With over $11 billion divested in 106 exits, 2020 was a record year for investors in Latin America, as a result of a particular acceleration in IPO requests at the Brazilian B3. The year also marked $4 billion invested in 488 rounds of venture capital; and, beyond the figures, it saw names like VTEX, Loft and Kavak emerge as unicorns.
“At first, those who benefited from a very big tailwind were e-commerce and logistics in general – and delivery, which would be this intersection of e-commerce and logistics,” says in an interview with LABS Romero Rodrigues, managing partner of Redpoint eventures, investment fund behind names like Rappi, Olist, Oyster, Housi, Tembici, among many others.
Optimistic about the current moment in the Brazilian startup ecosystem, Rodrigues considers that 2020 was a year of paradigm shifts, with the acquisition of startups by national companies gaining ground and the increasing flow of IPOs within the country; and although he considers the e-commerce, health and fintech sectors to be full of investment opportunities, he bets on another trend for the coming years: ESG (an acronym for environmental, social and corporate governance).
“If we stopped investing today [in new startups] there would be no impact in the next seven years, there would be an impact in the eighth. (…) It is a very optimistic perspective,” says Rodrigues, who was also one of the co-founders, in 1998, of Buscapé, a price comparison website that transformed the e-commerce market in Brazil.
Check out the main excerpts from the interview with Rodrigues, who draws a timeline of the Brazilian ecosystem and shares his perceptions for the future of the venture capital sector:
LABS – According to the LAVCA report, e-commerce, on-demand delivery and logistics were some of the sectors that benefited the most from the volume of venture capital in 2020. How was this reflected in the investment portfolio of Redpoint eventures?
Rodrigues – The sectors that struggled the most because of COVID were events, some linked to mobility in a first moment and tourism. At first, those who benefited from a very big tailwind were e-commerce and logistics in general – and delivery, which would be this intersection of e-commerce and logistics. In e-commerce, we saw Rappi, who is part of our portfolio, benefiting a lot, ABC da Construção, which is a construction company – everyone got stuck at home and decided to refurbish it –, Olist, which sells on marketplaces, also benefited a lot.
Health has also recorded growth, with companies like Memed, of digital prescriptions. Memed has been in the market for years – we made our first investment there in 2014 – but there was a barrier to adoption. Doctors loved Memed but didn’t do the prescribing in there. Then [with the pandemic] it was overwhelming, everyone started using the service because there was no other way to do medical prescriptions.
The same happened with Vittude, which is a mental health marketplace. We invested in Vittude at the end of 2019 and we thought that over time people would overcome that prejudice of telling others they were in therapy. The pandemic came and knocked that stigma down and accelerated: Vittude grew 5x year over year in 2020. Those were the first-derivative effects.
But there were second-derivative effects: companies that didn’t necessarily in 2020 radically change size or accelerate that much, but that are in spaces that from 2020, from 2021 onwards, will become increasingly sexy. In that, I mainly highlight ESG.
All companies that have an environmental, social impact, governance agenda. Some examples that are closer to Redpoint eventures: Tembici struggled a lot during the pandemic because obviously, no one came out on the streets, the bikes stopped. Then the delivery people came and started using the service and now there are people coming back [to use them and the], couriers. Both government and people saying: I want a smarter city. It is a company that now is twice as large as it was before the pandemic and we are not even over the [period of] isolation.
Another company of this sort: Repassa, which gathers everything you no longer want in the closet and select for donation, separating what you can still sell from what you can’t, and then, it donates. From what they sell, you keep 60% and can take it as credit for other clothes or donate. Circular economy: the founder’s main goal is to make clothes be worn more often. On average, clothes in the world are worn only seven times. Fashion is the second most polluting industry in the world, the first that consumes the most water, the first in problems of slave and child labor. So, if you can make clothes used more often, you directly impact this entire chain.
Other examples are Ribon and Eu Reciclo, which helps companies in the reverse logistics of plastic packaging (…) I think ESG is a category that will take a lot from this second derivative. It will impact smart cities, environment and recycling, e-commerce itself, due to the greater concern with the impact of e-commerce. This is not necessarily reflected in large companies yet because they are starting to get attention from investors and receive investments now. It is a ripple effect.
L: CondoConta, Holberton School and Olist were some of the rounds from Redpoint eventures announced this year. What can we expect in terms of investment volume and sectors for the year 2021? What sectors/startups are on Redpoint eventures’ radar?
R: We really like to avoid consensus. If you were to say, is mental health a good investment? It definitely is, but it was way more in 2019. Theses that are not consensus, in general, usually get more of my attention. We specifically invested in e-commerce companies like Repassa, Olist, ABC da Construcão, in a pre-pandemic moment – when actually e-commerce was no longer sexy. E-commerce was very sexy in 2010, when we sold Buscapé, and then it became like the “ugly duckling” for a long time. So if you ask: wouldn’t you invest in e-commerce? I would invest, so much that we have now invested in Olist. E-commerce is a gigantic market: last year, it grew by 41% [Ebit data]. In 2019 it had grown 16%. We went from BRL 62 billion to BRL 87 billion in sales, a super-expressive growth. But when you consider how much this represents from retail as a whole, it is still very small. On the one hand, there are 80 million consumers, yes, there are 80 million out of 210 million Brazilians, but these 80 million consumers still make a good percentage of their purchases offline. So it has a lot of potential, and it has a lot of inefficiency. Where there is inefficiency, there is opportunity.
In other words, are there opportunities in e-commerce, health? Yes, although everyone is chasing these balls, yes. And there is a lot of opportunity emerging in other sectors. CondoConta is a very cool example because we talk about banks for SMEs, for individuals, but the condo is unique, it’s a CNPJ [Brazilian registry for legal entities] that doesn’t disappear, it is a legal entity that transacts a lot of money, and has a lot of pain points. Is this niche? It looks like a niche, but when you think about the number of condos you have in Brazil X the financial volume that exists and no one is taking care of it, it is a gigantic and untapped market.
In practice, at least in our philosophy at Redpoint eventures [what we want to know is]: are there very good founders solving an important problem in a large market? I don’t worry about the sector. And if it is a sector that’s not sexy, even better, because there will be less competition for investment.
R: Where there is pain, there is a lot of inefficiency. And where there is inefficiency, you can only solve it with technology. As for the niche, there is, for example, Buscapé: when we started it was a niche. E-commerce, price comparison. It’s true: if you look at it as price comparison, it is niche. But price comparison was how we sold to the consumer to understand what we were doing. If I look at it as product search, it’s 35% of Google’s revenue: huge market.
There are several niches that are actually yet to be discovered, or they are niches today, but in ten years, when the company is big, they will be gigantic, because that company will help to create this market. (…) You have to know how to play where the ball will be, and not where it is now.
R: I’m not only very happy with the evolution, but it is also very easy to compare this second cycle from 2010 to now; with the first, from 2000 to 2009. In the first, we had the internet boom, so for 6 months, in Brazil, there was a lot of investment: Globo.com received investment from Telecom Italia, Starmidia‘s IPO, Starmidia buying Cadê, tremendous valuations, Submarino, Terra acquired Lycos. And it was over very quickly: it started in September ’99 and ended in April 2000, when the bubble burst. And then came a nuclear winter that lasted until 2009. The first good news after that 2000 buzz of companies closing, startups going bankrupt was in 2009. That’s why Buscapé’s announcement drew so much attention, because it had been a long time since anyone heard anything about the internet. Then there was Buscapé’s exit, which was the first to close that cycle, and others came later: Pagseguro; Netshoes; outside Brazil, in Argentina, Mercado Libre (a year before Buscapé, with an IPO at Nasdaq). In that first cycle, “many seeds were planted” and those who survived reaped the fruits ten years later.
In 2010, a new cycle begins, motivated by the first exits – those who invested at the beginning of Buscapé made 300x the amount invested. The second crop; Gympass, Creditas, Nubank, Quinto Andar and all these other companies, which, not by chance, have their foundations in 2010/2011. Almost 10 years later they are already in unicorn status, being acquired, such as RD Station by TOTVS, for example. The big difference is that we only planted at the beginning of the previous cycle. In this cycle, we did not only plant in 2010, but in all the following years: and more than that, we “watered” during all the time, with the different VC rounds.
And now, what was added in 2020: more and more exit routes. What did 2020 bring that didn’t exist? There were acquisitions by strategic international players: Naspers acquiring Buscapé, DiDi acquiring 99. But there was no acquisition of a national company paying billions for another national company. Behind the scenes, people used to say: if you sell to a national strategic company, it will pay little, and if it is listed it will pay even less because its multiple on the stock exchange is low. Well, we had RD Station being disputed by TOTVS and Localweb – that paradigm was down. Oh, but a small company IPO, on the Bovespa of technology, will never work. We had Méliuz, Enjoei, Mosaico, and we will have others now: that paradigm was also down. In addition to the IPO abroad, which is more difficult, and which larger companies have done, such as Stone, XP, PagSeguro; you have an IPO on Bovespa, and in addition to international strategy, you have national strategists paying good money for the company. Finally, you add that to SPACs that are also coming to help with this liquidity. So I mean, the main thing about this game, which is high liquidity – when you give money back to the investor to invest again, free entrepreneurs to create other businesses – it’s happening like never before. I would say that  was the year to close the cycle from the point of view of building the ecosystem.
If we stopped investing [in new startups] today, there would be no impact in the next seven years, there would be an impact in the eighth. If we just continued to water [subsequent rounds] the ones we already planted, we would have 7 years of pipe of monstrous companies being built. It’s a very optimistic outlook.
L: How did your experience with Buscapé help build the expertise of Redpoint eventures?
R: Being an investor and being an entrepreneur are very different things, which require different soft skills. Right away, you have to know that you are not the spotlight, you must have a lot of intellectual humility. Just because something worked very well ten years ago in e-commerce or any other sector doesn’t mean it will work now; the world is dynamic. I say that a good investor can guide an excellent entrepreneur with questions only. That is why it is very good for an entrepreneur to listen, to be coachable. The previous experience brings a connection – the entrepreneur looks at the market knowing that they will struggle a lot. In a way, when they see on the other side a guy who was once an entrepreneur (…) this identification helps a lot.
The second thing: track record and experience. Sometimes there are small things, but there are a lot of investors who are excellent, but they never went through challenges like, for example, mass layoffs. Someone who has already been through that can give one or another tip that goes a bit beyond the academic books and brings more humanism. When you add up these little things over seven years of “living together”, it makes a big impact. One of the checks I do is: if we [entrepreneur and investor] are stuck at the airport together for the next seven hours: is this good news or bad news? If it’s bad, don’t take the check, because it’s not seven hours, it’s seven years. That is a difficult marriage to divorce.