Corporate Venture Capital investments represent most of the money invested in startups around the world.
To understand how is Brazil positioned in the sector we spoke with entrepreneur turned investor & the designer and first leader of CUBO Flavio Pripas, Corporate Venture Officer at Redpoint eventures.
With a broad experience in corporate development and as a founder who launched and sold two companies, Flavio is among a few leaders who’s being navigating the Brazil tech scene from its nascent years.
Here are his takes on Brazil’s digital transformation and the increasing bond of startups & corporations that are looking to stay competitive.
BayBrazil: According to LAVCA, 88 Brazilian startups raised $989 million across 88 deals. 2019 was a great year for startups in Brazil, another year of investments’ record, and 5 new unicorns. Will this trend continue in 2020?
Flavio: Trend will continue in 2020, because the economy is beginning to experience a resumption, which attracts more investor’s interest. Brazil today has a scenario that is unique, with the lowest interest rate in its history. The usual high interest rate drove the investors to look for more conservative investment alternatives, and with this new reality, investment in innovation ends up being interesting. In other words, the tendency is for this growth to continue and even accelerate.
BayBrazil: What are the traditional companies that are now leading corporate investment in the country? As the innovation ecosystem matures will more companies dedicate resources to it in 2020?
Flavio: Every large established and relevant company that aims to keep that status has to look for what is being described as digital transformation. In other words, it means being more agile, doing things differently, and being open to trying different things. One of the things companies are experiencing is investing in startups or, a step earlier, relationships with startups. This kind of relationship is something that has matured a lot in the last four years. Cubo itself was a great catalyst for this process of maturing how a large company relates to a startup and, at the same time, how a startup relates to a large company. Corporate venture capital investment itself, is something that is just beginning though. There is a great appetite of large companies to start investing, but there are still few cases where you have a large company investing in a startup with this corporate venture capital bias. Except for the already traditional cases already consolidated, such as Wayra from Telefonica, it is still something that the Brazilian market is discussing a lot and in the preliminary stages, not something already consolidated.
BayBrazil: Global venture capital market is rising in amount of money invested, number of private tech company financing events, size venture capital deals, and giant venture rounds. In 2018, venture funding rounds represented most of the reported capital raised by private tech companies, one half in the Silicon Valley. Will CVC in Brazil reach this importance in the total invested?
Flavio: In the world, practically 2/3 of the money invested in startup in 2018 was from CVC. I think it will grow but the movement is still very incipient for us to say that it will make half the volume. What I see is that all companies are moving in one way or another. However, to companies make a fund, or start investing directly in other companies, will take time. I think that in 2020 we will start to have the first cases of corporate venture capital investment so that we can keep up, but it is a movement that is still very incipient. 2018 data in South America shows companies have not started investing yet, although they all have appetite. It is still very early. The appetite is still high, but execution is still beginning. The appetite is still high but execution is still beginning.
BayBrazil: If corporates don’t get close to the startups, may they be left behind in the innovation race?
Flavio: The world today is changing so fast that every business model is being challenged, every product is being challenged, every business is being challenged. So, there is no alternative: or the company will invest in innovation not to be left behind or at some point it will be left behind. The startup is an innovation agent; it is a company that is challenging the status quo, so the proximity of the big company to the startup helps to give visibility to new technologies, new business models, and new ways of work. This is the reason of being relevant. An important comment: this approach between companies and startups does not necessarily have to be done only with investment; it can be done through a partnership, a hiring, a joint venture, an open innovation program, for example.
BayBrazil: Some years ago, some successful startups in Brazil used to be a Brazilian version of an American startup. Do you think Brazil is now innovating in its own entrepreneurship as some startups are focusing in the country’s problems?
Flavio: Yes, this is happening. The most common thing is that you have a Brazilian entrepreneur solving great pains in Brazil. Something that is not so common but that is starting to happen, and we are very happy about it, are Brazilian entrepreneurs solving major global problems. Or starting to solve a problem in Brazil and going global. It is a movement that is beginning to happen now. It was essential for our ecosystem and nowadays it is starting to work successfully. Pipefy from a Brazilian entrepreneur that moved to San Francisco and is making a global company from day one. Or Gympass that started here in Brazil and today is already in almost 10 countries. So, the most common is Brazilian entrepreneurs focusing on Brazilian problems and what is starting to happen now is Brazilian entrepreneurs starting to conquer the world. It is very rare for us to see the simple copy of established business models.
BayBrazil: Lately the media has been talking about value market of startups versus fundamentals and it looks like investors will be more rigid on the investments and valuations. Do you think it will be more difficult for Brazilian startups to get investments?
Flavio: Quite the opposite. I think for the Brazilian entrepreneur this scenario is extremely positive. It is an opportunity for the Brazilian entrepreneur because, as in Brazil we never had excess of capital, the Brazilian entrepreneur always had to develop the company by being conscious with the bottom line. And this market moment is now an advantage because the Brazilian entrepreneur already has it in his mindset. It is not even a matter of maturity, the Brazilian entrepreneur knows that he has to make a profit, otherwise he will die. Since capital has never been widely available as in the United States the pursuit of this profitability is inherent in entrepreneurship here. It’s great if you have the capital to invest without looking for profitability, but if you don’t have it, a Brazilian entrepreneur can turn around and that is an advantage.
BayBrazil: You were executive in big corporations that made a transition to entrepreneurship and now you are an investor. What motivated these moves in your career?
Flavio: In the career moments where I had this turning point, it was the matter of being restless and trying to embrace a different opportunity. Then, when I was working in financial market – I worked at banks, like JP and Credit Suisse – I made a fun site for my wife and at the height of the financial crisis I wanted to try if this business would go forward or not.
My second company was a similar process. When I was invited to design the Cubo, it was a complete uncertainty. We just had Itau and the Redpoint eventures saying they wanted to make a business to change the face of entrepreneurship in Brazil. But what that meant no one knew, so it was another leap in uncertainty, with the anxiety of trying to do a different business.
Now as a VC, for me it was a natural evolution of this process, because a VC investor must be restless by nature, every time he is seeing different business models, different technologies, different people. The more a VC investor is curious and goes after and studies and tries to connect the dots, connect cause and effect, the better investment decisions he will make. Then much came to meet with this curiosity and restlessness that I had been showing for some time.
BayBrazil: As a designer and leader of Cubo, you have a deep understanding of the Brazil tech scene development these years. What’s the biggest constraints in Brazil tech ecosystem now and what have been done to solve them?
Flavio: The biggest constraint in Brazil is instability. Any instability. I won’t even focus on political and economic instability. The environment of uncertainty is the biggest constraint we have because when we live in a world without predictability, people are afraid of taking risks and doing things differently. And this has been very challenging to the country. However, no matter how much we live in this uncertain environment, the technology entrepreneurship environment has never been better, it just grows. The companies from the Cubo grow on average 100% per year, and the companies from our portfolio grow on average 300% per year. If we didn’t live in such an environment uncertainty, if we had a little more stability, this growth process would probably be much faster. This is an important point: having a little more stability to go faster.
BayBrazil: What did Brazilian investors missed in 2019? Any company or sector that they overlooked?
Flavio: It is too early to say that. I think Brazilian investors did a good job in 2019 preparing a new wave of companies that will now start to make a difference in their markets. Talking about losing, I see from an opposite point of view. 2019 was a milestone, where we had companies really starting to gain scale never seen before and the Brazilian market is much more liquid than it was before. I’m sure that Brazilian investors ended up consolidating the fundamentals. If the economy shows signs of recovery now from 2020, and I believe it is, in 2020 the business environment can accelerate much faster.