Leaders League: In 2020, Venture Capital transactions exceeded Private Equity investment for the first time in the Brazilian economy. Moreover, in the first semester of 2021, Brazilian startups raised $5.2 billion, a figure 45% higher than the total amount invested in 2020. Which key factors have contributed to these records being broken? And what is the outlook for the second half of the year?

Piero Minardi: It is a combination of factors. There was a deceleration in Private Equity investments because of the pandemic and the country's low growth rates since 2014, combined with the currency devaluation, which negatively impacted the profitability of some funds. At the same time, Venture Capital is less sensitive to these macroeconomic factors. These are the funds which are financing technological disruption, as Brazil was slightly behind in this transformation compared to other countries. The rise of fintechs, marketplaces, digital disruption, all of this remained practically unaffected by the pandemic.

The Legal Framework for Startups and Innovative Entrepreneurship was sanctioned in June of this year. How do you evaluate the impact this new legislation will have on the investment market? 

The framework was progress. It is not perfect, it is not as we envisioned, but Brazilian society is entrepreneurial and is increasingly valuing entrepreneurship. Without the right incentives, entrepreneurship cannot bear fruit. Take the classic example of the United States, where entrepreneurship is strongly encouraged already at college level. The Legal Framework is the first step in this direction. It is an important step, but others need to follow.

The rise of fintechs, marketplaces and digital disruption remained practically unaffected by the pandemic

Investments in Brazilian healthtechs reached $91.7 million in the first quarter of this year and over $2.4 billion were invested in fintechs by July. What other startup sectors are on the rise? And what trends are likely to materialize over the coming months?

Technological disruption spans several sectors. Besides healthtechs and fintechs, education is a sector which is already experiencing an evolution in the way of teaching, content broadcasting and student interaction. However, it is a slightly longer cycle, which is a trait of the education sector.

The fintech market will continue to grow, and the healthtech market will undoubtedly accelerate. This movement is taking place worldwide. We are also witnessing the consolidation of some marketplaces. In general, we can expect this expansion in segments and companies involved in problem-solving using technology.

A study conducted by PwC found that 77% of institutional investors plan to stop buying non-ESG products within the next two years. How could the increased demand for ESG investments impact the market?

We must separate ESG into E, S, and G, as they are quite different matters. Brazil has reached a reasonably well-developed level of governance and this matter has already been on the agenda for some time. In the social sphere, which includes the company's mission, its integration with society, and issues of race and gender, we are seeing slightly slower progress. The demand for environmental responsibility is the most evident corporate priority, the one we are currently being most bombarded with in the business world.

Specifically in the environmental area, there are issues such as integration with communities, the environment, degradation and preservation, and all of this comes at a cost. We are already talking about "green inflation" as certain procedures to ensure products are "green" are more costly. 

We have a conflict to resolve before this issue heats up, which is to think: who pays for a greener economy? How can we balance this so that it is something sustainable and genuine, and not just greenwashing?

It is undoubtedly a positive phenomenon, but there are some practical consequences which cannot be ignored and must be weighed on the scales. For example, more expensive food is a problem. Thus, we have a major challenge ahead of us.

We must separate ESG into E, S, and G, as they are quite different matters

What new initiatives can we expect from the Brazilian Private Equity and Venture Capital Association over the next 12 months?

Our sector generates jobs and creates growth, and we are accelerating this agenda whilst, simultaneously, increasing our interaction with the government, and attempting to structure financial products which are increasingly market friendly. We also need the right incentives to ensure we are seen differently from speculative investments; our industry has a financial bias, but it is also virtuous, and this is not necessarily clear to all agents.

We have been engaged in conveying this message and, in practical terms, thinking about the industry for the future. We have specific committees dedicated to discussing different industry topics. The 2030 Committee is increasingly engaged in thinking about the economy from a PE and VC perspective, addressing ESG issues, and considering interaction with society.

By: Danilo Motta