This document summarizes a roundtable discussion on innovation and venture capital/private equity development in Latin America hosted by The Americas Society and Council of the Americas. The four panelists discussed opportunities for entrepreneurship, innovation, and long-term growth in the region. They believe these areas are critical to employment growth in Latin America. The panelists were Adriana Cisneros of Cisneros Group of Companies and Matthew Cole of North Bay Equity Partners. The discussion was moderated by Alyson Sheehan of Thomson Reuters.

1. Published by WorldTrade Executive, a part of Thomson Reuters ISSN: 1936-248X
VENTURE EQUITY
LATIN AMERICA
www.wtexecutive.com
February 2012 Volume XI, Number 3
In This Issue
Roundtable Discussion on
INTERVIEW
Innovation and VC/PE Development
Roundtable Discussion on Innovation
and VC/PE Development in in Latin America
Latin America 1
The Americas Society and Council of the Americas, which works with
Burrill & Co. Sees Opportunity in leading international companies to navigate public policy challenges
Heathcare, Biotechnology and and further business interests in the Americas, recently hosted a private
Biofuels in Latin America 7
member roundtable in Miami on the VC/PE landscape in the region
and opportunities for corporate venturing. “There is a lot of positive
FINANCE energy in Latin America today. We believe that entrepreneurship and
Don’t Believe the Hype: Brazil IPOs innovation are critical to long term growth and employment in the
Face Hard Year 1 region,” says Susan Segal, President and CEO.
M&A The four panelists also spoke to VELA in a roundtable discussion:
BTG Pactual Buys Chile’s Celfin In
Latam Push 4 Moderator: Alyson Sheehan (Thomson Reuters)
BONDS Participants: Adriana Cisneros, Vice Chairman, Cisneros Group of
Petrobras Completes Largest Brazil Companies
Bond Deal 5
Matthew Cole, Managing Partner, North Bay Equity Partners
EQUITIES See Roundtable Discussion on page 10
Brazil Share Sales Seen Recovering
After 2011 Slump 6
Don’t Believe the Hype: Brazil IPOs
ROUND UP
Itau to Spend $6.81 Billion to Take
Redecard Private; Inter-American
Face Hard Year
Development Bank Fuels Impact
Investing in Latin America; Gerdau By Guillermo Parra-Bernal (Reuters)
Plans Sale of 40 Pct of Mining Unit; 9
Brazil’s once-hyped market for initial public offerings may not
recover as swiftly as some bankers have been expecting, as an
PE COMPETITION unpredictable economy and the risk of overpriced deals scare
First Ever Wharton Latin America
Private Equity Competition Turnout 16 investors away.
The hurdles facing tourism company Brasil Travel Turismo,
which withdrew its IPO plan this month, and the Brazilian unit
of Norway’s Seadrill, which is reworking the terms of its offering,
WorldTrade Executive provide a chilling prelude to a market that many only recently
thought was set for a hot year.
The International
Business Information Seen for most of the last decade as a symbol of Brazil’s buoyant
SourceTM See Don’t Believe the Hype on page 2

2. Finance
Don’t Believe the Hype
Continued from page 1
capital markets, IPOs have languished in the past Last year, investors drove the benchmark Bovespa
two years as prices sank for many names that index down 18 percent. Only 11 initial public
went public. While most markets have gradually offerings were completed in 2011, with eight pricing
recovered from the global financial crisis of 2008, at the bottom or below the suggested price range,
IPOs remain out of favor. data by Ernst & Young showed.
The trend underscores how investors in Brazil are That is a sharp drop from 2007, when more than 70
still reluctant to take on risky bets like IPOs, the companies went public, and seven of every 10 deals
mechanism that small and sometimes inexperienced priced within the suggested range. In fact, Brazilian
companies use to raise capital. Instead, investors are companies raised more funds through IPOs between
more willing to pour money into existing equity and 2006 and 2008 than they did in the two preceding
bonds, where it is easier to assess risks. decades.
“Why bother betting on a company you have never Foreigners on the Sidelines
heard of when you have so many other good names
trading on the stock exchange?” said Frederico Foreign investors, traditionally the biggest buyers
Misnik, who helps oversee more than $40 million in of local IPOs because of their strong shareholding
assets at Humaitá Investimentos in São Paulo. culture, snapped up more than three-fourths of
such deals in 2006-2008, hoping the newly listed
companies would deliver stellar profits.
Venture Equity Latin America
But they are slowly moving to the sidelines as the
Published by WorldTrade Executive, perceived quality of stock market debutants slipped.
A Part of Thomson Reuters Foreign investors’ take of local IPOs fell to 56 percent
P.O. Box 761 – 2250 Main St. Suite 100 last year, and analysts expect that percentage to keep
Concord, MA 01742 falling.
Tel: 1-978-287-0301 Fax: 1-978-287-0302
“A more conservative mood has overtaken markets,
Gary A. Brown, Publisher and you can be sure that many IPOs will be
gary.brown@thomsonreuters.com challenged,” said Paulo Dortas, an Ernst & Young
partner who specializes in Brazilian IPOs. “Investors
Editor: won’t abide by a price or a structure that doesn’t
Alyson Sheehan, reflect the return they are aiming for.”
alyson.sheehan@thomsonreuters.com
Correspondents: Investors have also balked at what they deem as
Elizabeth Johnson, timid government efforts to combat inflation, which
eaj2004@gmail.com reached seven-year highs during 2011. The central
bank began cutting interest rates in August, after
Dan Weil, five consecutive increases.
DanCWeil@aol.com
Venture Equity Latin America is published 20 times a year Efforts to stem massive gains in Brazil’s currency, the
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for questions, please call (978) 287-0301 and ask for Subscriber
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February 2012 Venture Equity Latin America

3. Finance
Bond Bonanza Brasil Travel, the product of 35 mergers over the past
year, remains an unknown for many investors.
The lethargy afflicting IPOs in Brazil contrasts with
record foreign inflows into the Bovespa and a frenzy Market sources told Reuters this month that bankers
of Brazilian corporate bond sales abroad this year. considered cutting the IPO’s suggested price to 850
reais a share and allowing existing shareholders to
A record $7.2 billion of foreign money flowed into buy up to 50 percent of the deal, up from an initial
the Bovespa in January. Investors bought $15 billion 15 percent threshold.
worth of corporate debt sales by Brazilian firms in
the year through this month. The company first cut the price to 1,000 reais from a
range of 1,250 reais to 1,650 reais on the day the IPO
Yet, some industry leaders are still betting big on was set to price. The next day, Brasil Travel asked
IPOs. regulators to cancel the request to become a publicly
listed company.
Edemir Pinto, chief executive officer of financial
exchange operator BMFBovespa, expects up to 40 “What people want right now are plain vanilla deals,
Brazilian IPOs to price this year, almost double the and companies with stories they know instead of
combined 22 transactions of 2010 and 2011. these obscure stories,” a Brazil-based banker told
International Financing Review on the condition of
Ernst Young’s Dortas, in contrast, sees no more anonymity.
than 20 IPOs this year. Investors will use their clout
to push suggested price tags towards a level they Seadrill’s Seabras deal could attract a lot of interest,
consider “fair,” he said. should the company resolve its contractual problems
with state-run oil giant Petrobras, Misnik said.
Bankers at Itaú BBA and BTG Pactual, the two largest Unlike Brasil Travel, Seadrill is a well-known
Brazilian investment banks, remain hopeful that company with an established track record.
activity will bounce back as the year progresses.
This month, Brazilian meatpacker JBS announced
“Bond sales are leading the recovery, but I am plans to list its Vigor dairy unit on the São Paulo
sure that equity follow-ons will resume soon, and Stock Exchange. The 95-year-old company might
eventually IPOs will get their chance,” Sandy be more likely to entice investors like Misnik back
Severino, the head of BTG Pactual’s global bond to the IPO market.
underwriting team, said in a phone interview from
New York. Reporting by By Guillermo Parra-Bernal. Additional
reporting by Joan Magee in New York; Editing by Todd
José Olympio Pereira, co-head of investment banking Benson and Lisa Von Ahn.
at Credit Suisse Group in São Paulo, said in December
that companies could assuage investor concerns by .......................................
scaling down their fundraising goals.
On-Line Research Access to
In the case of Brasil Travel, that strategy did not work.
Credit Suisse was one of the four banks handling
Back Issues of
its IPO.
Nightlong Efforts
Venture Equity
The collapse of the Brasil Travel deal, which originally
Latin America
was to raise 1.45 billion reais ($842 million), signals
that investors will keep shunning companies with
For details, please contact
great ambitions but an insufficient track record, poor Jay Stanley at
earnings visibility or vulnerability to a downturn, Jay.Stanley@Thomsonreuters.com
Humaitá’s Misnik said. or (978) 287-0391
........................................
Venture Equity Latin America February 2012

4. MA
BTG Pactual Buys Chile’s Celfin In Latam Push
By Guillermo Parra-Bernal and Aluisio Alves (Reuters)
BTG Pactual, the Brazilian securities firm owned by a group of investors led by sovereign wealth funds
billionaire financier Andre Esteves, is buying Chilean late in 2010, a low payout ratio and swelling trading
rival Celfin Capital for about $600 million as it seeks and dealmaking profits, have beefed up cash holdings,
to win more investment banking and capital market Esteves said.
advisory business in South America.
“We have enough capital for acquisitions,” he said,
without elaborating. Esteves spoke besides senior
partner Pérsio Arida, a Brazilian economist credited
with helping the government tame hyperinflation in
“The global agenda for Latin America the mid-1990s.
is gaining relevance in terms of
investment inflows, and our goal A source with direct knowledge of the transaction told
is to become regional leaders,” Reuters that BTG Pactual agreed to pay $600 million
for all of Celfin, which would value the stock portion
Esteves told reporters at the bank’s of the deal at about $355 million. The deal valued BTG
headquarters in São Paulo’s financial Pactual shares at about three times book value, said
district. the source, who is not allowed to speak publicly on
the matter.
Based on such numbers, the Celfin deal would value
BTG Pactual at about $14.8 billion, almost 50 percent
Under the terms of the deal, Esteves and his partners more than the $10 billion valuation it got in December
will pay $245 million in cash and give Celfin’s owners 2010, when investors led by buyout firm JC Flowers
a 2.4 percent stake in BTG Pactual. The takeover makes Co, the two largest Asian sovereign wealth funds
BTG Pactual the largest independent investment bank and the largest Middle Eastern sovereign wealth fund,
in Latin America, further extending its reach into fast- bought 18.6 percent of BTG Pactual.
growing economies like Chile, Peru and Colombia.
Since it was formed it 2009, BTG Pactual has been on Banking Prodigy
a deal-making frenzy in Brazil and abroad as Esteves,
a 43-year-old financial wunderkind, strives to turn Esteves, a mathematician who started as a computer
the firm into the largest investment bank in emerging technician at now-defunct Banco Pactual at age 21
markets by the end of the decade. before rising through the ranks to become its managing
partner, sold the firm to UBS AG in May 2006 for
“The global agenda for Latin America is gaining about $3.1 billion. He and some partners bought back
relevance in terms of investment inflows, and our goal Pactual for about $2.5 billion in 2009 and formed BTG
is to become regional leaders,” Esteves told reporters Pactual.
at the bank’s headquarters in São Paulo’s financial
district. Esteves, alongside senior partners and some of BTG
Pactual’s 1,300 employees, will own 80 percent of the
BTG Pactual and Esteves himself have become a symbol firm after the Celfin deal. Forbes Magazine calculates
of Brazil’s growing economic might, competing neck- Esteves’ net worth at about $3 billion.
and-neck with big global investment banks in a region
with bustling capital markets and booming demand for He and his partners have long considered an initial
wealth management services. public offering to bulk up the bank’s capital, but
postponed the plans because of volatility in global
The bank has the financial muscle to undertake bigger markets. Last December, he said an IPO was still
takeovers going forward as a $1.8 billion stake sale to possible in the medium term, without elaborating.
February 2012 Venture Equity Latin America

5. MA
At the news conference, Esteves said BTG Pactual In 2011, BTG Pactual topped merger and acquisitions
is growing regionally because a “flatter and more advisory rankings in Brazil for the second year in a row,
integrated world” is demanding regional banks to as its focus on retail and other fast-growing segments
gain a global character. The ability of BTG Pactual to resulted in $24.05 billion worth of announced deals,
lure more investment inflows into Latin America will according to Thomson Reuters data.
depend “on us building up a strong regional franchise
with global reach,” he said. The firm advised on 52 deals last year. About $78.64
billion worth of deals were announced in Brazil last
The deal, which has been in the works since at least year, down from $120.61 billion in 2010, while the
August, may give BTG Pactual the proximity it needs to number of agreements rose to 745 from 698.
win investment-banking and capital markets advisory
mandates in Peru, Colombia and Chile - thanks to BTG Pactual’s investment-banking unit helped the
Celfin’s contacts with companies and governments controlling shareholders of brewer Schincariol sell a
there, Arida said. 50.45 percent stake to Japan’s Kirin Holdings for $2.5
billion.
Top Brazil MA Advisor
The bank also advised Italian-Argentine giant Techint
The purchase still requires regulatory approval. Once Group on its $2.9 billion purchase of a 27.7 percent
the deal is completed, Celfin’s 15 main shareholders voting stake in Brazilian steelmaker Usiminas.
will become BTG Pactual partners.
Reporting by By Guillermo Parra-Bernal and Aluisio Alves.
With Celfin, BTG Pactual will have 129 billion reais ($75 Additional reporting by Cesar Bianconi and Brad Haynes;
billion) in assets under management and handle about Editing by Todd Benson, Lisa Von Ahn and Tim Dobbyn.
49 billion reais for wealthy investors.
Bonds
Petrobras Completes Largest Brazil Bond Deal
By Guillermo Parra-Bernal (Reuters)
Brazil’s state-controlled oil company Petrobras sold billion in global bonds since the start of the year. The
$7 billion of dollar-denominated bonds of different nation’s three largest listed banks and mining giant
maturities this month, in the country’s largest-ever Vale also sold debt over the past month.
corporate debt offering.
Yields for the existing bonds were trading slightly
The Rio de Janeiro-based company sold $1.25 billion below the price guidance, indicating that buyers could
of new three-year bonds yielding 3.051 percent, and profit if bond prices gained in future sessions. Bond
$1.75 billion of new five-year bonds at a yield of 3.628 prices, which trade inversely to yields, gain when risk
percent, sources with direct knowledge of the deal told perceptions over the issuer ease.
Reuters.
“It was a cost-effective strategy, much cheaper
Petrobras also sold $2.75 billion and $1.25 billion of its than coming up with a new issue,” said Alfredo
existing notes due in 2021 and 2041, respectively, said Viegas, a director for emerging markets strategy
the sources, who declined to speak publicly on the with Greenwich, Connecticut-based broker Knight
plan. Petrobras will pay interest of 4.796 percent and Capital.
5.935 percent for both reopenings, respectively.
Proceeds from the debt sale will be used to fund
Brazilian companies, taking advantage of a glut of Petrobras’ $224.7 billion, five-year investment plan - the
cash and strong demand for emerging market debt largest in the oil industry globally. The plan aims to tap
among international investors, have sold about $13 See Brazil Bond Deal on page 6
Venture Equity Latin America February 2012

6. Bonds
Brazil Bond Deal
Continued from page 5
some of the world’s largest deep-sea oil deposits and 30-year debt in April 2007, in what is still the region’s
almost triple production by the end of the decade. largest debt sale in global markets.
The senior unsecured notes will likely be rated A3, the Petrobras’ funding plans are usually seen as a proxy for
seventh-highest investment-grade rank, by Moody’s corporate lending trends in Brazil. The company will
Investors Service. borrow about $47 billion from banks, investors and state
development banks by the end of 2014.
Largest-Ever Brazil Debt Sale
About $29 billion of that will go to repay existing and
Petrobras’ sale last year of $6 billion in notes was maturing debt, with the remainder going toward the
the largest-ever in Brazil at the time. The company company’s investment plan, executives said last year.
raised about $10 billion from bond investors last
year, including a sale of notes denominated in British The investment-banking units of Banco do Brasil, Itau
pounds. Unibanco Holding, JPMorgan Chase Co, Morgan
Stanley Co and Banco Santander are managing the
Investors placed firm bids worth more than $25 billion, deal for Petrobras.
in what one of the sources said was “a gigantic book”
for a Latin American corporate issue. Venezuela’s state- Reporting by Guillermo Parra-Bernal. Editing by James
oil company PDVSA sold $7.5 billion of 10-, 20- and Dalgleish.
Equities
Brazil Share Sales Seen Recovering After 2011 Slump
By Guillermo Parra-Bernal (Reuters)
Brazilian stock sales, which took their steepest-ever “The mainstream perception is that Brazilian equities
plunge in 2011, will recover this year as risk-taking are cheap and that growth is at least taking place here
gains traction and Europe’s debt crisis shows signs of - in a world that is barely expanding,” Kiraly said. “But
easing, the group representing the local investment- investors will be selective and price-sensitive. Their
banking industry said this month. return won’t be hasty.”
Investors who for most of 2011 piled up cash to cushion Initial public offerings and follow-on share sales
themselves from the deterioration of Europe’s fiscal tumbled not only because of concern over Europe, but
woes might snap up emerging market stocks and also as domestic policy uncertainty crippled demand
bonds this year, said Alberto Kiraly, a vice president at for equities.
industry group Anbima.
Throughout the year, domestic and foreign investors
Their return will be gradual, he noted, adding that also balked at timid government efforts to combat
pricey offerings may fail to lure their attention. inflation, which reached seven-year highs during 2011.
Companies in Brazil raised 18.98 billion reais ($10.3 The central bank began cutting interest rates in August,
billion) from the sale of new and existing shares in after five consecutive hikes.
the domestic market last year, 87 percent less than in
2010, Anbima said in a report this month. The August cut, which was not expected by any of the
February 2012 Venture Equity Latin America

7. Equities
20 analysts surveyed by Reuters, kept investors wary indicator in 2006. In contrast, sales of fixed-income
of unpredictable policy moves. instruments such as bonds, notes and asset-backed
securities rose to a record 93.68 billion reais.
Foreign investors participated in 56 percent of equity
sales in Brazil, down from an average 70 percent for Private placements, or sales agreed to by the issuer with
most of the past decade. The share of foreign investor a single investor or investment group, accounted for
participation in IPOs and similar deals “should show 85 percent of bond sales in the domestic debt market,
some improvement, depending on external market Anbima noted.
conditions,” Kiraly said.
Reporting by Guillermo Parra-Bernal. Editing by Matthew
The amount of capital raised from stock sales is the Lewis.
lowest since Anbima started gathering data for the
Interview
Burrill Co. Sees Opportunity in Heathcare,
Biotechnology and Biofuels in Latin America
By Dan Weil
Burrill Co., a San Francisco-based private equity/ are finding more interesting opportunities in healthcare
venture capital fund manager that focuses on life sci- delivery and healthcare services, not so much in drug
ences, has just completed the $125 million first close of discovery.
its initial fund in Latin America: Burrill Brazil Fund I.
There’s very interesting science and innovation here,
Burrill, which opened a Rio de Janeiro office in 2009, but it’s still at the level of basic research, not so much
plans to ultimately grow the fund to $200 million. applied research beyond an early stage. So we’ve devel-
The first capital infusion includes contributions from oped a strategy to deal with those opportunities.
Brazilian investors, two major pharmaceutical and
biotechnology companies and two major multilateral VELA: What kind of things are you looking at in
agencies in the region. Brazil?
The firm also has plans for a $40 million fund focusing Hospitals and clinics are one thing. One clinic area
on Chile. It hopes to close on that by June 30, says Joao is service for chronic disease management, such as
Paulo Poiares Baptista, Burrill’s Managing Director for diabetes and heart problems. That reduces the cost of
Latin America. the disease for health insurance plans. Another area is
preventive medicine – check-ups with follow-ups.
Baptista recently took time to chat with VELA about
Burrill’s activity. Here’s what he had to say. We’re looking at some biotechnology at a basic level
and biofuels too. Brazil is one of the world’s leaders
VELA: What does the market look like for life sci- in biofuels. The level of investment in this area is very
ences private equity and venture capital in Latin high. Our fund is very small. We plan to make invest-
America? ments of $10 million-$15 million. So we’re looking for
breakthrough technology.
What we have found after two years of working hard
here is that the opportunities are slightly different from We have found a couple interesting opportunities,
what you would find in the U.S. That’s true for Brazil but it’s early. We also have found opportunities in the
and Chile. In the U.S., the focus is on drug discovery, U.S. for a technology that doesn’t make much sense
cell therapies and digital health. In Latin America we in Brazil.
See Opportunity in Latin America on page 8
Venture Equity Latin America February 2012

8. Interview
Opportunity in Latin America
Continued from page 7
VELA: You like to invest as part of a syndicate. How’s VELA: Is there a strong scientific community in
the search for partners going? Brazil?
Two years ago, we were skeptical about finding co-in- Yes. Many people there trained outside Brazil with
vestors. But we are finding a number of Brazilian funds Ph.ds in the U.S. or Europe. The issue is resources. You
and LPs that are interested. We have been contacted by can’t compare Brazil to the U.S. and some European
U.S. funds that are starting to look at Latin America. countries. It’s still far from that. But the government
People want to be part of the explosive economic is offering support and investing more money in this
growth and explosive growth of the middle class in infrastructure – research programs. That’s helping
Latin America. researchers and institutions connect with the market.
Biotechnology is a key priority for this government.
VELA: Are you able to find many entrepreneurs in-
The bureaucracy is tough. You have volved in life sciences?
to know how to handle it. Brazil has
a very good business environment, Entrepreneurs, yes, but management, not as much.
but its interest rates are still too That’s an issue.
high. That means no leverage is VELA: How does the sophistication of life scientists
possible. in Brazil compare with that of those in the U.S.?
In terms of technical knowledge, very well; in terms of
knowing the market, not so well. In terms of knowl-
edge of what’s happening worldwide, there are some
That expanding middle class creates huge demand for shortcomings. They know the science itself, but how it
quality health service. The private sector isn’t ready to is being utilized elsewhere is the issue.
provide this yet. So there are huge opportunities if you
have a proper strategy to get to market. VELA: Do you plan to eventually invest beyond Brazil
and Chile?
VELA: How do you see your investments developing
over time? Yes, first we are focusing on Brazil and then Chile. But
already we are talking to government-related investors
Brazil is reacting fast, so things will evolve quickly. in Colombia. That country is growing very fast, stabiliz-
There are great opportunities for us. We can introduce ing after the violence of previous years and modern-
services with top quality and innovation. At hospitals izing its laws and regulatory environment.
we can bring new treatments for cancer from other
parts of the world. What happened in Brazil over the last 10-15 years is that
it realized the importance of venture capital and specifi-
Getting people from universities and research centers cally life sciences. Now governments in other countries
to go from basic research to applied research and to are putting together programs to support fund manag-
then find a way to get to market is the key. It just takes ers like us. Peru and Colombia are the best.
a small push. It’s about getting people to think a differ-
ent way and establishing a global network. VELA: What are the biggest obstacles for your opera-
tions in Brazil?
VELA: When will you start doing deals?
The bureaucracy is tough. You have to know how to
We will probably do two within the next three to four handle it. Brazil has a very good business environment,
months. Our goal is for a minimum of two deals per but its interest rates are still too high. That means no
year and up to four. We have a very interesting pipe- leverage is possible. Also, the tax structure is very
line. complicated. It’s expensive to deal with it.
February 2012 Venture Equity Latin America

9. Round Up
Round Up
Itau to Spend $6.81 Billion to
Take Redecard Private and improve rural communities, according to IDB’s
Itau Unibanco, Brazil’s largest private-sector lender, official website.
plans to spend as much as 11.77 billion reais ($6.81 bil-
lion) to buy out Redecard, protecting the card payment In 2010, the IDB closed Paraguay’s first-ever interna-
processor’s position in an increasingly competitive tionally syndicated loan without carrying political risk
industry, according to Reuters. or other guarantees, by providing a $40 million A/B
loan to Banco Continental to help fund lending to small
Itau Unibanco plans to buy the 49.99 percent of Rede- and medium-sized business, an official news release
card it does not already own in a first step taking the states. Also in 2010, the IDB disbursed its first local
company private, according to a securities filing this currency syndicated B Loan in Peru and completed a
month. The lender will offer 35 reais for each of the syndication with the longest tenor ever registered for
336.39 million Redecard shares that currently trade on a financial institution in Ecuador. In 2011, partnering
the Sao Paulo Stock Exchange. with impact investors allowed the IDB to close its first
syndication in Honduras and the first-ever subordi-
Redecard shares have surged 84 percent in the past nated debt syndication in Ecuador.
12 months, mainly after a yearlong restructuring plan
helped bolster revenue, cut costs and stem market share Since 2010, the IDB has closed 10 transactions with a
losses to larger rival Cielo and smaller competitors. dozen impact investors including Blue Orchard, Oiko-
credit, Incofin, responsibility, Deutsche Bank Social
The buyout would probably help Redecard face grow- Finance and the Calvert Foundation, according to the
ing competition in the $400 billion-a-year card pay- news release. Seventy percent of these syndications
ment processing industry. Some analysts have voiced have been in small and vulnerable countries including
concerns that the entry of more competitors could Ecuador, El Salvador, Honduras and Paraguay. In these
drive fees down and eat away at market share. Cielo deals, the IDB has acted as sole bookrunner and lead
and Redecard together control more than 80 percent arranger and invested $146 million of its own resources,
of the market. according to IDB.
Itau Unibanco’s announcement came less than a week Gerdau Plans Sale of 40 Pct of Mining Unit
after Redecard posted a bigger-than-expected 31 per- Gerdau SA, the world’s second-biggest maker of long
cent jump in fourth-quarter profit, to 456.94 million steel products, plans to sell 40 percent of its mining unit
reais. for about $2.5 billion, Bloomberg News reported, citing
a source familiar with the matter.
Nine analysts polled by Reuters had forecast 402.2 mil-
lion reais, on average. The Porto Alegre, Brazil-based steelmaker hired
Redecard Chief Executive Officer Claudio Yamaguti, Goldman Sachs Group Inc to manage the transaction,
who has been at the helm of the company for the past Bloomberg reported, citing the source. The report said
year, said this month that it would more than double Chinese and Japanese firms could be interested in buy-
capital spending to 500 million reais this year to win ing the stake.
more customers and improve operational efficiency.
– By Guillermo Parra-Bernal and Alberto Alerigi Gerdau declined to comment on the Bloomberg story,
citing a quiet period before the release of fourth-quarter
Inter-American Development Bank Fuels earnings. An external public relations executive work-
Impact Investing in Latin America ing for Goldman said the bank would not comment.
Over the past 18 months, the Inter-American Develop- Efforts to reach a spokeswoman at Goldman Sachs’
ment Bank (IDB) has mobilized approximately $110 media office in New York were unsuccessful.
million in resources from these investors into the region
through its loan syndication program and by co-lending Gerdau has for the past year sought to sell a stake in
to finance projects that will improve housing conditions the unit, which has about 3 billion tonnes of iron ore
for low-income populations, benefit female entrepre- deposits, to either raise more money to develop it or
neurs, help small farmers become more productive
See Round Up on page 10
Venture Equity Latin America February 2012

10. Round Up
Round Up
Continued from page 9
bring in a partner with greater expertise in handling Shares of Gerdau posted their biggest jump since late
ore mines. The steelmaker, which also uses scrap as October, gaining 4.5 percent in Sao Paulo trading. – By
the main ingredient for its steel, has yet to reach self- Guillermo Parra-Bernal and Alberto Alerigi
sufficiency in iron ore.
Interview
Roundtable Discussion
Continued from page 1
Finally, what you need is a regulatory and business
Faquiry Diaz Cala, President CEO, Tres Mares environment that is supportive of new ideas, and
Group that does not punish failure, which is conducive to
risk-taking.
John Price, Managing Director, Americas Market
Intelligence VELA: Do you have any view of which Latin
countries possess the healthiest VC ecosystems
right now?
“One concern is that we are seeing a Matt: Just going by the numbers, Brazil represents
great number of angel investors and roughly 40-50 percent of regional GDP but attracts
even incubators but a significant over 75 percent of PE capital. In terms of VC
lack of early stage growth capital, investment going to Latin America, it is probably
attracting close to 90 percent. So, Brazil is 4 to 5 times
those $5-10 million checks. For healthier than any other country in the region in terms
entrepreneurs and start-ups of investment dollars on a GDP-weighted basis. Brazil
coming out of the incubators and is certainly booming due to the fact that there is local
accelerators, who have proof of innovation; a very large and growing technology
concept, a viable product and are market; general agreement about maintaining a more
transparent regulatory environment; and a risk-
ready to grow, finding that $5-10 taking culture, which encourages entrepreneurs to
million growth capital investment is build companies without the fear of failure. The rest
tough. And that obviously hinders of the region is catching up, but in my view Brazil
the complete VC ecosystem.” is still way ahead.
– Faquiry Diaz Cala
VELA: VELA has reported that Latin America’s
VC ecosystem needs to have a continuum of angel
investors, seed capital, early VC, growth capital
VELA: What constitutes a healthy VC ecosystem? and PE. Are there presently any weak links in this
continuum, and how will this impact VC in the
Matt: In Latin America, like everywhere else, a healthy future?
VC ecosystem starts with innovation and proprietary
technology. Another important ingredient is strong Faquiry: The ecosystem needs to have strong
entrepreneurs building scalable businesses that continuity. One concern is that we are seeing a great
generate healthy returns on capital for investors. number of angel investors and even incubators but
Then, a third important ingredient is investors, who a significant lack of early stage growth capital, those
are willing to take risk on young companies and $5-10 million checks. There is great opportunity for
understand the ins and outs of growing businesses. certain venture capitalists in this space, because they
10 February 2012 Venture Equity Latin America

11. Interview
get to play where there are not a lot of competitors. the best ideas may not necessarily be the ones that
But for entrepreneurs and start-ups coming out of are getting funded); and on the other hand, there are
the incubators and accelerators, who have proof of angels in such places as Argentina, Brazil and some
concept, a viable product and are ready to grow, others, who have had exits in the Latin American
finding that $5-10 million growth capital investment Web 1.0. Lets call them Latam Super Angels who are
is tough. And that obviously hinders the complete now coming back to put money into new projects.
VC ecosystem. In this case you have very smart money going into
very good deals.
Adriana: I think that there is a third element to
this. While Angel investors and seed capital are a While it’s become cool to be an angel investor in the
very important part of the VC ecosystem in Latin region, you need a lot more of them in the VC ecosystem
America, many of the companies in Latin America to take companies to the next level of development.
are still run by family enterprises. Transcations are
often executed with business groups that know VELA: What are the pros and cons of the current
each other. Security is always a concern and plays a VC phenomenon taking place in the region, where
major factor in many or most Latin countries to this local entrepreneurs import and locally adapt proven
day. This fact will lead to the development of a unique business models from developed economies?
VC modelin Latin America, which is something that
we have to be watchful of. I will be curious to see
how this aspect of VC in the region pans out in the
next few years. “You will find in Latin America that
there are angel investors, seed
John: To add to Adriana’s point, you will find in capital and early VC – they are just
Latin America that there are angel investors, seed not called by those names. They are
capital and early VC – they are just not called by
those names. the monies of friends and families
who believe in your project.” – John
They are the monies of friends and families who Price
believe in your project. That is all well and good
if you have access to those people, but if you do
not – if you come from a part of society that has
difficulty gaining access to those people – then that’s John: That has actually been the standard business
where things break down. Therefore, a lot of or most model of innovation and new product development
innovation comes out of a smaller segment of society in Latin America going back as far as any of us can
than it would in a more liquid and structured market remember: from technology to sneakers to jewelry,
like the U.S.’s. the norm has been to import what works in more
fashionable markets like Europe, the U.S., Japan
VELA: Are there official angel networks in place and Korea. If anything, Latin America is now stable
in the region that could help larger segments of and affluent enough collectively to warrant unique
society gain access to capital? product development for the region on its own or as
the first stop of global emerging market roll-out.
Faquiry: There are several angel networks in place
or in the process of being built. Panama has recently VELA: How might a Latin American start-up gain
seeing a very focused angel network, they have competitive advantage if they import a business
funded a couple of companies. Mexico has some model?
angel networks at times affiliated with very early
stage capital. There are a certain number of angel Matt: We have found that the best entrepreneurs in
networks composed of people with cash, but who the region have a very good understanding of the
may not necessarily have start-up experience. nuances of local markets. They are able to develop
and adapt not only technologies but more importantly
It’s a two-fold situation: on the one hand, they business models, which are tailor-made for those
are wealthy angels, who are getting together and markets, which is very difficult for multinational
putting their money into start-ups that they know companies (MNCs) to do. More and more MNCs are
through their network (so, getting to John’s point, See Roundtable Discussion on page 12
Venture Equity Latin America February 2012 11

12. Interview
Roundtable Discussion
Continued from page 11
arranging themselves around product and service VELA: Why are natural resources, mining services
delivery rather than geographical lines. Therefore, and agribusiness considered good industries for
it is becoming increasingly difficult for MNCs to VC development in Latin America? Are there
customize products for every single market or, others?
in certain cases, cities within a market. The great
entrepreneurial companies that we see are those that Matt: In all three of those sectors, Latin America is
have a combination of a technology that has been a global player. The region is home to a quarter of
the world’s arable land, about 30 to 40 percent of
total mining investment and a big chunk of new oil
and gas investment, as well. So, the money is there.
The scale is there. Latin America is home to some
“I actually think Latin sizeable homegrown public and private capital.
Americans have a pretty high There are some serious companies that operate in
level of resilience that makes all of those spaces, that have money, and that can
them ideal entrepreneurs. The develop specific approaches, methodologies and
technologies around exploration.
most significant bottlenecks that
I identify are probably regulation, Adriana: Something to add to that is that Latin
access to technology, talent America now has a very important and big client
and funding sources.” – Adriana – China – who has growing influence in these three
Cisneros sectors. The demand is there, and players in these
sectors in Latin America are very much aware that
they have to evolve their companies very quickly
if they are going to supply the Chinese with all the
resources that they are going to need.
adapted and in many cases improved upon and/or
proprietary; that have that technology delivered in VELA: What are some bottlenecks to entrepreneurial
a business model, which is directly customized for innovation in Latin America?
the local market; and that have a business that is
scalable, either in a large country like Brazil or across Faquiry: To me, fear of failure is the biggest hinder
borders in Spanish-speaking Latin America, to create for a start-up activity. Once Latin Americans get past
the type of potential exit value where investors and that, they will be free to swing for the fences, but
entrepreneurs can generate very high returns on while cultural misgivings exist about what might
capital. I believe that the tropicalization of venture happen if they fail, there is going to be a significant
capital investing is the most exciting thing happening bottleneck.
in Latin America today.
John: Part of that fear of failure is due to the fact
Adriana: A very advantageous position to play in that the risks for both the entrepreneur and the
this whole game is to have the entrepreneur based early financiers are pretty high. Boiled down to one
in Brazil, Colombia or Peru as well as an arm of the factor, the legal environment is feared by most to be
operation in the U.S. I have seen very successful too easily manipulated by those with more money.
business models where the creative arm is coming So if an entrepreneur has a great idea and takes it
out of Latin America and the financial arm is coming to someone who might be a useful finance partner
out of the U.S. And it appears to be a very business- or strategic partner, his fear is that that person will
healthy relationship to have right now because of the steal his idea, and that his ability to take the conflict
position of Silicon Valley and emerging countries like to court is either going to be beyond his financial
Brazil. I am seeing that trend more and more. means or just impossible.
Faquiry: We are basically saying that pan-regional “me- Therefore, the person with the idea might not have
too” business models, rather than country-specific “me the confidence to go looking for support. Instead,
too” models, have much more legs to them. he might take his idea to Silicon Valley or another
12 February 2012 Venture Equity Latin America

13. Interview
environment where he will be better protected. better, developing a new product. The competition
is not coming solely from other traditional global
Adriana: I actually think Latin Americans have a competitors; it is coming from Latin American
pretty high level of resilience that makes them ideal companies, which are better than global firms at
entrepreneurs. The most significant bottlenecks understanding the local markets. Unfortunately,
that I identify are probably regulation, access MNCs are reluctant to take on risk over a span of 10
to technology, talent and funding sources. The or 15 years, which is what innovation requires, and
technological aspect is particularly important. The so they are struggling to find the right formula. There
reality is that we do not have enough engineers in are different methods for, on the one hand, isolating
Latin America. Some countries are doing something an MNC from some of the risks of innovation but,
to address this. Brazil just launched a government on the other hand, still retaining ultimate control of
program through which it plans to send 300,000 the output of that innovative process. Those kinds of
students who want to study engineering to technical
schools in the U.S. and abroad. The government has
created large incentives for them so that they return
to Brazil to work as engineers. Some countries, like “Entrepreneurs should look for MNCs
Argentina, have a significant number of engineers
available. Other countries, like Venezuela, have
to build their businesses around. My
none. This educationaldisparity is something that theory is that all successful early-
should be addressed. If there were a real push for stage companies are built on the
a massivedevelopment of technical schools to the backs of large companies.” – Matthew
region, it would guarantee that Latin America would Cole
continue to grow as a healthy VC environment.
VELA: Why do MNCs have a key role to play in
the VC space in Latin America?
legal structures and formulas are only just beginning
Matt: Entrepreneurs should look for MNCs to to emerge in Latin America, and there is a real need
build their businesses around. My theory is that all for that emergence from both sides: the entrepreneur
successful early-stage companies are built on the needs the certainty of a strategic exit partner, and the
backs of large companies. Microsoft was built on the MNCs need a way to innovate within Latin America.
back of IBM; Google was built on the back of Yahoo; So, this is an exciting new frontier.
Facebook was built on the back of the Harvard
University student database. Small companies A d r i a n a : T h e re a re t w o w a y s o f l o o k i n g
should look for opportunities to partner with large at this. One, is trying to understand that the world of
companies in order to help large companies innovate, Latin America is changing very quickly, and that the
to provide critical outsourcing services that MNCs way to innovate has evolved. That is lesson number
are not able or interested in doing themselves, and one. Then, it is important to understand the expand-
to bootstrap their businesses, using the resources ing ecosystem of innovation through incubators in
and/or the capital of MNCs, in an environment Latin America. Incubators offer a very interesting
where VC is scarce. On the other side of the fence, exercise for both parties.
MNCs in Latin America need to do more to support
the VC ecosystem. It is very difficult to convince a For VC’s, it’s a neat opportunity to have a dialogue
large company in Latin America to take a risk on a with a big corporation to see what buttons they
small, promising technology for a variety of different want to push. But more and more, as these models
reasons. However, MNCs have an opportunity to of business are developing, MNCs are also looking
learn new tricks by being more open to partnering, to bring a model of strategic incubator into their
creating pilot programs and in other ways supporting companies. This is something that we are doing at
emerging companies. Cisneros, as well.VELA: What kinds of entrepreneur-
ial innovations are taking place that serve the Base
John: From the MNCs’ point of view, Latin America of the Pyramid (BoP) in Latin America?
is increasingly becoming a market that is competitive
enough that they have to innovate. They cannot Faquiry: We are seeing quite a bit of activity taking
just import a product that works in other markets place with financial services and the delivery of
without either adapting or tropicalizing it or, even See Roundtable Discussion on page 14
Venture Equity Latin America February 2012 13

14. Interview
Roundtable Discussion
Continued from page 13
financial services via mobile devices at the BoP. the way that business is owned and conducted in
This space will probably grow as savings products the region. Many family-owned businesses would
continue to grow along with consumers’ ability probably say that they have always been operating
to store money with more efficiency. Ultimately, with a VC mentality, just with a longer time horizon.
microloans and credit products that are geared In general, family-owned businesses tend to project
towards the masses will emerge, and once you have thirty years forward, and for some of the VC world
that, the overall level of poverty in the region will that is actually a good thing, because we have the
diminish significantly. stomach to wait things out . We don’t have to be as
impatient; we see the value in having a longer time
horizon. I think that the mentality of family-owned
businesses is always going to be a nice compliment
“Regardless of the VC ecosystem to the VC environment as it develops.
in Latin America, families still play John: Sometimes, taking an idea from concept
a very dominant role in the way that to market requires a level of stubbornness that a
business is owned and conducted manager in a publicly traded company simply
in the region.” – Adriana Cisneros cannot commandeer, and that only the top leaders
of a family owned enterprise have both the time
and the ability to push through without there being
too much questioning. Often, that leads to the ruin
of a family-owned company, but it can also lead to
Adriana: I agree: that is the one of the most innovative break-throughs.
interesting sector to be looking at right now.
VELA: What is happening in the VC ecosystems of
John: Latin America, with the exception of Chile, Argentina, Chile and Colombia?
is still a very under-banked region of the world,
especially at the BoP. There is a significant number of Faquiry: Chile is interesting because we are beginning
very “bankable” clients there that own assets but that to see the creation of a start-up culture through the
are just not banked, and the reason for that is two- government’s Start-up Chile program. Chileans need
fold. First off, the brick and mortar infrastructure of the local funds to be willing to take risk and bring
banks leaves them very concentrated in the upper and those companies to the next level. Colombia is doing
middle class neighborhoods of big cities. Secondly, things right. There is talk that President Santos may
the hierarchical culture of banks, where bankers and initiate a government-sponsored program akin to
bank managers tend to come from the upper echelon Start-up Chile. In addition, the Colombian pension
of Latin American society, creates a disconnect when funds have significant amounts of money; if they
trying to service the working poor. So, historically it start putting that money to work in venture deals,
has been non-traditional lenders that have walked we are going to have a very favorable environment
into the BoP space: retailers, telephone companies, overall in Colombia.
and even now telephone-based lending vehicles.
These are the companies that are better at reaching Adriana: I agree. I too am a big believer in Colombia
the masses, and adding financial services to their and Peru.. People have to really pay attention to what
core of business is easy to do. It is definitely the most is going on there, and the appetite to invest in those
exciting area of BoP commerce and where you are countries should be something that we foster.
going to see more and more development.
VELA: What factors will allow Latin American
VELA: What is the role of family-owned companies start-ups to achieve successful exits?
in the development of Latin America’s VC
ecosystem? Faquiry: The U.S. market for exits needs to stay
strong. At the end of the day, if the start-up market in
Adriana: Regardless of the VC ecosystem in Latin the U.S. slows down, we are going to see a significant
America, families still play a very dominant role in slow-down in Latin America, just like we saw at the
14 February 2012 Venture Equity Latin America

15. Interview
end of the 1990s. We have to be very careful that we Matt: We have seen a lot of innovative companies
do not get seduced too much by our own story that coming out of Brazil in the agribusiness sector that have
this time is different in Latin America. developed new technologies (not always proprietary
but new technologies) regarding production processes,
VELA: What are some factors that allow ventures
to evolve into sustainable businesses in the long
term?
John: The biggest one is a reliable source of revenue, “We have not seen proprietary
i.e. that MNC or large Latin American group that is
technologies coming out of Latin
a natural buyer of your services or products. A lot of
times, Latin American entrepreneurs are afraid to speak America, but we do have unique
to the big Grupos in their own country, because they business models revolving around
know how much power they can wield in political and the service sector and geared towards
judicial spheres. They actually feel more comfortable the bottom of the pyramid.” – Faquiry
selling their services or seeking financing from an
Diaz Cala
international company, but that is not sustainable in
the long run, because Latin America will continue to be
volatile for the foreseeable future and thus MNCs will
continue to be fickle investors in Latin America. So, the
key to a more sound system is developing trust between as well as crop testing and certification. We have seen a
small and big companies inside Latin America. number of very interesting companies in the software
sector, particularly banking software, coming out of
VELA: Are there any technologies unique to Latin Argentina and Uruguay. We have seen a cluster of
America? businesses around the mining services sector coming
out of Chile. Global venture capitalists are looking to
Faquiry: We have not seen proprietary technologies Latin America perhaps not for outright innovation but
coming out of Latin America, but we do have unique certainly for very important product development and
business models revolving around the service sector mousetraps, and that is part of why the capital is now
and geared towards the bottom of the pyramid. flowing to the region.
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Venture Equity Latin America February 2012 15

16. PE Competition
First Ever Wharton Latin America Private Equity
Competition Turnout
By Alyson Sheehan
In an effort to position itself as a leading business school The two-round tournament began with each team of
within the private equity industry in Latin America, the MBA candidates showcasing their investment idea to
Wharton School of the University of Pennsylvania held the judges. Two teams were then selected from the first
its first ever Latin America Private Equity Competition round to move on to the second one, where they were
on February 4th at Huntsman Hall on the Philadelphia then given an original case to analyze and prepare within
campus, according to the Wharton Journal. a 90 minute timeframe. The original case designed by the
judges revolved around a distressed salmon producer in
The participants of the competition were MBA candidates Chile, according to the Wharton Journal.
from leading business schools around the country, including
Chicago Booth, MIT-Sloan, Kellogg, Columbia GSB, London A Wharton team and a Kellogg team were selected to
Business School, Harvard Business School, and Wharton participate in the second phase of the competition. In
itself. The participants were asked to present “original the end, it was the Wharton team, composed of Henry
and actionable investment ideas in Latin America” to a Heinerscheid (WG ’13), Abel Osorio (WG ’12), Juan
fictitious “investment committee,” i.e. a team of judges, the Gonzalez-Goicoechea (WG ’12), and Jose Luiz Gonzalez
Wharton Journal continues. The competition was judged by Pastor (WG ’12), who won. The team presented the idea of
representatives from top private equity firms in the region, a buyout of a Peruvian car battery manufacturer in phase
including ACON Investments, Mesoamerica Partners, one; in phase two, they proposed a strategy of acquiring
Amzak Capital, North Bay Equity and General Atlantic, the debt of the salmon producer’s company to then access
as well as the Inter-American Investment Corporation, the equity through a bankruptcy. Their combined levels of
President of the Latin America Venture Capital Association, qualitative and quantitative analyses in both rounds led
and Wharton Professor of Finance, Stephen Sammut. to a first prize check worth $2,000.
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16 February 2012 Venture Equity Latin America