26-11-14-intel-capital-chips-away-at-latam-opportunity-martin-veitch
Business Management

Intel Capital Chips away at LatAm Opportunity

The Intel brand is synonymous with silicon and the microprocessors that act as the brains of personal computers. But its venture wing Intel Capital is also a mover and shaker in its own, more low-key way, boosting the rising Latin American scene where the VC has staked about $100m on Brazilian companies alone (16 of the 20 investments are Brazil-based). To hear more, I spoke by phone to Alexandre Arantes Villela, its Sao Paolo, Brazil-based director.

Villela joined Intel Capital in 2011 after a career in the tech/electronics sector and private equity with Brazilian outfit Stratus. However, Intel Capital goes back further in the region. The Sao Paolo office was set up in 1999 amid the first dotcom boom, making it “one of the traditional players in VC in Latin America”, as Villela points out. Intel Capital itself dates back to 1991.

However, as befits an investor that is part of a technology infrastructure giant, the goal is more about extending the reach of technology than making money.

“We’re very proactive in deal structuring and in every deal we do we’re not only looking for a financial return and capital gains but also a strategic return for Intel,” Villela says. “If a company is a market accelerator then when this company has success it drives technology adoption - and that benefits Intel.”

Latin America is an interesting region in many ways from a startup perspective, thanks to the blend of languages, cultures, currencies and historical/empirical legacy.

Firstly, there’s the question of whether to focus on Brazil, to rush to the largest developed markets beyond LatAm, or to pursue markets by Spanish or Portuguese language, for example.

Villela gives the example of Pixeon Medical System as a company that pursued the regional model for good reason. This Florianapolis, Brazil healthcare imaging and workflow software company reached out to hospitals and clinics in Argentina, Uruguay and Chile after its native country because of the market opportunities afforded there.

“If we compare technology adoption in Latin America to the US or Europe, most of the hospitals run their businesses off a spreadsheet and there are very few integrated approaches,” Villela says.

Others take a different route.

“We have several companies that are trying to import proven business models [from the US] that were popular in US and Europe and bring them to Brazil, but at the same time we have a new generation of startups that bring more local innovation.”

Villela cites Peixe Urbano, a Brazilian Groupon-like site, as being in the first category, for example, and he sees Intel Capital’s role in helping these companies ‘internationalise’ their offerings, networking and providing guidance on corporate governance and good practices across the portfolio.

But the sheer scale of the Brazilian market gives it a magnetic attraction.

“A few companies really see their market as being a global market but most of them see Brazil as being the big local target and then go through Latin America [either] organically or through acquisitions. Brazil is the seventh largest economy in the world and in the top five in every consumer category: second in beauty, fourth in automotive and phones… for every market that you look at, the internal market is huge. But, at the same time as there’s a big potential, we still see a lot of underpenetrated segments. We have 80% internet penetration in the US but only 46% in Brazil in 2013; in [retail] e-commerce, the US has 6% online sales but in Brazil it’s only 3%. In smartphones the US is well above 50% but in Brazil it’s 20%.”

As for winning over the world’s biggest mature market, Villela takes a pragmatic view.

“It’s rare to see companies in Brazil that succeed in the US,” he says. “The most typical approach is to address Brazil and then neighbouring countries. Some companies try Portugal and Spain but Portugal has 10 million inhabitants so it’s smaller than Sao Paolo. The main roadmap is Brazil first, second Latin America and third, pieces of Europe and parts of Africa.”

But surely the emergence of crossover hubs like Miami and the efforts of groups like Endeavor and The Technology Foundation of the Americas to connect the continents gives companies a shot at cracking the US?

“Miami is an obvious hub as a headquarters for Latin American companies,” Villela concedes. “Our most recent investment has a presence in Miami. There’s a clear advantage: Miami has direct flights to every single large city in Latin America. Sometimes it’s easier to be based in Miami than Sao Paolo.”

Villela describes Intel Capital as “stage-agnostic” but adds that 90% of investments in the region are in companies that have “passed the first stage” and have proven business models, customers, products and revenues of at least $4-5m. But the picture has changed dramatically in recent years.

“When we look in retrospect there was the initial period in the Nineties when the internet and telco activity started. After the bubble burst in 2000 the overall VC activity went down dramatically and the period 2000-2005 some people referred to as the nuclear winter. But after things started to pick up, particularly after 2009, [it has been] very active.”

So much so, indeed, that big VCs like Silver Lake and Accel Partners have started to carefully inspect the Brazilian market and in many cases they have decided to set up a local presence.

“In 2013 and 2014 most of these firms started to look more closely at their portfolios,” Villela says. “Instead of doing new investments they promoted consolidation moves among portfolio companies and competitors, so I would guess deal activity levels will be lower this year.”

Overall, Villela is bullish about Brazil and Latin America and the way that a growing middle class has grown opportunities for startups. He also notes that the Brazilian stock market is relatively small but he praises the work of the government in enabling the six-year-old Bovespa Mais alternative stock market for small- and mid-caps. Villela also expects significant money going into the region from private equity and the continuation of incubators and accelerators locally.

Momentum in the market has seen Intel Capital fund a series of firms in hot areas such as Big Data, cloud and mobility, but Villela is wary of proclaiming a false dawn and he warns that Latin America “tends to be a little bit more volatile” than some parts of the world.

“Probably [Brazil’s] GDP will not grow more than 1% this year but VC is a long-term gain and we try to look at this from a long-term perspective. Where Latin America is weak is the market for exits. The government is trying to implement certain initiatives and take a role but it’s a long-term effort and I think we’re several years away from where we want to be.”

But, lest he end on a negative note, Villela says he is “very positive” in general.

“We see a lot of potential. In a five or ten-year timeframe [local startups] can become known not only in this region but globally.”

 

Martin Veitch is Editorial Director at IDG Connect

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Martin Veitch

Martin Veitch is Contributing Editor for IDG Connect

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