By Paola Martins and Layon Lopes*
Corporate venture capital (CVC) is an investment practice that is gaining ground all over the world, including in Brazil. In this type of investment, a large and consolidated company that desires to expand its performance to other markets and help in the development of smaller and innovative business, such as Startups, decides to place its money in those sort of companies, through joint venture agreements or acquisition of equity.
The CVC format of investment is a fund created by a large (corporate) company that aims to invest in startups and other businesses, seeking a direct connection between the consolidated business and the innovations coming every day to the market.
Usually, this type of investment occurs in the format of minority investments in startups. CVC structures are not new, since the CVC format has existed for decades, but recently they have shown themselves to be booming.
In Brazil, at least 51.4% of the companies have the interest in understanding what a Corporate Venture Capital is and how to use this vehicle to approach and invest in startups.
Also according to a survey conducted by BR Angels and Innovation Latam, at least 39.3% of the companies have invested in startups in the last 12 months. This shows the relevance of this investment format for companies that wish to innovate, seek agility, and avoid bureaucracy and procedures that hinder the development of innovative products and services in complex corporate structures.
In Brazil, this market has been so heated in the last two decades that at least 162 investment rounds involving CVCs have been reported, totaling US$ 1.3 billion invested. According to estimates projected in the same study, 70% of these investments are concentrated in the early stages of startups, seed and pre-seed.
According to the vice president of ABVCAP, a non-profit organization that represents the private equity and venture capital industry and promotes the development of long term investments, venture capital in Brazil has never been so important, considering that in the year of 2020 the Latin America reached the highest number of deals of this kind since 2011 and, specifically in Brazil, for the first time, venture capital deals were superior to private equity ones.
This movement was strengthened on account of the COVID-19 Global Pandemic, in which scenario Brazilian entrepreneurs showed themselves especially innovative, with emphasis on the health and agriculture segments, both deeply marked by the economic effects of the pandemic.
The fact that Brazil is an attractive country for investment is remarkable and cannot be denied anymore, once the market is very heated and develops on the daily basis.
In addition, tech and innovative Brazilian Startups are now, more than ever, prepared to receive foreign investments because the technology sector has reached a level of maturity and consolidation that enables those companies to have the needed structure, such as prepared CEOs and managers, qualified tech professionals, creation and implementation of compliance and governance structure, legal support to receive, apply and generate value from an investment.
Also, the legal scene has experienced profound change in the past years, whether in relation to operators of law, or in relation to the laws themselves and is now more predictable and mature in the matter of corporate venture investments and foreign deals in regards to contractual elaboration, fiscal and tax impacts, corporate aspects and labor reflexes.
Thus, the corporate venture capital scenario in Brazil for the coming years is promising and should represent a significant movement in the country’s economy.
* Layon Lopes is the CEO of Silva | Lopes and Paola Martins is a member of the Silva | Lopes team.