Francisco Jardim: How Venture Capitalists Make Investment Choices [Interview]

 Francisco Jardim

By: Claudia Repsold

It’s impossible to talk about venture capital in Brazil without mentioning Francisco Jardim. He is the founder of SP Ventures, one of the most prestigious VC companies in the country. Jardim analyzed more than 2,000 startups that applied to obtain an investment from the São Paulo Innovation Fund (Criatec), where he acts as the fund manager. He lives and breathes venture capital.

Brazil & U.S. Biz chatted with Jardim in Miami after he participated in a panel at eMerge America. The panel was called “Stories from South: Brazilians Rising & Shining on the Global Stage”.

Francisco Jardim emerge america
Francisco Jardim, Fred Gelli, Romero Rodrigues and Lorenço Bustani on stage at eMerge America 2015 in Miami

Brazil & U.S. Biz: What determines whether a company has the potential to receive investment or not?

Francisco Jardim: Well, we always analyze three issues. The most important factor is the team involved in the project. Good professionals are essential. We consider if the team is flexible enough to make the changes that are necessary to grow, and steady enough to maintain the good work that represents the core of their business.

Before investing, we also carefully look at the market that the company is getting into. We evaluate if it is a vast market or a niche product. We always prefer a product that can be scaled and has the potential to reach a large audience.

Finally, we examine the product [or technology]. There are two kinds of products: the vitamins and the painkillers. The vitamins represent [a] cool product — it’s nice to have, but you might not need it. On the other hand, the painkillers are the must-have products. We are interested in investing in the painkillers: the products that solve problems and [that] people must have.

These three factors — the team, the market, and the technology/products — are the key components that must be aligned. The investor always asks himself: [Will these] people be able to complete the task? How big is the market for this product? Does this product solve a problem, or is it just another cool gadget? An investable company has a great team to oversee the project; the market is large; and the product is required.

Brazil & U.S. Biz: No matter how technological we get, people will still be the main asset of a successful business. Nowadays, people are more likely to invest in their own business than pursue a high-paying corporate job. Is this a paradigm shift?

Jardim: Entrepreneurship is a priority for the new generation. This is great, because it’s human capital that pushes innovation forward. In 2007, when I started in the venture capital business, the brightest students in the classes aspired to work as investment consultants. Others were looking for an opportunity to climb the corporate ladder, but very few were interested in opening their own businesses.

Now, this has changed completely. Of course, you still have people that target the corporate jobs; however, you will find many young people who want more than money. Young people want to be independent, to be challenged, to do something that has impact. In addition, schools, colleges, and universities are discussing more about entrepreneurship, encouraging students to think about it. The mentality and the entrepreneurial environment changed, which eventually led to [improvements in] the quality of entrepreneurs. People are much more prepared to start a business today than they were 10 years ago.

The mindset has changed tremendously. Today it’s not just about investing financially in a company; you also invest your expertise. We are dealing with “smart money,” represented by well-informed investors who have knowledge and experience in the business [in which] they are investing. The smart money is always looking for intellectual capital to bet on; however, the entrepreneur needs to have acute awareness of the business in order to get the investment. Smart money is not about the volume of capital invested. It’s about investing, wisely, your main asset: your financial knowledge.

Brazil & U.S. Biz: How much of this “smart money” is available in the Brazilian market?

Jardim: In the last decade, there has been a large growth of this type of investment. We have three pipelines of smart money in Brazil. First, there is the investor that started back in 2004, and so forth; they learned through their failures to smarten their investments up and became what we called smart money.

We also have skilled professionals from other fields that migrated to VC investments, bringing not just money, but also their expertise. Finally, we have the international investment funds that started investing in Brazil, introducing their proficiency and know-how to the Brazilian market.

Brazil & U.S. Biz: When should a startup begin to focus on the international market?

Jardim: A startup should first focus on growing organically, getting well-established in its own primary market. To internationalize a company is an intensive step. In order for that to happen, it’s necessary to replicate validated models that worked well in Brazil, and create a new model to attend the demands of the global market.

You also have to think about [this]: If you create something that works in Brazil, you will probably have copycats in other countries. How will your company deal with those competitors? Are you prepared for the competition and the copycats abroad?

Brazil & U.S. Biz: Picasso used to say, “Good artists copy; great artists steal.” Copycats are inevitable.

Jardim: Indeed, it is part of any business; however, copying can be a catch-22. Many times, a product can do well in one place and terrible in another. People reason that if it worked well somewhere else, it will do the same here. They copy a validated model that used to work in another place, and suddenly, it doesn’t work anymore.

It’s very difficult to compete globally, especially when a company has to compete in a well-established technological ecosystem such as [those] in the U.S., Israel, or U.K. To execute any project, you will need professional people and money. Without both tools, you will be condemned to fail. You should allocate your resources wisely and [only] think about expanding internationally when you are fully prepared for the global competition, because the terrain is tough.

Brazil & U.S. Biz: Life is tough, but it’s also full of opportunities. What is your venture capitalist advice to entrepreneurs who want to seize an opportunity?

Jardim: If you foresaw a business opportunity or had an idea, be aware that probably someone, somewhere had the same idea or is working on the same business opportunity you are.

The competition should drive you to innovate and prepare your company to do better. Never forget that you cannot go far just by yourself. It is critical to your success to find a good team of professionals to work and create a management system that operates without you. That independence in the future will guarantee the saleability of your business. Nobody will acquire a business that depends on its owner to function; therefore, from the beginning, put a management system in place.

A business is not an idea. It’s a structure based on professional people, financial capital, and measured performance. You should know your numbers, have your financial projection[s] ready, and have all your paperwork complete. Any serious investor will ask for this before considering an investment.

However, the most important of all is: Do not be afraid of failure. On the contrary, you should embrace it. The only opportunities you really lose are the life experiences that you refuse to learn from.

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Claudia Repsold journalist

 Claudia Repsold is the Editor-in-Chief of Brazil & USA Biz. She is a Brazilian international  award-winning journalist with twenty years of experience in editing, research, coordination,    production and reporting news on Brazil and U.S.

9 Comments - Write a Comment

  1. Well I definitely enjoyed it read about VCs in Brazil, but like everybody else I think they are just the same as the ones in US. Nothing new in his line of thoughts.

  2. Excellent beat ! But I have to agree that he sound just like any American VC talking about the 3Ps the learnt away back at their MBA’s freshman year.

  3. rachelle isenberg · Edit

    I wonder how the Brazilians VCs can predict the business growth in a such volatile economy. Brazil is not for beginners.

  4. You made some decent points there. It is hard to know what a venture capitalist is looking for in a company. Your company might get the 3 P right (people/product and process) and still get no investment. Is hard to know.

  5. I read this article fully regarding the comparison of most recent and earlier VC expectations, it’s remarkable article. Good to learn how a Vc from Brazil thinks. It not so different from the Americans

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  8. Nice Interview, it’s amazing the similarities on what the investors are seeking in a startup, both in Brazil and US.

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