A unicorn in Latin America is the result of solving a huge problem

In an interview with LABS, the partner of Redpoint eventures Rodrigo Baer talks about 2019 as a record-setting year for venture capital in Latin America

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Redpoint eventures is a venture capital company that invests in startups with resources from two  other partnered funds from Silicon Valley: Redpoint Ventures and, both of which started out towards the end of the 1990s. Other global funds participate, from China, Russia, Germany, and Japan.

Whereas Redpoint was one of Netflix’s first investors in the United States and manages a fund of close to $ 4 billion to support more than 400 companies, has a focus on businesses that bring together Internet and mobile media, with a long portfolio in that sense. It was with this dossier that the company landed in Latin America in 2012.

In Latin America, Redpoint eventures has already invested in startups such as Creditas, Gympass, Olist, Pipefy, Rappi, and the list goes on… More than 30 companies have received their investments since then—and they have BRL 1.2 billion under management, according to the interview with Romero Rodrigues at Neofeed.

ALSO READ: 2019: An investment Odyssey for startups in Latin America

Five years ago, the company also brought in Itaú Unibanco to create Cubo Itaú, which is currently the biggest innovation and entrepreneurship hub in the region.

Rodrigo Baer, one of Redpoint eventures’ partners
Rodrigo Baer, one of Redpoint eventures’ partners. Photo: Redpoint eventures

Rodrigo Baer, one of Redpoint eventures’ partners, spoke with LABS about 2019, a year that should set a record in terms of investments in startups in Latin America, especially in Brazil. Browse the interview to see what he had to say:

LABS—Since 2017 we have been seeing a new boom in investments focused on startups, with the birth of a second wave of unicorns in Brazil and Latin America. Some believe that this is due to a maturing both of the ventures and entrepreneurs. How would you describe this moment?

Baer—The materialization of those bigger rounds and of those unicorns is really a reflection of something that happened five, seven years ago, when the first large venture funds were raised. The first big fund was by Monashees in 2011, then came Kaszek Ventures, also in 2011; and later Redpoint, in 2012. And this created a seed and A Series portfolio at the time that has matured [and transformed] five or seven years later, in C and B Series of rounds.

And it is because of this that today we see that proliferation of unicorns and that is really just the maturing of venture capital investments that had scalability. There are 30 companies per portfolio [in] each [of those funds], so we end up talking of 100 companies that are surviving mortality rates and that today have become a significant number of companies that are able to feed bigger funds.

LABS—Is thinking about business with a global DNA something common for those startups attracting large investments?

Baer—I believe that it depends a little of the history of each company. Some of the businesses need to be truly global to justify bigger investments. Other businesses, such as those that deal with banks and health insurance operators, for example, could technically be big enough in Brazil to justify [big investments].

Having said this, a large part of the markets in Latin America are still very incipient and lagging behind in relation to Brazil. That is why both Nubank and Creditas and other companies that are raising this bigger rounds have begun to look for opportunities in Mexico, Argentina, Colombia, as a way to expand the addressable market, even as a means to justify large investments.

At the same time, a company like Pipefy that quintessentially are global companies from their very first day, given the opportunities in the country, are still too small to sustain venture capital investments.

ALSO READ: Lindsay Lehr, from AMI: Venture capital tech investment is up in Latin America

LABS—In other words, what came first? Did thinking globally attract investments from major fund or vice versa?

Baer—Once again, that depends a little on the history of each one of the companies. Gympass began looking abroad for bigger rounds internationally. In the case of Nubank and Creditas, it is the opposite, for they are companies that would naturally be huge in Brazil and would use those bigger resources to begin looking abroad.

What is important is that to look abroad eats up a lot of resources, so it is only in rare cases that it would be viable to do so without big rounds of investment. Both things go hand in hand: the possibility of generating bigger rounds and, because of that, expand abroad, and the thought of becoming more global. People only begin to dream when they envision that possibility.

LABS—Why are unicorns important for Brazil and Latin America?

Baer—They are the consequence of giant problems that are being solved in a far more efficient manner by startups. And if that is occurring, those companies will earn a lot of money and, as a consequence, will be worth a lot of money. And so, unicorns are but a consequence of solving a huge problem. And I don’t even need to repeat that Latin America is not only a giant market, with 600 million people and a significant GDP, but also a place of Homeric problems.

On the other hand, for the ecosystem of startups to begin having unicorns, that is of big importance: to make the global capital market to look to Brazil and Latin America, believing that here we can build big technology companies.

LABS—Does the fact that you have been pioneers in Latin America place you at an advantage over other funds arriving now, such as SoftBank?

Baer—Everyone that enters ends up having some kind of advantage, because this is a game of reputation and contact networks. You create success stories that become a reference that will make the best entrepreneurs want to work with you. But I don’t believe that we compete directly with SoftBank. We are in quite different levels of the chain. We ended up creating a pipeline in which companies like SoftBank will enter.

LABS—Has the arrival of those funds make you operate differently or map out new strategies? Which ones?

Baer—It changes things a little. There are new funds entering at an early [stage] that will become more competitive businesses and quicker rounds, and I believe that this is super healthy for the ecosystem and for the entrepreneur. We will have more abundance of capital in A, B, and C Series, and that allows for companies to operate more rapidly, that the entrepreneur not waste six months raising funds.

Now, the entry of growth and length funds, these do have a very big impact on the ecosystem, because they shift the horizon. Before we would look to companies that came out smaller, because it wasn’t possible to have rounds of $ 300 million, $ 400 million, or $ 500 million to continue funding the growth of those companies.

So we began looking to companies that were becoming bigger, with a longer horizon of investments, because it ends up delaying the time that we take to leave [the investment and the company’s corporation]. On the other hand, they are companies with a bigger impact on society, that will generate more value.