Summary - Private Equity and Venture Capital: Betting on Innovation in Latin America

Welcoming Remarks:

• Susan Segal, President and CEO, AS/COA

Speakers:

• Mariano Amartino, Director for Latin America, Wayra
• Pedro Sirotsky Melzer, Managing Director, eBricks Digital Early Stage
• Tom Speechley, Partner, The Abraaj Group
• Benjamin White, Founder, 21212 Digital Accelerator
• Cate Ambrose, President and Executive Director, LAVCA (moderator)

Summary

On December 12, AS/COA hosted a public panel discussion on Latin American innovation, in partnership with the Latin American Venture Capital Association (LAVCA). Panelists discussed a variety of opportunities for private equity and venture capital investors created as a new generation of Latin American entrepreneurs and consumers come of age. Leading fund managers shared stories of recent ventures as well as their strategies for building innovative Latin American companies.

Innovative Industries in Latin America

LAVCA's Cate Ambrose opened the discussion by defining innovation as the “adoption of new products, production processes, marketing methods, and business models.” Therefore, she noted, private equity and venture capital serve as catalysts for innovation in Latin America. She highlighted traditional sectors in the region that are doing well, such as Mexico’s automotive industry, Brazil’s agribusiness, and Chile’s mining sector. Mexico, for example, has been able to compete with Europe and the United States by investing in research and development. In Brazil, an increase in grain production over the past two decades resulted as productivity doubled. Chile moved to the forefront of mining production, automation, and robotics in order to compete globally.

Ambrose explained that in the past five years, more than 200 private equity and venture capital funds raised over $34 billion in Latin America. In total, 964 Latin American companies were backed by private equity funds, with investments of $29.4 billion. Venture capital funds invested $1.3 billion in 375 Latin American companies. Private equity activity accounted for 61.1 percent of the total transactions, while venture capital amounted to 38.9 percent.

Innovation in the Brazilian Marketplace

Benjamin White of 21212 Digital Accelerator spoke about his experience in the Brazilian marketplace. After selling his previous company, White spent a lot of time traveling in Brazil so he could identify what problems people encountered, and it became clear to him that the county had a big market that was greatly underserved. In replicating a successful model used in other countries, White thought that there was a good chance that he would be able to “build magnetism and momentum” and draw new customers. Innovation, he said, is synonymous with problem-solving and is another way to use technology as a tool to tackle challenges.

Next, panelists discussed Brazil-based eBricks, a company born out of a traditional media business looking for a digital strategy. The enterprise now has an educational arm and a holding company component as well. eBricks’ Pedro Sirotsky Melzer noted that the holding company goes after roughly $10 to $15 million a year. He shared an example about a company eBricks invested in two years ago. At first, the company was generating only $20 million a year, and will gross approximately $75 million by the end of this year. He explained that eBricks tries to balance its portfolio in two main strategies: fixing and finding disruptive technology and finding efficient business models within the established markets using technology.

Entrepreneurship: Digital vs. Traditional

Wayra's Mariano Amartino explained how the company got started, created by the former president of Telefonica Internacional. He had the idea that an entrepreneur could start something in his country and manage to stay there after gaining traction with the new business. Amartino said that in the past three years, Wayra received over 23,000 applications and has invested in over 304 companies worldwide. Nearly 200 of these companies were from Latin America.

The Abraaj Group's Tom Speechley discussed the types of businesses in which his firm invests. In contrast to the other panelists, Speechley questioned whether innovation was solely confined to the parameters of digital technology. In his opinion, one does not need to only use technology in order to be a great entrepreneur. He highlighted the story of David Benavides of Iasacorp International, what used to be a small accessory store in Peru. With only 15 stores in the Andean country, Benavides sought a modest capital investment from the Abraaj Group in order to expand to neighboring countries. Benavides was able to grow his chain to over 300 stores in the region. This, Speechley explained, shows that a modest investment can be used to help an entrepreneur reach success using minimal technology.