Alternative investments: Brazil’s VC industry wakes up
by Leticia Lozano
June 2006 – Venture capital in Latin America, led by Brazil, Chile and Mexico, has come a long way since 2003, when the industry raised just $417 million in funds. Last year, the figure reached $2 billion, according to the Latin American Venture Capital Association and, if Brazil can realize its potential, the figure could double by 2008. Brazilian pension funds, with about $120 billion in their portfolios, are making venture capital-linked investments for the first time ever this year, led by state oil workers pension fund Petros.
The awakening of Brazil’s venture capital business owes something to the São Paolo stock exchange, which is cultivating an over-the-counter market – the Bovespa Mais project – that gives financiers an exit option as it allows venture capital-backed companies to raise up to $50 million. At a time of historically low interest rates in Latin America, investors are seeking alternatives to traditional investment vehicles for secure returns, benefiting venture capital, while Brazil is benefiting from a prolonged period of economic stability.
The financial arm of Brazil’s science and technology ministry, Finep, which has played a leading role in promoting Brazilian venture capital, has pledged more than $130 million for about 24 funds this year and is diversifying into start-up businesses and throwing the focus wider than just small and medium-size companies. The Inter-American Development Bank, via its multilateral investment fund, has contributed to a dozen venture capital funds.
Technology in Brazil is in particular need of seed capital for research and development and is attracting fund managers. US chip manufacturer Intel last month set up a $50 million venture capital fund to back technological innovation.
With up to $4 million earmarked for each venture, at a ceiling of 20% of a company’s capital, Intel aims to support areas such as IT service providers, local content developers and mobile wireless development. “This is the right time to make an investment in Brazil,” says Ricardo Correon Quinones, Intel’s head of Latin America. “We anticipate the Brazil fund will inspire more innovative business models,” adds Arvind Sodhani of Intel Capital, the corporation’s investment arm.
Attractiveness of investor environment for VC in Latin America, max score 100
*Used as comparison countries
Source: Latin American Venture Capital Association SCORECARD