Leonardo and Renato, can you tell us a little about the history of Iporanga Ventures? How did the company start and what has been its trajectory in the Brazilian innovation ecosystem? 

Leonardo: Iporanga was founded in 2009 as a quantitative fund manager. At the time it had more than 15 developers working on the various trading algorithms. Two years later, due to regulatory changes promoted by the Ministry of Finance, the strategy was discontinued, but the finding remained that the technology market offered some interesting opportunities for investment in emerging, technology-based companies with high growth potential.

Renato: We made our debut in venture capital in 2011 with a check in Quero Educação, and in 2013 we also invested in the powerpoint presentation of another national success story, Loggi, which in 2019 became a unicorn, valued today at over $2 billion. Later, in 2014, the investments made were contributed to out  venture capital fund I, which is now fully invested. Currently, we are four partners: Leo Teixeira and I, full time managers of Iporanga Early Stage II, and Guilherme Assis and Leo Kalim, the two entrepreneurs of fintech Gorila, who take part in our investment committee. 

You run Iporanga's day-to-day life today, but the partnership is not new. Can you share some of your stories with us?  

Leonardo: I can say that my story with investments began in 2013, when I left Barclays, ending an 11-year cycle working in the financial sector to pursue a solo path. In that year I made my first angel investment in a company that did student loans under the Income Share Agreement (ISA) model, but the company didn't succeed due to management mistakes and timing (too early for the market). 

Still in 2013 I joined Anjos do Brasil, at the time the only angel investor network with which I empathized. In the same year, I came close to founding some startups, but ended up discarding the opportunities after hypothesis testing and prototyping. One of them was called Leggere and the idea was to make the Netflix of newspapers and magazines. I was glad to find out quickly that this was not a big market, nor a product for Brazilians, who like videos much more. Other similar companies showed up later, but none survived. At the same time, I saw interesting startups emerging that attracted me as an investor.

In 2014 I made a few other investments and starting in 2015 I decided to walk the path and career of professional investing in technology companies. I studied a lot, took courses abroad, read everything that existed at the time, started to network consistently, and have a lot of coffees (I miss them so much...) and, that year, I think I made about five new investments. That was when I also met Renato Valente, still an entrepreneur at Ocapi and already invested by Wayra. 

Well, between 2015 and 2016 I tried to set up Lotus Venture Investments (a seed stage VC fund) with some partners, but it didn't work out. Shortly afterthen I was invited to join the board of Anjos do Brasil. In 2017, I helped co-found Insper Angels (an alumni network from the Insper school where I did my MBA), which I ran for two years and now serve as an board member. The following year, I co-founded an agritech startup (where I am a board member today) and in this same year and with 20 investments made as an individual I joined Iporanga as a partner to help consolidating the Venture Capital business, which had already been successfully run since 2011 by our partners Leo Kalim and Guilherme Assis. Finally, in the fourth quarter of 2019 we launched Iporanga Early Stage II, the fund through which we are currently investing, and shortly thereafter, in April 2020, Renato Valente arrives to manage it with me on a day-to-day basis. 

Renato: I started following the world of technology more closely while still in college, in the early 2000’s. That was when the tech bubble burst and I thought what was happening was crazy, how those companies could make an IPO so fast and what was a bonanza turned to dust in a very short time. 

After graduation, I went to work for large companies, spending most of my time at IBM, getting close to the tech people and watching the tech market come back from the abyss. Perhaps a major milestone was Google IPO in 2004. In the following years technology was advancing, suddenly you no longer needed to buy a server to start a company, AWS appeared in 2006 and mobile started gaining traction with the iPhone in 2007 along with 4G. With all this scenario out there, and although Brazil is still far behind, the reading was of a strong trend, a very interesting time to be an entrepreneur. 

In 2008 we started what would be the embryo of Ocapi, an Adtech, which we founded a year later, in late 2009. The trajectory, as for every entrepreneur, was very difficult, but very enriching, much more than an MBA in practice, things that you don't learn in the best schools. For example, Ocapi had large companies as clients, and you find out that the hardest thing is not to sell, but to get paid. So many times we had to beg the clients to pay us the amount due. The Brazilian innovation ecosystem practically did not exist, access to capital was very different from today, we received investment from some Angels, then we raised funds with a government incentive program (Start-Up Brazil), along with an investment from Wayra, part of Telefonica Group. 

The journey lasted until 2015, when we sold the company to a strategic buyer. During the first year of the company's earn out, I spent a short time working in the government startup program and started making investments as an Angel. In 2016, I took on the leadership of Open Innovation at Telefônica in Brazil, making investments in startups through Wayra and investments in venture capital funds with Telefónica fund of funds area. After five years at Telefonica, more than 30 investments in startups, several exits, and two venture capital funds, there was the unique opportunity to work with great friends at Iporanga.

How did you meet and how do you split the management of the fund?

Leonardo: Well, about our partnership and friendship, I would say that it really started when Renato took over as a country manager at Wayra, after Ocapi was sold and Carlos Pessoa left (who had gone to be Coursera's Regional Manager in Brazil in 2015). Back then, when we still had the peace of mind of coming and going and the events and meetups were frequent, we ended up meeting a lot and exchanging many deal flow opinions, evaluations, and speculations. Naturally, we got closer and made some co-investments over time, culminating in an even closer partnership here at Iporanga 

Renato: In the day-to-day activities of the fund we have many shared functions, such as the assessment and preparation of investments to submit to our committee, fundraising with investors, hiring people, portfolio management, designing and implementing Iporanga's strategy and investment theses. Some other roles end up being more divided, such as the management of the fund's operations and controls which are left more frequently to Leo, while the management of the fund's communications and the first level of investment analysis are left more frequently to me. Additionally, our other partners Assis and Leo Kalim participate with us in the process of discussing and approving investments in the investment committee and, of course, strategic matters.

Talking about the market,  what does it mean for the Brazilian innovation scenario that the amount invested in venture capital last year surpassed that of private equity? 

Leonardo: It shows many things, among them the rapid maturing of a new investment class, the advance of technology, increasingly present in the lives of people and companies, the improvement of the Brazilian innovation ecosystem, and shows how we have great entrepreneurs who are tacklingthe problems and opportunities in Brazil, LATAM, and worldwide. If last year this was the first inflection point, in the first quarter of 2021 we saw VC investments representing fourfold those of PE. Of course there is a gray area in the classification of deals between late stage VC and PE, but the certain fact is a growing trend of VC investments that is not likely to cool down for the next few years.

In this context, what is the general assessment of the Iporanga’s performance in 2020 and what moment is Iporanga experiencing today?

Renato: Despite all the sadness and the human losses we have had, within the scope of our activity, the pandemic acted as a very powerful catalyst for trends, mentality, and modus operandi, which in turn opened up new opportunities and solutions. We have shortened times and distances, we have accepted the entry of telemedicine, we understand that the hybrid way of working is possible, we are rethinking our forms of education, we have seen online commerceboost, we are rethinking forms of technical communication. In short, the feeling we get is that we are going through a portal that really separates the world of before and after. 

In this context, 2020 was an exceptional year for Iporanga, with a very strong deal flow, ten completed investments, four companies that went through Y Combinator, no write-offs, new investors coming into the house, and numerous compliments on our work. But this was not built overnight, it is simply the result of a consistent work, good investments, and good connections with fantastic entrepreneurs that the partners have nurtured over all these years.

Leonardo: Iporanga is going through some expansion. This is the second full year of operation of our fund II, and so far we have a total of 20 investments in its portfolio. Naturally, with the increase of the operation, the complexity of managing the various stakeholders and the diversity of demanding situations increases, and that is why we are hiring a few people. But this situation is not new, we know the well this metier. We have at least 6-8 more new investments ahead of us this year, plus follow- ons and SPVs that may be set up during the year, so we have a lot of work to do.

How are the startups invested by Iporanga doing? Which cases stand out? 

Renato: The portfolio is going very well, we are very excited. The pandemic accelerated business overall, even companies that had their market badly affected, such as VOLL, managed to grow. This shows the quality of the entrepreneurs with whom we relate. This ability to adapt and seek opportunities is in our DNA. 

Speaking a little further about this case, VOLL is a corporate mobility enterprise that connects all the apps, Uber, 99, Cabify, Wappa etc, in a single interface. With people staying at home, the volume of operations has dropped for most clients. On the other hand, in some companies, such as those in essential services, business has increased a lot. VOLL also focused on hospitals, laboratories, and food companies and managed to keep growing. 

Leonardo: Another major highlight so far is Bxblue, in which we invested in May 2020 and in December raised a great Series A of US$ 7 million led by Igah Ventures. Bxblue is a marketplace for employees of state and federal agencies to borrow payroll guaranteed loans. The operation grew tenfold in 2020, both because of an organic surge in the loans made and because the actual physical brokers (individuals) were locked down at home and could not work. Bxblue quickly took advantage of this situation and created a whitelabel version of its platform to enable them to work remotely. 

We also had companies that went to YCombinator, such as Gonddo, a b2b marketplace for independent retailers. In other words, the small store around the corner can now have a huge supply of products from small industries to offer to its customers, and also has a payment term component that Gonddo offers to stores. And Stark Bank, a fintech companythat helps other companies with the efficient processing of high volumes of payments, saw its volume increase fivefold in the year.

Is investing in the early stages of startups a wise decision? How do you weigh the risks of these investments? 

Renato: Yes, it is the right decision, but it is not an easy strategy, neither from an operational standpoint nor from a position-taking standpoint. At first glance, it seems easier because the checks are smaller, the deal itself is simpler, with the round done with SAFEs or Convertible Notes, but the truth is that it is super toilsome, because here we are evaluating many, many companies just to make a few investments. Last year we analyzed more than a thousand companies to make only ten investments. And it's not easy either, because there is not so much data, nothing is obvious at this stage. Nine times out of ten we lead the investment rounds (unlike many funds that only coinvest and follow which is a lot easier), and this puts the burden and the bonus associated with our decisions on our shoulders. 

Leonardo: Speaking of risks, at the stage when we get into the companies, often at their foundation, there are many hypotheses, some evidence and almost no answers. In favor of the venture capital model, there is a huge asymmetry of payoffs on each investment made (small loss per investment versus disproportionate potential gain), but there is also a low probability of finding the home runs. You have to constantly try to improve your oddsby making good attraction, good selection, and adding value to invested companies.

To weigh risks here is to iteratively and heuristically evaluate a hundred variables, but above allthesis, timing, and time. This type of analysis tends to be better among investors who have a greater "muscle memory", because they have already seen a lot. We have been investing for more than ten years, we have made more than 70 investments altogether, six technology vehicles set up, we have diversified and supplementary experiences, and therefore we have this experience of how to do venture capital in Brazil in our favor. Of course, it is impossible to get them all right, but our track-record speaks for itself. There is luck too, like everything in life, but in this business we have been lucky.

Renato: The best entrepreneurs seek the best investors, and to be a better investor you need to invest in the best entrepreneurs. Once the cycle is created, the reputation reverberates in the market, the fund is in a very privileged position. 

What have been the main movements in 2021 so far, and what are you planning for the coming months?

Leonardo: The year started off fast, the numbers show. By April, the amount of new investments in the industry was already 70% of last year. As we give this interview, we have two companies announced, two on the way to being announced, and we have four Term Sheets signed with great entrepreneurs. In February we set up an SPV to invest in Loggi's F Series and we are currently discussing another SPV. As to new deals this year, we can say that we did one in healthcare (our first!), one deal with a fintech linked to open banking, one deal with a company that developed a low code/no code tool, and one deal in telecom. 

As we said before, our challenge, which is a great problem, is to continue scaling the business in an organized way while maintaining a high quality of aid to the investees. This is the fund's second full year of investment and the expectation is to close a total of ten to twelve new deals in the year.

What is it like to do venture capital in Brazil? How does it compare with the United States for example? 

Renato: Brazil is a very interesting place to do venture capital. It is a large country, and digitally speaking, with a very active population with diverse problems, creative and on average, entrepreneurial. Being a country with 211 million inhabitants, it allows the creation of big businesses in B2C or B2B contexts, so you can do big business here too, and make a lot of money with it. 

In other words, fundamentally, the country has the necessary elements for the activity to grow. But it also has its specific aspects and typical characteristics, besides being a very big country. It is important to understand very well how the regulation is in the most diverse markets, because the timing of a new law can accelerate or hinder opportunities instantaneously. 

You can't operate here like in the US either, assuming that companies will refinance themselves easily, because we don't have a high density of risk capital and a large number  of funds at the various stages of financing. Just think that in the US, the size of the VC industry measured by capital invested annually as a proportion of GDP is 0.75% while in Brazil it is 0.18%, or in absolute numbers $150 billion to approximately $3 billion. Or consider that in the USA there are approximately 1,000 VC funds against less than 100 active in Brazil. Finally, as Brazil is a country with constant political instability and macroeconomic volatility, not every business goes unscathed by these factors or by a presidential election. In short, Brazil is not for amateurs.

What are the sectors to pay attention to in the Brazilian innovation ecosystem?  

Leonardo: There are always many opportunities. Last year, digital health had a boom and telemedicine was finally allowed and, in our opinion, is here to stay. Many things are being built on top of this paradigm. 

PIX is here and we have open banking being implemented, which opens up new opportunities in financial services for many challenger banks. Also, in financial services, the investment market has been going through a real battle for customer access, with several independent investment agents being fought over by the banks.  Susep is bringing flexibility to the  insurance industry, and also encouraging de-concentration and competition. Crypto and blockchain are becoming more mainstream and being endorsed by major investors, banks and companies, and tokenization of assets via NFT's is having a boom time. 

Renato: There is more: Many DNVB's are emerging and presenting new opportunities and interesting products to the consumer. E-commerce almost doubled last year and now Live Commerce seems to be a new frontier to explore. The agribusiness, a national vocation, is a huge market with opportunities in new forms of financing, digitization of processes and securities, monitoring of guarantees and traceability. As far as society's impact on the environment is concerned, we are looking at initiatives in ESG. In telecommunications, one event that will be transformative for all of society is the 5G auction, which will open up imaginable and unimaginable opportunities, especially enabling a lot of IoT. Education is going through a moment of reinvention of the classroom and courses, as the traditional classroom has been put in check. The way of working has changed with the pandemic, and new tools and solutions have emerged to support remote working. The pandemic also affected the relationship between people, businesses and real estate, causing some urban exodus and challenging the companies' space management. 

Can you tell us a little about what you already have on Iporanga's radar for the coming months? What kind of startups are you looking at?

Renato: We are looking for great entrepreneurs in large markets, who want to make a deep redefinition on how these markets operate, it's quite simple! 

What to expect for venture capital in the country in 2021? 

Leonardo: Another record year for investment. We believe it should be at least twice what it was in 2020. We also estimate a very strong year for M&As and IPOs in technology. In public offerings, we will have more SPACs and some IPOs by funds (G2DI, Investech, the first ones). 

Renato: We also believe that more platforms will distribute VC funds and new Funds of Funds will be incorporated (XP has just set one up). Finally, we believe that the trend of more American funds coming to Brazil to do Series A’s will continue, such as Union Square Ventures, which recently made a debut in the region by investing in Alt.Bank, and also we have seen European and Asian funds having active conversations with our portfolio.


Renato Valente

Renato Valente