The Rise of Brazilian Venture Capital

The Rise of Brazilian Venture
Capital
February 24, 2010
Location:
Patterson Belknap Webb & Tyler LLP, New York
Event Coordinators:
Fernando Szterling - Associate, Simpson Thacher & Bartlett LLP; IBRADEMP - NY Coordinator
Rafael V. V. de Carvalho - International Associate, Patterson Belknap Webb & Tyler LLP
Investing in Brazil
The Brazilian Private Equity &
Venture Capital Association
Overview of the Brazilian Private Equity
and Venture Capital Industry
February 2009
Luiz Eugenio Figueiredo, President, ABVCAP
Investing in Brazil
The Brazilian Private Equity &
Venture Capital Association
ABVCAP
Who Are We
• The Association of the Brazilian PE&VC industry
Our Mission
• Promote and develop long-term investments in
Brasil
Membership
• 110+ including PE&VC managers, LPs, invested
companies and service providers
Investing in Brazil
The Brazilian Private Equity &
Venture Capital Association
Why Private Equity and Venture Capital?
Attractive Risk x Return (30 years)
PE/VC
16
Equities
(EUA)
Annual Returns (%)
14
12
Global equities
(non –US)
Real Estate
10
Short term
Fixed Income
8
Fixed
Income
(US)
6
4
Bonds
("HighYield")
Global Fixed
Income
(Non US)
Inflation
2
0
0
2
4
6
8
10
12
14
16
18
Volatility (%pa.)
Source: Brinson Partners, Inc.
* Volatility for VC and real estate calculated quarterly; VC includes PE and other buy-out,closed end funds
Investing in Brazil
The Brazilian Private Equity &
Venture Capital Association
Private Equity and Venture Capital in US:
Relevant Economic Impact
Source: NVCA
Investing in Brazil
The Brazilian Private Equity &
Venture Capital Association
Private Equity and Venture Capital in US:
Relevant Economic Impact
Source: NVCA
Investing in Brazil
The Brazilian Private Equity &
Venture Capital Association
Private Equity and Venture Capital in US:
Relevant Economic Impact
Source: NVCA
Investing in Brazil
The Brazilian Private Equity &
Venture Capital Association
Private Equity and Venture Capital in US:
Relevant Economic Impact
Source: NVCA
Investing in Brazil
The Brazilian Private Equity &
Venture Capital Association
Private Equity and Venture Capital in Brazil:
A History of Positive Track Record
•
The strong private equity and venture capital community in Brazil
led to a more consistent institutional phase:
– Ten years of ABVCAP
– Collaboration and exchange of best practices with other global
industry associations such as LAVCA, EMPEA, NVCA, EVCA, ILPA
– Improved regulatory environment
– Strong and growing presence of local institutional investors
•
As a result, recent years have shown:
– Very strong growth in committed capital
– Several exits via IPO and trade sales
– Attractive returns
Investing in Brazil
The Brazilian Private Equity &
Venture Capital Association
Private Equity and Venture Capital in Brazil:
Key Numbers
Limited Partners
• Around US$27 billion in committed capital
• US$11.5 billion available to be invested
General Partners
• 140+ PE/VC firms
• 1400+ talented professionals (520 partners)
Invested Companies
• ~500 portfolio companies
• 300+ new investments between 2005 and 2008
• 40+ IPOs between 2004 and 2008
Investing in Brazil
The Brazilian Private Equity &
Venture Capital Association
Private Equity and Venture Capital in Brazil:
Strong Growth
Committed Capital (US$ billion)
26.7
21
12.8
3.7
1999
5
5
4.7
4.8
2000
2001
2002
2003
Source: GV-CEPE
6
2004
7.6
2005
2006
2007
2008
Investing in Brazil
The Brazilian Private Equity &
Venture Capital Association
Private Equity and Venture Capital in Brazil:
Cases of Sucess
International
Brasil
Investing in Brazil
The Brazilian Private Equity &
Venture Capital Association
Private Equity and Venture Capital in Brazil:
Cases of Sucess
Investing in Brazil
The Brazilian Private Equity &
Venture Capital Association
Private Equity and Venture Capital in Brazil:
Post IPO Performance
117%
46%
.
Non PE/VCbacked
Source: GV-CEPE
PE/VC-backed
Investing in Brazil
The Brazilian Private Equity &
Venture Capital Association
Future Perspective:
Unprecedented Conditions
Alignment of positive
macroeconomic fundamentals:
With a favorable environment for
PE&VC:





 Developed local capital markets
 Strong financial institutions
 Modern fund structures and
regulation
 Large active base of local
investors
 Top tier local/international GPs
 Positive track record under
volatile growth scenario
Large international reserves
Low inflation rates
Single digit interest rates
Fast recovering economic growth
Political stability
Investing in Brazil
The Brazilian Private Equity &
Venture Capital Association
Future Perspective: Competitive Positioning
Investing in Brazil
The Brazilian Private Equity &
Venture Capital Association
Conclusion
An enabling
environment
for PE&VC
• Favorable macroeconomics
• Developed capital markets
• World class corporate governance
• Developed institutional & regulatory landscape
• Qualified human resources
With sound
investment
opportunities
• In different regions
• Across different industries
• Consolidation of fragmented sectors
• Distressed assets
• Economic inclusion
And viable
exits
• IPO
• Trade Sale
• Attractive returns
Investing in Brazil
The Brazilian Private Equity &
Venture Capital Association
Luiz Eugenio Figueiredo
President
The Brazilian Private Equity and Venture Capital Association
(ABVCAP)
[email protected]
www.abvcap.com.br
Endeavor experience supporting Brazilian
Entrepreneurs
February 2010
Contact:
Carlos Pessoa Filho
Vice President
Endeavor Global, Inc.
[email protected]
Since its inception, Endeavor has transformed emerging
markets by establishing High-Impact Entrepreneurship
as the leading force for sustainable economic
development.
HIGH-IMPACT ENTREPRENEURS. HIGH-IMPACT CHANGE.
2
Endeavor Global presence
Currently, our scoping teams are at work in Kenya, the
Philippines, Vietnam, Indonesia, Lebanon, Morocco, and Peru
ENDEAVOR
GLOBAL
Turkey
Jordan
Egypt
Mexico
Colombia
Brazil
Endeavor Today
•  140 Employees Chile
•  10 Countries + HQ
Uruguay
Argentina
Existing
3
South Africa
Endeavor Tomorrow
•  270 Employees
•  25 Countries + HQ
Potential Targets
(Illustrative only)
Successful SMEs are the backbone of
economic growth and job creation in
emerging markets...
4
Endeavor has achieved a lot in 12 years …
Over 20,000 candidates screened. 476 High-Impact Entrepreneurs selected.
100,000 jobs created. Average number of workers an Endeavor company employs: 167. In
comparison, three-quarters of new ventures in emerging markets expect to hire a maximum of
2 people.
$900 million in equity financing raised
$3.15 billion in revenues generated by Endeavor companies in 2008.
Average revenue CAGR for “active” or more engaged Endeavor Entrepreneurs is more than
3x the growth rate of “passive” or less engaged companies.
93% survival rate for Endeavor companies.
…but we’re just getting started.
By 2015, Endeavor plans to operate in 20 countries, supporting 1,350 entrepreneurs from
1,000 companies—companies that will create 420,000 jobs and generate $16 billion in
revenues.
Within 20 years (~2030), we aim to increase the GDP of all Endeavor countries by at least 1%.
5
Endeavor is a Global Leader in High-Impact Entrepreneurship
“The Endeavor activists are what I would call “Mentor Capitalists.” Endeavor was formed for the
purpose of promoting entrepreneurship and helping young entrepreneurs in emerging markets,
beginning in Latin America, link up with more seasoned entrepreneurs so that they could grow midsize businesses into bigger businesses that could employ more people – the best anti-poverty
program of all.”
Thomas L. Friedman, The World is Flat (July 2007)
6
Endeavor bridges the gap between microfinance and “big business”
Sources of Support
Large Companies
(>$20m revenue)
Commercial banks,
private equity, etc.
Small & Medium
Enterprises
(approx $100k-$20m)
Micro-Enterprises
(under $100k)
Base-of-the-Pyramid solutions and
Microfinance
The businesses we support are often overlooked by traditional aid, social
entrepreneurship NGOs, local banks, and private equity investors—but
supporting them is critical to spur local economic growth.
7
Defying common sense
•  Well-known hurdles to entrepreneurship in Emerging Markets
– Lead time to start a business: in Brazil the average time is
over 100 days
– Credit is expensive and demands tons of collaterals
– Taxes are many and are high
•  Even though the aforementioned hurdles are true, none of
our supported High-Impact Entrepreneurs have mentioned
them as obstacles that prevented them to start and grow
their businesses
8
A real hurdle to High Impact Entrepreneurs
What other challenges High Impact Entrepreneurs face that
can prevent their companies to perform?
9
What Has Contributed to Underperformance?
Rarely is an entrepreneur’s industry, size at selection, or
company structure the determining factor in performance
with Endeavor; most often external factors or personality
attributes make the difference.
Examples from Portfolio B:
– Partnership governance issues between founders/
entrepreneurs negatively impacted 5 of the 8
companies;
– External factors include changes in government
regulatory framework; lax enforcement of copyright
and tax laws that fostered unscrupulous competition
13
APPENDIX:
11
SMEs face numerous hurdles…
In 12 years of practicing our "mentor capitalist" model,
Endeavor has learned that the biggest barrier to
entrepreneurship isn't capital itself but more basic hurdles…
Lack of Lack of contacts
role models and mentors
Limited
management
expertise
Lack of trust
Limited access
to smart
capital
Once selected, Endeavor helps its entrepreneurs to overcome
these hurdles through structured mentoring and access to
key networks and capital.
12
Impact Metrics (2008-2009)
13
Endeavor Global Board of Directors
• 
• 
• 
14
Edgar Bronfman, Jr.
Warner Music Group, Chairman &
CEO;
Endeavor Global, Chairman
• 
• 
Timothy Draper
Draper Fisher Jurvetson,
Founder & Managing Director
• 
• 
Paul J. Fribourg
ContiGroup, Chairman & CEO
• 
• 
Jason Green
Emergence Capital Partners,
General Partner
• 
• 
Emilio Azcárraga Jean
Televisa, Executive Director &
Chairman of the Board
• 
• 
Matthew Bannick
Omidyar Network, Managing
Partner; eBay International, former
President
• 
• 
Peter Kellner
Uhuru Management,
Managing Partner; Endeavor
Global, Co-Founder
• 
• 
Nicholas F. Beim
Matrix Partners, General Partner
• 
• 
Michael Klein
Citigroup, former Co-President
Investment Banking
• 
• 
• 
Wenceslao Casares
Bling Nation, Co-CEO;
Endeavor Entrepreneur
• 
• 
Joanna Rees
VSP Capital, Managing Partner
• 
• 
Linda Rottenberg
Endeavor Global, Co-Founder &
CEO
• 
• 
• 
Charles B. Seelig
Dune Capital Management,
Managing Director;
Goldman Sachs, former CFO
• 
• 
• 
Brian Swette
Burger King, Non-Exec. Chairman;
eBay, former COO
• 
James D. Wolfensohn
(emeritus)
The World Bank, former President;
Wolfensohn & Co., Chairman
• 
• 
Select members of our local boards and global network
15
• 
• 
Pedro Aspe
Protego Asesores, Chair & CEO
• 
• 
Fadi Ghanhour
Aramex, Founder & CEO
• 
• 
Suzan Sabanci Dincer
Akbank, Board Member &
Managing Director
• 
• 
Emilio Azcárraga Jean
Televisa, Executive Director &
Chairman of the Board
• 
• 
Adrian Gore
Discovery Holdings, Founder &
CEO
• 
• 
• 
• 
Hlumelo Biko
Circle Capital, CEO
Bill Sahlman
Harvard Business School,
Professor
• 
• 
Reid Hoffman
LinkedIn, Founder
• 
• 
Peter Brooke
Advent International, Chairman
• 
• 
Alvaro Saieh
Corpgroup, President
• 
• 
Ali Koc
Koc Technologies, President
• 
• 
Enrique Cueto
LAN Chile Airlines, CEO
• 
• 
• 
• 
Jorge Paulo Lemann
InBev, Board Member
Alejandro Santo Domingo
Quadrant Capital Advisors,
Managing Director
• 
• 
Michael Dell
Dell, Founder & CEO
Vuslat Dogan Sabanci
Hurriyet, CEO
Vincent Mai
AEA Investors, Chairman
Naguib Sawiris
Orascom Telecom, Chairman &
CEO
• 
• 
• 
• 
• 
• 
• 
• 
• 
Carlos Alberto Sicupira
InBev, Board Member
• 
• 
Eduardo Elzstain
IRSA, Chairman & CEO
• 
Jennifer & Jonathan
Oppenheimer
DeBeers
• 
• 
Alan Patricof
Apax Partners, Co-Founder
• 
• 
Lorenzo Zambrano
Cemex, President & CEO
Endeavor videos
Below are several videos which provide additional insight into Endeavor and some of our
Entrepreneurs.
2009 Endeavor intro
http://www.endeavor.org/videos/2009Video.mov
2008 Endeavor intro
http://www.youtube.com/endeavorglobal#p/u/1/fMKtkmN_cO0
2007 Endeavor intro
http://www.youtube.com/endeavorglobal#p/u/4/eo8Ki0OfbAU
2008 Annual Gala - Leila Velez snippet
http://www.youtube.com/endeavorglobal#p/search/0/CEGKEHxFAGA
16
Private Equity and Venture Capital
Investing – Legal Considerations and
Comparisons in the U.S. and Brazil
Peter J. Schaeffer, Esq.
February 24, 2010
1133 Avenue of the Americas New York NY 10036-6710 212.336.2000 www.pbwt.com
Representing a U.S. Investor in an Investment in a
Brazilian Portfolio Company – Initial Considerations
•
Engage experienced Brazilian counsel.
•
Involve Tax Counsel.
•
Consider choice of law and jurisdiction (DE law and
jurisdiction; ICC international arbitration in neutral
jurisdiction; Brazilian Market Arbitration Chamber).
•
Use National Venture Capital Association (NVCA) terms
as a basis to replicate in Brazil vs. other prior Brazilian
precedent for portfolio company or co-investor.
VC/PE Fund Basics
•
In the U.S. Funds are typically structured as Limited
Partnerships with professional managers that are
regulated by the SEC through the Investment Advisors
Act.
•
In Brazil Funds are created in the form of closed
condominiums and represented by professional
managers regulated by the Brazilian Securities
Commission (CVM).
•
In both instances, the managing institution charges a
management fee and services fee. These can vary but
a typical amount is "2% and 20%."
In the U.S There Has Been a Recent Movement Towards
Normalization of Legal Terms Through Efforts of The National
Venture Capital Association (NVCA) www.nvca.org
•
This organization offers model documents, including:
—
—
—
—
—
—
•
Term Sheet
Stock Purchase Agreement
Certificate of Incorporation
Investor Rights Agreement
Voting Agreement
Right of First Refusal and Co-Sale Agreement
Through its model forms, NVCA seeks to establish
industry norms, eliminate traps for unwary, promote
consistency and reduce transaction time and costs.
Typical U.S. VC/PE Terms Can be Mostly Replicated in
Brazilian Legal Forms
•
In the U.S., the typical legal forms controlling Investor
Rights are:
— Stock Purchase Agreement; Certificate of Incorporation;
Investor Rights Agreement; Voting Agreement and Rights
of First Refusal and Co-Sale Agreement.
•
In Brazil, the typical legal forms controlling Investor
Rights are:
— Subscription Agreement; Shareholders’ Agreement and
Bylaws.
•
In both instances, each investment is unique and can be
structured with singular terms and differing structures.
Typical VC Terms For Both U.S. and Brazilian
Investments
•
•
•
•
•
•
•
•
•
A liquidation preference prior to founders/angel investors
Redemption/put right in 5-7 years
Conversion to common stock, including ratchet or weighted
average anti-dilution protection for future shares issued at
lower valuation
Preemptive/participation rights on future issuances
Restrictions on transfer through Rights of First Refusal/
Co-Sale Rights
Drag Along Rights
Voting Rights/Protective Provisions (changes in capital
structure; issuing new shares; sale of assets; incurring debt;
paying dividends)
Rights to Board Representation
U.S. Registration Rights
Some Areas of Difference Between U.S. and Brazilian
Legal Rights
•
Preferred Shares in Brazil typically don't have voting
rights as a matter of law so this needs to be addressed
as a contract right.
•
In the U.S. anti-dilution protection is typically addressed
in an adjustable conversion formula in the preferred
stock whereas in Brazil it is more typically dealt with
through warrants or contractual rights to issue shares for
nominal consideration upon triggering events.
•
Registration Rights are unique to U.S. securities laws.
Contact
•
Peter J. Schaeffer
212.336.2313
[email protected]