An Outlook of the Chilean Venture Capital Industry Rodrigo Castro Chairman Chilean Venture Capital Association Chile Day 2017 London UK
Content 1 What is Venture Capital? 2 Venture Capital Timeline in Chile 3 General Overview of the Venture Capital Industry in Chile 4 Venture Capital in Latam 5 The Role of Chilean Venture Capital Association
1 What is Venture Capital? What do we understand by Venture Capital? Investment Focus o Venture Capital (VC) Funds, usually invest in young companies with businesses at early stages development. o The VC industry starts around the 60 s in the US, but is not until the 80 s that gets an estimated size of $750 million. o The industry targets accelerated growth of young companies with exits in around 2 to 7 years. o VC funds not only provide capital but also a high level network actively participating in every business it invests (smart money). Deal Size High Private Equity/Bank Debt Bank Debt Hedge Funds Venture Capital Low Risk High Business Development Process Universities Incubators Research Start-up Development Scalability Seed Capital Angels Venture Capital Project/Asset Finance Acquisition Finance/Private Equity/IPO VC funds are usually structured for a 10 year period. Either in the Startup or the Development stages.
2 Venture Capital History in Chile Main Milestones o The VC Industry in Chile has aggressively expanded during the last 4 years primarily because of the various incentives the Chilean government (CORFO) has granted to the industry since 1997, and has achieved $350 million assets under management. o It s not until 2010 that the industry jumps into something real with the re-design of the Incentive Programs (Matching Credit Lines) and the creation of Start-up Chile, known as a world class incubator/accelerator program for entrepreneurs around the world. o Most of its investments have been deployed in the later development stages of a company which has closely related to a more Private Equity approach rather than a Venture Capital one. 2015 Acelerator Support. New Earrly Stage Line (FTT Line) 2011 Fenix Program 2012 Early Stages Incentive Program (FT line) 2006 Incentive Program Investment Funds Risk Capital (F3 Line) 2005 Incentive Program Investment Funds Risk Capital (F2 Line) 1997 Incentive Program Investment Funds (F1 Line) 2008 Directive Investment Investment Funds (K1 Line) 2010 Re-design of the incentive programs. Start up Chile was launched Source: Corfo
3 General Overview of the VC Industry in Chile General Overview o VC industry accounts for 15 funds funded between 2005 and 2015, and with an average equity size of $24 million, while the figure in the US is $135 MM. o The average ticket invested is nearly $1.58 million, where almost 70% of the tickets are over $500,000 o An average portfolio of 8 companies and CORFO financial leverage is 2:1. Number of Funds by type of investment 8 Funds by average investment 52% 34% 37% 4 3 27% 20% 27% Seed < $500K Source: Corfo Early Stage < $3 million Expansion < $15 million Growth < $20 million 0 2% 0% Seed Early Stage Expansion Growth USA Chile
3 General Overview of the VC Industry in Chile General Overview Structure o Main stakeholders involve in structuring and management of a VC: Private Investors (LPs) General Partners (GPs) CORFO Deal Flow o The fund must be administrated by a registered and approved Manager which will invest in the Startups and Early Stage companies using instruments such as: share purchase agreements, convertible notes, warrants or other instruments alike. Private Capital (LPs) VC Fund Corfo (quasicapital) Investments and startups VC backed GP (Fund Manager) 4,0 35 Average ticket ($ million) 3,0 2,0 1,0 0,0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 30 25 20 15 10 5 0 # Startups Company I Company II Company III Source: Corfo Average Ticket (MM$) # Startups
4 Venture Capital Industry in LatAm LAVCA Scorecard Regiional Rank Country Score (1-100) VC (% GDP) 1 Chile 74 0,336 2 Brazil 72 0,195 3 Mexico 65 0,102 4 Colombia 60 0,176 5 Costa Rica 56 0,098 6 Uruguay 54 0,000 7 Panama 50 0,000 8 Peru 49 0,066 9 Jamaica 46 0,000 10 Dominican Republic 42 0,027 11 Argentina 40 0,028 Entrepreneurship Ecosystem o Highest level of adult population that declares themselves as entrepreneurs (34,1% of the population between 18-64 years old) o 13,6% of the adult population owns an SME that is generating 20 or more job positions. o According to the TEA Index, entrepreneur activity going from 11,1 in 2005, to 25,9 in 2015. Macro Drivers q Laws on VC/PE q Tax Treatment q Protection of minority shareholders rights q Restrictions on institutional investors q Protection on intelectual property q Capital Markets development q Judicial System q Perceived Corruption q Entrepreneurship Source: LAVCA Scorecard Report.
5 The role of ACVC Investments (in $ millions) 100 90 80 70 60 50 40 CAGR 43% (2017-2020) 30 20 10 0 2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E Strategies o Outreach: communicate the positive role of VC industry in the Chilean economy, aid understanding around the activities of our members, promote our industry to local and international entrepreneurs and investors, Government, media and civil society. o Best Practices: provide market intelligence, technical updates and specialist training. o Public Policies: influence in public policy decisions (tax, financial, governance). Potential Outcomes o Capital deployments of $100 million/year, focused mainly in Pre Series A or Series A ($500.000 $3 million) o Increase numbers and quality of GPs and VC Funds (international compliance standards) o Exit strategies have to be done abroad in order to improve the likelihood of success (boost multiples). o Chilean VC internationalization (fundraising, scouting, scale up, and exits).