open innovation seminar 2008 - mesa 3 - claudio furtado - fgv

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Setembro, 2007 Pannel 3 Entrepreneurship and opportunities brought by Open Innovation Open Innovation Seminar 2008 Allagi Cláudio V. Furtado GVCepe Mesa 3 Empreendedorismo e oportunidades trazidas pelo Open Innovation 16 de junho de 2008 São Paulo/SP

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Apresentação do Prof. Cláudio Furtado, diretor do GVCepe, no Open Innovation Seminar 2008

TRANSCRIPT

Page 1: Open Innovation Seminar 2008 - Mesa 3 - Claudio Furtado - FGV

Setembro, 2007

•Pannel 3 – Entrepreneurship and opportunities brought by Open Innovation

•Open Innovation Seminar 2008 – Allagi

Cláudio V. Furtado GVCepe

Mesa 3 – Empreendedorismo e oportunidades trazidas pelo Open Innovation

•16 de junho de 2008 – São Paulo/SP

Page 2: Open Innovation Seminar 2008 - Mesa 3 - Claudio Furtado - FGV

São Paulo – March, 2008

An overview of the PE/VC market in BrazilSize and structure

Cláudio V. Furtado

Director - GVcepe

Page 3: Open Innovation Seminar 2008 - Mesa 3 - Claudio Furtado - FGV

Setembro, 2007Disclaimer

All information regarding the Brazilian PE/VC market was based on a survey of the 89 PE/VC firms

with offices in Brazil, including PIPEs.

The survey was concluded in July 31 of 2007 with a 100% response rate.

The categorization of management firms as PE, VC and PIPE organizations was made based on a

self-description of the management firms, as well as an analysis of existing portfolio companies

reported by the firms.

Before completing the questionnaire, respondents were asked to explicitly certify the truthfulness of

information.

Page 4: Open Innovation Seminar 2008 - Mesa 3 - Claudio Furtado - FGV

Setembro, 2007GVcepe Overview

Founding Members Sponsors

First PE/VC research center in Brazil

Supported the 1st broad study about the Brazilian PE/VC industry (2005 Census)

2 areas of work

Research: 2005 Census, Industry Guide, Case Studies, Support to Master’s Candidates Dissertations

Education: Diploma Program, Forums, Seminars, Workshops, Business Plan Competition, Lectures

Partnerships with international universities and research centers

Support to international researchers interested in the Brazilian PE/VC industry

Page 5: Open Innovation Seminar 2008 - Mesa 3 - Claudio Furtado - FGV

Setembro, 2007Industry overview – 2nd cycle

Overall Figures – July 2007

USD 16.7 bn total commitments

89 fund managers

153 funds

117 offices in 13 cities

984 professionals (357 partners/managers)

404 portfolio companies

194 investments (2004 to 1H/2007)

28 IPOs (2004 to 1H/2007)

BRL 16.2 bn raised

Funds

Portfolio

Companies

FUNDS

MANAGERS

•Capital •Returns

Capital and

Value Creation

Equity

Stakes

Investors

Page 6: Open Innovation Seminar 2008 - Mesa 3 - Claudio Furtado - FGV

Setembro, 2007Unprecedented investor interest

2,99x

Source: 2007: GVcepe mid-year survey. 1999-2004: GVcepe industry census

Capital commitments in the industry

3,714,95 5,02 4,7 4,79

5,58

16,72

0

2

4

6

8

10

12

14

16

18

1999 2000 2001 2002 2003 2004 2005 2006 1H07

US

$ b

n

.

3x

PE/VC funds raised US$ 11.1 bn since 2005

US$ 6.2 bn raised by pre-2005 firms and US$ 4.9 bn by new entrants

Equivalent to 20% of total VC commitments in the US for 2005/2006

200% increase in 2.5 years

Page 7: Open Innovation Seminar 2008 - Mesa 3 - Claudio Furtado - FGV

Setembro, 2007New players in the field

33 new management firms, mostly local, entered the industry in the 2005- July 2007 period

20 management firms have more than 10 years of experience (a complete investment cycle)

Diversified investment strategies

Entering firms

•pioneers

•privatizers

ITC and industry consolidators

Buyout and seed investors

Source: 2007: GVcepe mid-year survey. 1999-2004: GVcepe industry census

Page 8: Open Innovation Seminar 2008 - Mesa 3 - Claudio Furtado - FGV

Setembro, 2007Big in Brazil

10 largest Private Equity

Firm State TeamDate of

inception

Funds

managed

Portfolio

companies

Commited

capital (US$

bn)

1. GP Investments SP 56 1993 6 11 $1.85

2. Advent International SP 9 1997 4 5 $1.59

3. UBS Pactual RJ 22 1997 4 11* $1.50

4. BNDESPar PE RJ n/a 1982 1 5 $1.30

5. Gávea Investimentos RJ 15 2006 2 9 $1.07

6. AIG Private Equity SP 9 2000 4 4 $0.80

7. Pátria Investimentos SP 39 1994 5 6 $0.70

8. Actis Capital SP 6 2007 2 0 $0.50

9. Tarpon Investment SP 14 2005 1 2 $0.50

10. ABN AMRO Real SP 6 1999 2 3 $0.45

*Based on CVM data

5 managers in the US$ 1 bn club

10 largest fund managers concentrate 61.4% of all capital

56 companies in their portfolio

Source: 2007 - GVcepe mid-year survey.

Page 9: Open Innovation Seminar 2008 - Mesa 3 - Claudio Furtado - FGV

Setembro, 2007Big in Brazil

10 largest Venture Capital

Firm State TeamDate of

inception

Funds

managed

Portfolio

companies

Commited

capital

(US$ mn)

1. Votorantim Novos Negócios SP 17 2000 1 6 $300

2. Ascet Investimentos SP 7 2000 1 4 $150

3. BNDESPar VC RJ 8 1982 1 33 $123

4. FIR Capital Partners MG 32 1999 3 15 $87

5. DGF Investimentos SP 15 2001 2 11 $63

6. Jardim Botânico Partners RJ 13 2003 2 6 $60

7. Intel Capital Corporation SP 5 1999 2 7 $57*

8. Rio Bravo Investimentos SP 10 2000 6 20 $50

9. CRP Cia de Participações RS 10 1981 5 18 $49

10. Franchising Ventures SP 7 2007 1 6 $40

* Estimate based on press information released by Intel

10 largest VCs manage almost US$ 1.0 bn

126 companies in their portfolio

Only 1 among 10 of the largest VCs started after 2003

Source: 2007 - GVcepe mid-year survey.

Page 10: Open Innovation Seminar 2008 - Mesa 3 - Claudio Furtado - FGV

Setembro, 2007Big in Brazil

10 largest Seed Capital

Firm State TeamDate of

inception

Funds

managed

Portfolio

companies

Commited

capital

(US$ mn)

1. Verticals Capital RJ 21 1997 2 1 $140

2. Jardim Botânico Partners RJ 13 2003 2 6 $60

3. Fundo Criatec RJ 22 2007 1 0 $40

4. Semeia Brasil SP 7 2005 1 0 $30

5. Mifactory SP 4 2002 1 2 $20

6. Invest Tech SP 16 2003 1 4 $20

7. Monashees Capital SP 5 2006 1 3 $12

8. Ace RJ 13 2005 1 4 $10

9. GC Capital SP 4 2007 1 1 $10

10. Confrapar MG 8 2005 2 1 $9

* Includes fund managers that also invest in Venture Capital

10 largest manage less than US$ 0.5 bn

20 companies in their portfolio

6 of 10 started in the past 3 years or less

Source: 2007 - GVcepe mid-year survey.

Page 11: Open Innovation Seminar 2008 - Mesa 3 - Claudio Furtado - FGV

Setembro, 2007A sustainable trend on strong country fundamentals

Main factors

Economicgrowth & stability

Tax

Reform

Declininginterest rates

Privatepension plans- consolidation

Newregulatoryframework

Govt. Programs

InnovationCompetitiveness

Participationof local

institutionalinvestors

Capital marketdevelopment

Ability to complete theinvestment

cycle

Active IPO market

Experiencedmanagers

PE/VC great successstories

Demographicshifts

(education & consumption

Technologicalleadership

•MACROECONOMIC

•INSTITUTIONAL

•SOCIAL & TECHNOLOGICAL

FINANCIAL &

PE/VC MARKETS

Highlyentrepreneurial

population

Infrastructuredemand

Floating exchange rate

Page 12: Open Innovation Seminar 2008 - Mesa 3 - Claudio Furtado - FGV

Setembro, 2007A sustainable trend on strong country fundamentals

Main factors

Demographic shifts (education & consumption)

Substantial decrease in the illiterate in the past years, but there’s still a long road ahead

Investment in overall education is 6% of the GDP (Brazil: 10 thousand new PhDs per year)

Micro-credit initiatives expanded the low/middle classes consumption

The decrease in the interest rates and inflation boosted the economic growth

Technological leadership

Ethanol leading edge market and technology

Petrobras’ deep water technology increased the Brazilian oil & gas reserves

2% of the world scientific production (Could Seed/VC Capital play a key role on this improvement?)

73% of scientists in the universities vs. 11% in the companies (US: inverse relation)

Infrastructure demand

Privatization wave in the end of the 90’s

PPPs (Public-Private Partnership) Law approved

Logistics, Transportation and Energy Generation needed to support the economic growth

Buyout funds and Strategic players shall have an important participation in the next steps

Page 13: Open Innovation Seminar 2008 - Mesa 3 - Claudio Furtado - FGV

Setembro, 2007A sustainable trend on strong country fundamentals

Main factors – Highly entrepreneurial population

The improvement and spread of entrepreneurial and innovation skills in the Brazilian population is a

requirements for sustainable growth

GVcepe, supported by its academic and corporate partners, is well positioned to continue developing

and improving innovation, venture capital and entrepreneurial capabilities in Brazil

Partnerships

Partnerships

Case Studies

Education and Research

Page 14: Open Innovation Seminar 2008 - Mesa 3 - Claudio Furtado - FGV

Setembro, 2007A sustainable trend on strong country fundamentals

Main factors – Highly entrepreneurial population

13.5 million of entrepreneurs in Brazil (20.7 in the US; 2.2 Japan and 2.5 in Germany)

Intel+UC Berkeley winner of 1999; IPO in 2004 (US$ 60 million).

Winner of GV-Intel and 3rd place in Intel+UC Berkeley in 2007; FINEP funding (R$0.75 mn).

Industrial Valves. Founded in 1987; Several VC rounds; IPO in 2006 (US$ 494 mn)..

EPR Software. Founded in 1983 (Microsiga); IPO in 2006 (US$ 436 mn).

Fiscal Printers. Originated from a Master’s Dissertation in 1989; IPO in 2007 (R$ 407 mn).

Biotech. Founded in 2002 by 5 researchers of the genome map project backed by a VC.

Website. Founded by 4 undergrad students in 1999; Three VC rounds. BUSCAPÉ

Founded by 2 grad students in 1998; Angel investment followed by VC round; IPO in 2004.

Page 15: Open Innovation Seminar 2008 - Mesa 3 - Claudio Furtado - FGV

Setembro, 2007

Industry # % Industry # %

1.Inform Tech. & Electronics. 92 30.3 8.Financial Services10 3.3

1.1.Software 50 16.4 9.Construction/Real estate 9 3.0

1.2.R&D Outsourcing 14 4.6 10.Entertainment/Travel 9 3.0

1.3.Other 28 9.2 11.Agribusiness 8 2.6

2.General Industries 41 13.5 12.Health & Cosmetics 8 2.6

3.Telecommunications 28 9.2 13.Energy 7 2.3

3.1.Services 21 6.9 14.Textile 7 2.3

3.2.Equipment 7 2.3 15.Communication/Media 7 2.3

4.Retail 21 6.9 16.Logistics/Distribution 7 2.3

5.Food, Beverages and Tobacco 12 3.9 17.Education 3 1.0

6.Transportation 11 3.6 18.Incubator 3 1.0

7.Biotechnology 10 3.3 19.Other 13 4.2

Total 306 100.0

A truly diversified investment portfolio

Number of companies by industry sector (2004)

Source: GVcepe industry census

Page 16: Open Innovation Seminar 2008 - Mesa 3 - Claudio Furtado - FGV

Setembro, 2007An ability to handle all stages of investment

Portfolio Companies: Stage of initial capital injection (2004)

Source: GVcepe industry census

Stage Number of Firms %

Venture Capital 204 66.7

Seed capital 36 11.8

Start-Up 72 23.5

Expansion 96 31.4

Private Equity 102 33.3

Late stage 42 13.7

Acquisition finance 5 1.6

Management buyout/in 3 1.0

Bridge finance 1 0.3

Turnaround 6 2.0

Mezzanine 2 0.6

PIPEs 43 14.1

Total 306 100.0

Page 17: Open Innovation Seminar 2008 - Mesa 3 - Claudio Furtado - FGV

Setembro, 2007

46%

117%

Non PE/VC-backed

PE/VC-backed

.

3,5 1,9

6,54,2 4,3

1,0 3,5

9,8

2,3

14,7

0

2

4

6

8

10

12

14

16

18

20

2004 2005 2006 1H06 1H07

R$ b

n

Non PE/VC-backed

PE/VC: a remarkable impact on the Brazilian stock market

IPO aggregate offer value Post-IPO total portfolio returns

IPOs raised R$ 45.2 bn

PE/VC-backed IPOs...

... represented 36% of aggregate IPO offer value

... reopened the IPO market in 2004

... predominantly traded in the New Market and generated superior returns to public investors

Source: Economática and Bovespa. Gvcepe analysis. Period: IPO-06/22/2007.

3x2.5x

Page 18: Open Innovation Seminar 2008 - Mesa 3 - Claudio Furtado - FGV

Setembro, 2007

Cosmetics

Medical diagnosis

Car rental

Online media and ISP

E-commerce

Credit card management

Education

Dental care

Software (ERP)

PE/VC funds brought new sectors into the public markets

Source: Bovespa. GVcepe analysis.

Cases

Page 19: Open Innovation Seminar 2008 - Mesa 3 - Claudio Furtado - FGV

Setembro, 2007Successful exits

Company Sector

Net revenues in

2005

(US$ mn)

Investment

(US$ mn)

Time to

exit

(years)

Estimated IRR

(% in US$)

Equatorial Energia Energy $ 273 $ 11 2 481%

GOL Airline $ 1,100 $ 26 1 242%

Totvs Software $ 90 $ 16 <1 199%

DASA Medical diagnosis $ 217 $ 100 5 40%

Submarino E-commerce $ 172 $ 83 6 38%

Gafisa Real estate $ 202 $ 78 9 36%

TAM Airline $ 2,317 $ 77 8 26%

ALL Logistics $ 70 $ 202 7 22%

Localiza Car rental $ 350 $ 49 8 9%

Akwan IT n/a n/a 4 130%

Autotrac Logistics IT $ 137 $ 2.5 7 32%

Atrium Telecom $ 35 $ 20.5 4 20%

Microsiga Software $ 30 $ 7 6 12%

Selected deals

Source: HBS Brazilian Capital Markets and Private Equity Survey – March/April 2006- Passoni, P. & Freitas, R.

Page 20: Open Innovation Seminar 2008 - Mesa 3 - Claudio Furtado - FGV

Setembro, 2007New opportunities

Source: HBS Brazilian Capital Markets and Private Equity Survey – March/April 2006- Passoni, P. & Freitas, R.

Survey of GP’s investment focus in Brazil

Page 21: Open Innovation Seminar 2008 - Mesa 3 - Claudio Furtado - FGV

Setembro, 2007

Brazil63%

USA32%

EU2%

Other 3%

10

Brazil70%

USA19%

EU8%

Other3%

Local managers + international skills = partnerships

Local managers increase capital commitments to 70% and their number increases by 32%

Arrival of Europeans (UK, NL and Portugal)

US firms establish partnerships with local firms (FIR-Draper Fischer Juvertson, Pátria Investimentos-

Blackstone, Stratus-Darby, Rio Bravo-GEF)

Capital commitments by origin of fund managers

•Dec 2004 •July 2007

344

53 70

11

5

Source: 2007: GVcepe mid-year survey. 1999-2004: GVcepe industry census

Page 22: Open Innovation Seminar 2008 - Mesa 3 - Claudio Furtado - FGV

Setembro, 2007Evolution: Industry intellectual capital

233357

265

627

2004 2007

PE/VC professionals and education (2004)

Two-fold increase in high talent human capital with fund managers

53% increase in number of managers

¾ posses graduate education

•498

•984 Schooling

Number

of

Managers

%Accum.

%

PhD 8 3.5 3.5

MSc/MBA/LLM 128 55.3 58.1

Graduate

Specialization34 14.7 73.5

Undergraduate 57 24.7 98.2

Secondary 4 1.8 100.0

Unspecified 2 - -

Total 233 100.0 100.0

Source: 2007 - GVcepe mid-year survey. 1999-2004 - GVcepe industry census

Page 23: Open Innovation Seminar 2008 - Mesa 3 - Claudio Furtado - FGV

Setembro, 2007A highly concentrated industry tapping opportunities in the South and Southeast of Brazil

Geographic location of fund managers

•BELO HORIZONTE

•1

•4

•2004 •2007

•SAO PAULO

•62

•47

•2004 •2007

•RIO DE JANEIRO

•19•17

•2004 •2007

•OTHER

•4

•6

•2004 •2007

Source: 2007 - GVcepe mid-year survey. 1999-2004 - GVcepe industry census

Page 24: Open Innovation Seminar 2008 - Mesa 3 - Claudio Furtado - FGV

Setembro, 2007Surge in investment activity

Over 100 deals expected in 2007

Predominance of late VC and PE deals in 2006 and 2007

Number of investments

17 13

4126

96

13

14

40

25

33

23

2004 2005 2006 1H07

PE PIPE VC

66

44

87

63

Source: 2007 - GVcepe mid-year survey.

Page 25: Open Innovation Seminar 2008 - Mesa 3 - Claudio Furtado - FGV

Setembro, 2007Brazil: Land of diversity and opportunity

Page 26: Open Innovation Seminar 2008 - Mesa 3 - Claudio Furtado - FGV

Thank you!

for more, visit

www.cepe.fgvsp.br