Investing in Tech Markets in Brazil

Copyright @ 2013 Monashees Capital

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+ Founded in 2005
+ US$ 135 M in capital
commitments
+ 7 partners
+ 27 companies
+ Target sectors include Mobile,
Marketplaces, e-Commerce,
SaaS, EdTech, FinTech,
Healthcare
+ Focus on leading Seed & Series A
rounds, reserving capital for
Series Bs
+ Co-invested with Accel,
Benchmark, Felicis, Insight,
Meritech, Tiger, Valar, 500
Startups, Flybridge, Valiant,

Timeline of tech VC industry in Brazil

First generation
of internet
companies

Funded startups

First wave

2000
The Burst

Boom

Nuclear Winter
2005

2009

Correction

2012

2013

You are
here

Early internet investors

International
investors

New local
accelerat
ors

New local
investors

What really matters

MARKETS

TEAMS

LIQUIDITY

Large domestic market

GDP

Consumption power

[US$ Trillion, 2011]

B2C: 200 M people

15.0

Upper
class
Middle
class

Lower
class

7.3
5.9
3.6

2.8 2.5 2.4

2.2 1.9 1.8

13%

38%

49%

For the
first time,
emerging
middle
52%
class that
can afford
to buy
tech
27%
products
& services
21%

B2B: + 5M companies
On average they invest
5.5% of revenues in IT

Sources: FGV, World Bank, Business Monitor International, Brazil Central Bank, Monashees

Leadership in
13.0%
relevant
21.0%
markets

2nd

38%

Largest
Largest
beauty
beauty
market
market

th

Largest
Largest
clothing
clothing
market
market

3rd

52%

4th

49.0%

Largest
Largest
automotive
automotive
market
market

27.0%

2nd

Largest
Largest pet
pet
supplies
supplies
market
market

Largest
Largest
computer
computer
market
market

Far from plateau

Internet

E-commerce

[% of the population, 2012]

[% of total retail, 2012]

6%

78%
88.5M

46%

internet
internet
users
users in
in
Brazil
Brazil

Online ad spending

3%

ecommerc
ecommerc
e
e sales
sales in
in
Brazil
Brazil

Smartphones

[% of total ad spending, 2012]

[% of population, 2012]

28%

50%
US$3.3
B

7%

US$11.
3B

Spent
Spent on
on
online ads
in
in Brazil
Brazil

28.5M

15%

Sources: eMarketer, New Media Trend Watch, Google Think Mobile Research, Ibope, ebit, Monashees

Smartphon
Smartphon
es
es in
in Brazil
Brazil

Large underserved tech markets

Marketplaces

E-commerce

EduTech

Real
Estate

220K

brokers
Most properties are not
online yet

Furniture

US$ 20B

Test
Prep

12.7M people taking

Jobs

80M

Home
improvemen
t

US$ 25B

market
top 10 players accounts for
less than 10% of the market

Profes
.
Education

2.6M students talking

Desintermediatio
n

US$ 6B only apparel

K12

300K K12 schools

of operational
employees, lack of
solutions to recruit these
professionals

. rotces secServic
ivres ni si tn
75%
m
e
yolm
p
e eht fo

es

Mobile

market, lack
of an alternative with good
quality, design and
accessible price

market, by cutting the

middle man, it is possible to
create affordable and
aspirational brands

FinTech

standardized tests, lack of

intelligent and scalable
solutions

online professional courses

Lack of top-quality
alternatives

Urgent need to improve

quality and efficiency

Enterprise tech

Mobile
-first

28.5M

smartphones,
the Brazilian AppStore and
Google Play lack top
localized alternatives

Insurance

US$ 10B

market,
online accounts for less than
5% of the transactions

SMBs

+5M

Featur
e
phone
s

Feature phones and pre-paid

plans still dominate the
market, 76% and 80%
penetration respectively

Invest
ments

US$ 1 tri AUM only

SaaS

77%

Mobile
payme
nt

The proportion of purchases

made from mobiles phone is
strikingly small, below 1% of
total online sales

Credit

US$ 1 tri

Enterprise

Only 36% of the

companies have an ERP and
only 27% have a CRM

Sources: Monashees' analysis

mutual funds, on average

Brazilians only use their banks
and invest on traditional
products
in credit,
huge information asymmetry
between banks / companies /
consumers

companies, mostly
underserved by technology.
Only 26% use any kind of SW
for mgt.
of companies will
increase their investments in
SaaS in the next 2 years

Favorable timing
Adoption

Infrastructure

Brazilians embrace innovation,

nd most Facebook and
specially social - 2nd
Twitter users in the world (41.5M and
33.3M respectively)

Payments - high penetration of credit

cards in Brazil (53% penetration),
173.2M credit cards accounting for
$200B in transactions / year

Brazilians trust the internet, internet

banking is almost at the same levels of
developed countries, 46% of
transactions (vs US 54%)

High-speed internet - Brazil had 25.5M

broad-band connections in 2012 (16 M in
2010). 80% of companies already have
broad-band internet

Companies are using more

technology, 71% of companies already
adopted SaaS in Brazil, 27% of them
during last year

Logistics Still a challenge, high cost,

but 79% of deliveries are made on time.
Customer satisfaction with
handling/shipping is increasing

Sources: Febraban, eMarketer, ABECS, Gartner, Monashees' analysis

Moving towards innovation

Imported
Proven
models

Local
innovation

Global
innovation

Upsid
e
Risk

Time
Sources: Monashees analysis

Economic growth
GDP Growth [%]

Online growth [% vs
2011]

7.5%
Internet
users

8%

Ecommerce
sales

22%

5.2%

3.2%
2.7%

2.5%

Spending
on online
ads

21%

Smartphon
e users

88%

0.9%

-0.3%
Sources: Brazil Central Bank, Ipeadata, Bradesco, eMarketer, New Media Trend Watch, Google Think Mobile Research, Ibope, Monashees analysis

Cost of doing business

World Bank Ranking - Ease
of doing business [2013, 185
Countries]
Rankin
g

Country

Singapore

Hong-Kong

New Zealand

USA

Denmark

129

Bangladesh

Starting a
business
Starting a
business
Protecting
investors
Protecting
investors
Trading
across
Trading
borders
across
borders

Getting
credit
Getting
credit
Complex
tax
Complex
strucutre
andtax
labor
strucutre
laws
and labor
laws
Enforcing
contracts
Enforcing
contracts

Cost of doing business

Cost of doing business

130

Brazil

131

Nigeria

132

India

Sources: World Bank, Monashees' analysis

Lower competitive
pressure +
premium of
scarcity
Education
Kroton

IT
Linx

Software
Totvs

Marketpla
ces
MercadoLibr
e

Growth equity

Revenue

Seed/Series A

Growth

Private Equity

US VCs

Best
companies

New local growth

investors

Time

Sources: Monashees analysis

What really matters

MARKETS

TEAMS

LIQUIDITY

13

The rise of the high-impact entrepreneur

Startu
ps

Foreigners
Corporatio
ns

Locals

Highimpact
entreprene
urs

Tech

Returning expatriates

Academy

Sources: Monashees analysis

14

Technical talent

Engineers
availability
[per 1000
professionals]
25

IT manager salaries
[Monthly, in 000 BRL]
21.6

25
16.5

18.0

VC are helping on
this
Talent
Management
Active support on
head-hunting

Advisors
6

Bring seasoned tech

advisors for the
companies

Community
Share knowledge
among entrepreneurs

Sources: Robert Half, Finep, Monashees analysis

15

What really matters

MARKETS

TEAMS

LIQUIDITY

16

Tech exists
Relevant tech exits in
emerging markets
IPO

Number of VC investments
based on Startup Dealbook
Brazil

M&A

79

45

17
6

Sources: Thomson Reuters, Startup DealBook Brazil, Crunchbase, Monashees analysis

Timeline

Many potential acquirers

International
Tech
Companies

Funded startups

Boom

2009

+ 5-7
years

Correction

2012

Local
incumbents

2013

Virtuous Cycle

2015

1st wave of tech

acquisitions and
IPOs

You are
here
International
investors

Accelerato
rs

Local
Investors

Role models /
angels

18

Thank you!

19

Exchange rate
Foreign Exchange, inflation adjusted [BRL / USD,
1997=100]
2002 Presidential
election
election

2008
2008 Global
Global credit
credit crisis
crisis

September/11
September/11
1998
1998 Russian
Russian
crisis

Nominal rate

1.0
1.0
4
4

1.9
1.9
8
8

1.9
1.9
7
7

3.5
3.5
2
2

2.9
2.9
4
4

* As of June 20th 2013

Sources: World Bank, UBS, Brazil Central Bank, Ipeadata, Bradesco , Monashees

2.6
2.6
2
2

2.3
2.3
1
1

1.6
1.6
7
7

1.9
1.9
8
8

2.26*
2.26*