Creating a Venture Ecosystem in Brazil: FINEP’s INOVAR Project
Executive Summary — Since the mid-1990s, several groups in Brazil have been working on developing an indigenous venture capital ecosystem, largely to stimulate the establishment of innovative companies and help them gain access to capital. In 2000, the Brazilian government's Agency for Innovation (Financiadora de Estudos e Projectos, or FINEP), with support from the Multilateral Investment Fund (MIF), unveiled INOVAR, a program to address these needs. In the 12 years since INOVAR's debut, the program has had two iterations and has been recognized as a role model for government efforts to stimulate a VC ecosystem. In this paper, Ann Leamon and Josh Lerner present a brief background on private equity in both Latin America and Brazil, then explore the genesis of INOVAR (Innovation), the details of the program, and its results. They conclude with challenges to be addressed. Key concepts include:
- After fits and starts in the 1970s, Brazil's private equity industry began in earnest in the early 1990s. In 2011, Brazil accounted for the highest amount of money dedicated to single-country funds in Latin America and the Caribbean. Since 2009, Brazil has been the site of almost half the funds invested in the region.
- To date, INOVAR has cost US$13 million in operating costs and facilitated more than approximately US$1 billion invested in private equity (including VC) funds. More than roughly US$2 billion has been invested in companies.
- The vastly increased participation of pension funds in private equity is INOVAR's most important result so far.
- INOVAR focuses on building the skills of the various members of the VC ecosystem-limited partners, fund managers, and CEOs.
- Limited partners (especially the country's pension funds) are trained in techniques for assessing private equity fund managers-note that "private equity" refers to the entire spectrum of company growth, not leveraged buyouts.
- Fund managers receive direct feedback on their fund strategies.
- Selected CEOs of innovative companies are educated in running high-growth companies and dealing with equity-owning investors.
- In addition, INOVAR has supported the establishment of Brazil's VC Association and is working with BOVESPA, the national stock exchange, to facilitate exits for young companies. The program continues to try to support investment in seed stage companies while spreading information about its approach throughout Brazil and the entire Latin America-Caribbean region.
- Challenges for the future include focusing on aspects of the VC ecosystem that still require support, including exits, encouraging corporate VC, establishing appropriate regulation, and developing measurements for quantifying and analyzing the industry.