The scenario for long-term alternative investments in 2023 in Brazil has been marked by challenges and uncertainties. The year started cautiously, reflecting the drop in investments that had been occurring since 2022.
Investments in Private Equity (PE), Venture Capital (VC) and Corporate Venture Capital (CVC) totaled R$ 2.2 billion from January to March this year in Brazil. The reduction is 79% compared to the last quarter of 2022, and 84% compared to the first three months of last year. The data are in the report released by ABVCAP (Brazilian Association of Private Equity and Venture Capital) in partnership with TTR Data.
This retraction demonstrates the restriction on liquidity, resulting from the increase in interest rates worldwide, and the lack of perspective regarding the end of the global monetary tightening.
Mainly responsible for foreign investments in PE, VC and CVC in Brazil, the United States saw its basic interest rates rise nine times in a row in the last 12 months. At the domestic level, high interest rates, discussions about the inflation target, still modest economic growth and uncertainty about the fiscal anchor reinforced the scenario of retraction in investments.
Although the challenges described above, fundamentals that permeate the attraction of foreign investment to the country are still observed: (a) a huge and still undeveloped internal consumer market, to be explored in regions beyond the São Paulo–Rio de Janeiro axis; (b) the innovative culture of local entrepreneurs that are used to facing adversities in a very creative way; (c) the high number of alternatives for startup investments; and (d) the increase in the number of investors, with a special emphasis on corporate venture capital funds (CVCs), that seek to carry out investments in Brazil.
Additionally, Lula's election has regained Brazil's leading role in the climate agenda on the international stage. The president is committed to zero deforestation, promising to resume monitoring and surveillance of the Amazon, and to combat any and all illegal activities – be it prospecting, mining, logging or improper agricultural occupation. Another major challenge lies with the new government's posture in the energy sector and the path towards transforming Petrobras into an agent of the transition to a low-carbon economy.
As evidence of interest in venture capital and innovation in the country, the edition of the Web Summit Rio was considered a great success with an attendance of approximately 20 thousand people from 100 different countries. The curatorship of the event focused on 3 major themes: (a) artificial intelligence, (b) startups and venture capital and (c) banks and fintechs.
There are many experienced Brazilian venture capital managers with funding processes open to local and international investors. On this front, it is worth highlighting the very successful fund raising of Kaszek — that has closed on Kaszek Ventures VI, a $540 million early-stage fund and Kaszek Ventures Opportunity-III (KVO-III), a $435 million vehicle for later stage investments a few weeks ago.
In summary, it pays off to diversify to Brazil and the Latam region. We have a sizeable consumer market of more than 650 million people including all Latam and a fast-growing middle class. The Latam region is considered trusted with net FDI inflows of over USD 2,400 billion over the past 20 years and a sophisticated innovation ecosystem that has been responsible for producing more than 40 unicorns in the past few years.
Gabriela Medina*
Investor Relations VC | Impact Investing, ABVCAP