And even as Brazilians are returning, Monashees has invested for the first time in Americans who, in a role reversal, have come to Brazil seeking greener pastures.
Baby.com.br, an e-commerce site for baby products that started this month, was founded by two Americans, Kimball Thomas and Davis Smith. And they chose a Brazilian V.C. firm over a Silicon Valley one.
Mr. Thomas said that from their initial meetings with Monashees, “it became clear that if we work with these guys, they are with us daily.”
“We knew that we had a highly interested partner that was on the ground with the type of relationships and contacts we needed,” he said. “Otherwise we are just a couple of guys showing up with suitcases of money,” with an idea but unsure how to execute it.
Other investors in the Baby.com.br financing round that Monashees led are Ron Conway’s SV Angel and Mr. Palihapitiya, who has invested in three companies with Monashees.
After the investment round, which raised $3 million, Tiger Global Management contacted Monashees, expressing interest in the company and subsequently adding $1.5 million in April.
“Tiger would not have been interested in us had we not raised money from Monashees,” Mr. Smith said.
Monashees faces numerous challenges, in particular producing its first exit.
“We need to get to liquidity events, and it is going to take some time,” Mr. Acher said. “We still have to prove ourselves.”
And increased competition means that Monashees is losing out on deals for the first time, although that’s an expected result of the sector’s evolution.
Whether Monashees and the start-up scene here will succeed will also depend on their American partners and whether they can adapt.
Accel, which has made two investments with Monashees, also played a crucial role in winning over the Ipolitos, including introducing a Flickr co-founder, Stewart Butterfield, who shared his doubts about taking financing in the photo-sharing site’s early days.
“How we behave will determine how much they trust us in the future,” Kevin Efrusy, an Accel partner, said of this new group of Brazilian entrepreneurs. “If we behave well, we will be able to partner with entrepreneurs there for generations.”
But, he said, “if we behave badly, by optimizing short-term gains and trying to take advantage of people, we will wreck the ecosystem.”
Tags: Deals, Exits, Fundraising, LAVCA
Earlier this month LAVCA announced 1H 2011 data on fundraising, investments and exits for Latin America private equity and venture capital. So what do the numbers tell us? Read more
Tags: Funds, LAVCA, Private Equity
By Hillary Canada
July 20, 2011— In the “fiercely competitive” fund-raising market, general partners are increasingly looking to geographies outside the U.S. and Europe for new limited partners.
Anyone looking to Latin America for such investors may be interested in thumbing through the latest report out from the Emerging Markets Private Equity Association, which summarizes the regulatory environment throughout Brazil, Colombia, Peru, Mexico and Chile and includes a directory of local pension funds and associations within those countries.
The report notes that the region’s rapidly growing populations have grown assets under management by as much as 20% per year at some pension funds. But even as assets are growing, investment opportunities in the public sector of some of these countries are not keeping pace- meaning PE firms may be able to reap the benefits of a funding overhang.
Despite getting burned in the nineties, Chile’s pension reform has led to similar program revisions throughout the region. And as Partners Group mentioned in its Latin America report last week, the area is also benefitting from macroeconomic and fiscal policies geared toward increasing economic growth and the size of the middle class.
Cate Ambrose, president of the Latin American Venture Capital Association, notes that Latin American pension funds are managing roughly $645 billion, and according to some estimates, between $20 billion and $25 billion may be available for PE investments.
But for foreign general partners, accessing that cash is easier said than done. Ambrose notes that Brazil and Mexico are still focused almost exclusively on domestic investment, whereas regulatory demands – including setting up a feeder fund in Chile or winning approval of the banking superintendent in Peru – may add to the “confusion as to the opportunity for global firms aiming to raise capital in Latin America.”
“Global firms should be prepared to invest significant time and effort into tapping that potential,” writes Ambrose.
Click here for information on how to access the full report.
Tags: Brazil, Chile, Colombia, LAVCA, Private Equity
By Thao Hua
July 19 2011—Latin America is attracting more private equity investments from institutions based both domestically and overseas, lured by a combination of favorable regulatory changes, demographic shifts and strong economic fundamentals, according to two reports published this month.
Institutional assets in Latin America are growing at one of the fastest rates on the planet at 20% compounded annually over the past three years, with aggregate pension assets having reached about $638 billion in Brazil, Mexico, Chile, Peru and Colombia, according to “Local Pension Capital in Latin America” published by the Emerging Markets Private Equity Association. So far, about $14.9 billion of that is invested in private equity strategies, but the amount could reach as high as $25 billion in the medium term, depending on such factors as expected regulatory changes and the market environment, several sources who are familiar with the EMPEA report said. Institutions such as pension funds and sovereign wealth funds elsewhere in the U.S., Europe and Asia also are looking to increase private equity exposures to emerging markets — including Latin America.
“Global (limited partners) are expressing a lot of interest in Latin America,” said Cate Ambrose, president and executive director of the Latin American Venture Capital Association based in New York. Ms. Ambrose, who is a contributor to the EMPEA report, said in a telephone interview that in the past six weeks alone, at least $5 billion was raised for private equity funds investing in Brazil — easily more than half the estimated $8 billion raised for all of Latin America in 2010.
“Brazil has leapfrogged China as the most attractive market for dealmaking (by general partners) in the near term in LPs’ eyes,” Jennifer Choi, director of research at EMPEA, Washington, wrote in an e-mail. According to a separate annual survey of LPs conducted by the EMPEA in association with private equity manager Coller Capital, 47% of the respondents said they are either launching or expanding private equity investments in Brazil.
Brazil — considered the center of private equity activity in Latin America — has attracted the most commitments recently and offers “compelling long-term opportunities,” according to a separate report titled “Latin America Private Equity: Reaching Out to Untapped Opportunities” published by Partners Group, a fund-of-funds manager based in Zug, Switzerland, with about €20 billion ($28 billion) in assets under management. (Partners recently opened an office in Sao Paulo in January.) However, the Brazilian private equity market is also “becoming more crowded, and valuations in the large-cap space are rising,” according to the report. The group is overweight Brazil, as well as Colombia and Chile.
Colombia also held strong potential for managers looking to invest in the country, according to sources who contributed to the report. “The case for private equity (in Colombia) is supported by strong deal flow … and attractive protection of minority shareholder rights,” ranking sixth highest in terms of investor protection in the World Bank’s “Doing Business Index,” surpassing both the U.S. and the U.K., according to the Partners Group report. Standard & Poor’s raised Colombia to investment-grade status in 2011.
Chile has the most established business environment in Latin America, according to the report, “combining a well-developed banking sector and capital markets with prudent regulations.” Elsewhere, investors are taking a wait-and-see approach to Peru following the June election won by Ollanta Humala, the nation’s new populist president, sources said. Mexico, which is the second-largest economy in Latin America behind Brazil, also held strong potential. However, “Mexico has a high correlation to the U.S.A., which ties the economy to the recovery of the advanced world,” according to the Partners Group report.
Capital sourced from pension funds in the region is also expected to increase “at double-digit rates for the foreseeable future,” said Julio F. Lastres, a guest contributor to the EMPEA report and senior managing director for Latin America at Darby Overseas Investments Ltd. based in Miami. Darby is the private equity subsidiary of Franklin Templeton with about $3 billion in assets under management globally, about a third of which is invested in Latin America. Darby has regional offices in Sao Paolo, Mexico City and Bogota.
Latin America’s “young and rapidly growing populations are fueling steady increases in pension fund assets under management,” according to the EMPEA report. “The growth in dry powder exceeds the supply of publicly traded investment opportunities, pushing them into alternative assets, including private equity.” For example, the $13.3 billion Administradora de Fondos de Pensiones Proteccion, Medellin, Colombia, is planning to commit between $2 billion and $3 billion to private equity over the next two years. The fund now has about $235 million invested in private equity strategies. Colombia’s pension funds, considered some of the most sophisticated private equity investors in Latin America, can invest up to 5% of the total assets in domestic private equity and another 5% in foreign private equity funds, according to the EMPEA report.
Brazilian pension funds, however, hold the most potential in terms of domestic sources of new commitments for private equity managers in the long term with about $300 billion in assets. While the funds are not allowed to invest in private equity funds denominated in foreign currencies, they can invest in funds managed by international fund managers through local currency investment vehicles. About 25% of the private capital raised in Brazil is sourced from domestic pension funds, according to the EMPEA report.
In addition to Partners Group, other international private equity houses that have opened offices in Latin America in the past several years include The Carlyle Group, HarbourVest Partners LLC and Capital Dynamics Inc., Ms. Ambrose wrote in the EMPEA report. Private equity investments in Latin America surged to $6.6 billion in 2010 compared with $1.3 billion the previous year, according to the EMPEA report. Brazil took the lead with $4.6 billion of 2010′s total, but investments in Latin America ex-Brazil still increased about fivefold to $2 billion.
“It’s in many ways part of the global emerging markets story,” said Darby’s Mr. Lastres. “There’s higher expected growth compared to the developed markets, again going back to the demographic story among other factors. I think there’s a lot of potential for private equity investing.”
Tags: Chile, LAVCA, Private Equity
Por Leonardo Ruiz Pereira
July 4, 2011—“La crisis financiera mundial irónicamente ayudó mucho a América Latina”
Experta del Banco Interamericano de Desarrollo prevé que los próximos cinco años serán “prometedores” para la región.
En los últimos diez años, nuestra región se ha consolidado a nivel global y son cada vez más los fondos de capital de riesgo que ven a Latinoamérica, incluyendo a Chile, como una opción atractiva para destinar sus inversiones. Pero esta tendencia se potenció aún más gracias a la buena posición en que quedó la región tras la crisis global.
“La crisis financiera irónicamente ayudó mucho a Latinoamérica, porque cuando se desplomaban los mercados desarrollados y había que buscar nuevos horizontes de diversificación, China pasó a un segundo lugar”, afirmó a DF Susana García-Robles, jefa de equipo del proyecto del Fondo Multilateral de Inversiones del Banco Interamericano de Desarrollo. La experta aclaró que no es que China se haya rezagado, porque ofrece una “escalabilidad increíble por el tamaño de su economía”, pero atinoamérica se posicionó como una region competitiva.
García-Robles, quien estuvo de visita en nuestro país en un seminario de la Latin American Venture Capital Association, agregó que “Chile ya no es visto sólo como un país pequeño, bien educado, con la ley bien puesta y sin corrupción, sino que Chile es visto como un hub o una plataforma desde la cual se pueden hacer negocios internacionales, sacar provecho de alianzas estratégicas y beneficiarse incluso a nivel de emprendedores”.
- ¿Cuál es la percepción de los fondos de capital de riesgo sobre América Latina?
La región aprendió de los errores de las crisis y en la última no tuvo los mismos problemas en el sistemabancario que el resto del mundo. Incluso los países que sí se vieron afectados por la crisis, en realidad se vieron afectados porque estaban teniendo una orientación muy exportadora y se les cayó el otro lado de la ecuación. Entonces comenzó un movimiento de family offices e inversionistas de EEUU y Europa que vieron que Latinoamérica tenía una mentalidad para hacer negocios parecida, porque casi todo el mundo habla inglés como idioma oficial de negocios, además del huso horario que influye mucho para lo mismo. Aunque parezcan cosas triviales no lo son cuando uno conduce negocios y tiene que hablar todo el tiempo con clientes y trabaja con fechas límites. Los próximos cinco años para América Latina son muy prometedores. Habría que ‘meter mucho la pata’ para que esto no fuera un buen quinquenio para la región.
- ¿Y cómo evaluaría a Chile?
Hace años, en 2002 o 2003, el gran tema era que había espacio para capital de riesgo en Chile: había
empresas y flujos de oportunidades, aunque la connotación entonces era bastante escéptica y no sabíamos si había capital, porque existían grandes empresas, pero aún no era claro si emprendedores con pequeñas compañías podían replicar el modelo de Silicon Valley. Sin embargo, desde entonces Chile pasó por un cambio generacional y ahora existen emprendedores e inversionistas entre 25 y 45 años que ya ven el riesgo más al estilo estadounidense, es decir que no lo ven como un problema sino como una oportunidad.
- ¿En qué áreas se están desarrollando?
Estamos viendo empresas que pueden ser competitivas internacionalmente, vemos oportunidades en el tema de ciencias de la vida, la biotecnología y la tecnología, así como también oportunidades en la economía real. Obviamente Chile tiene mucha competitividad en el área de agronegocios, están saliendo fondos de capital de riesgo que están apostando por ese sector, y otro que apuestan por energías renovables, el tema de desechos y reciclaje. Chile se está transformado y positivamente.
- ¿De qué tamaño es la inversión de fondos privados en el país?
Los fondos tienden a ser como en otras partes de Latinoamérica, o fondos muy grandes de capital privado o fondos que están entre US$ 25 millones y US$ 40 millones. No estamos hablando de 100 fondos operando en Chile, sino de 20, pero lo importante es que cada uno de esos fondos va a invertir en cerca de ocho o diez compañías. Algunas de ellas no van a salir bien, pero otras se van a posicionar globalmente, porque Chile está teniendo cada vez más una mirada global e internacional. Corfo ha sido fundamental en esta innovación. La gente no piensa en crear una empresa que se quede en Chile, sino en crear una compañía chilena que tenga alcance internacional.
Tags: Argentina, Entrepreneurship, Events, LAVCA
Ariel Muslera, Regional Advisor at LAVCA, recently participated on a panel at Buenos Aires Futura, an event organized by the city government of Buenos Aires to facilitate discussions about the growing importance of technology and innovation. Panels explored topics ranging from the impact of technology on social interaction and economic development to opportunities for education and entrepreneurs.
Ariel, along with panelists Diego May (Junar), Inaki Berenguer (Pixable), Fernando Martinez Lafuente (CIC Consulting Informatico) and Alejandro Marshad (Endeavor), led a lively conversation about Innovation, Entrepreneurs and Economic Development, noting that as the playing field levels between emerging and developed economies, there is immense opportunity for entrepreneurship to be a bigger driver of economic development in Latin America.
“The challenge is to be able to think big and not limit the potential of a startup because of short term needs. For that, it is fundamental to grow the early stage VC ecosystem in Latin America, so that companies can focus on developing compelling products instead of paying next month’s rent,” said Muslera.
The panelists also agreed that the single, most valuable thing a startup team can show to a potential investor is a cohesive, complementary team that not only has a vision but, more importantly, has the skills and the experience to successfully execute that vision.
To view videos from the event, please click here.
Tags: Brazil, Fundraising, LAVCA
By Joe Leahy in São Paulo and Daniel Schäfer in Frankfurt
(Please note: This is an excerpt of the original article. Click here to read the article in the Financial Times.)
June 28, 2011—BTG Pactual has raised the largest Brazilian private equity fund to date, adding to an expected record year for what has become one of the sector’s hottest markets.
The Brazilian investment bank and asset manager has closed its first private equity growth fund at $1.5bn, exceeding its initial target by a third after an unusually short six months of fundraising.
Private equity groups are being drawn to Latin America and Brazil in particular by the opportunities for companies targeting the region’s emerging lower middle classes.
Some $8.1bn was raised for the region last year, up 122 per cent compared with a year earlier, according to the Latin American Venture Capital Association.
The regional funds accounted for 62 per cent of total funds raised, followed by Brazil dedicated funds with 14 per cent. Most of the money in regional funds is expected to be invested in Brazil.
The surge of interest in the past 18 months includes a $1.65bn fundraising by Advent last year, and the closure of a $1.68bn regional fund by Argentina-based Southern Cross.
By Joe Leahy
(Please note: This is an excerpt of the original article. Click here to read the article in the Financial Times.)
June 28, 2011— In Brazil, the chances are that if you eat a burger, go to college or travel to Miami, you will be putting money into the pockets of private equity firms.
A boom in the industry in Latin America over the past few years has led to a host of new deals, with a Brazilian private equity firm, Vinci Partners, holding the local franchise for Burger King, and others, such as Advent International, targeting Brazil’s fast-growing education sector.
While the last five years have been upbeat – companies raised $8.1bn for Latin America as a whole last year and are expected to have $10bn-$11bn available for investment in Brazil alone by the end of 2011 – it has not always been this good.
The increase in private equity money chasing deals in Brazil has led to concern that the market is becoming saturated. But Brazil’s private equity environment remains relatively under-developed compared with the US.
Brazil also has the advantage of being the most culturally similar emerging market for US and European funds, says Cate Ambrose, president of Latin American Venture Capital Association.
She said: “Brazil is much closer to the European and US business culture of working with financial investors, building up the company and eventually selling it”.
By Joe Leahy in São Paulo
(Please note: This is an excerpt of the original article. Click here to read the article in the Financial Times.)
June 15, 2011— Burger King, the Miami-based private equity-controlled fast-food group, has announced a 10-fold expansion plan for its restaurant chain in Brazil.
The move comes as private equity groups are expanding aggressively into Latin America with Carlyle Group announcing also on Wednesday that it has raised $1bn in equity in two funds to invest in the region.
“Broad economic trends, including the rising middle class, make South America in general and Brazil in particular a desirable investment destination,” Carlyle said in the statement.
Private equity and venture capital groups raised $8.1bn for Latin America last year, a 122 per cent increase on a year earlier, according to figures from the Latin American Venture Capital Association.
More than half of this amount was for regional funds, with Brazil-specific funds accounting for 14 per cent of the total followed by Mexico with 11 per cent.
(c) 2010 Latin American Venture Capital Association (LAVCA).