Scientist puts venture capitalists under microscope

Private Equity Bay (Pebay): It’s normal for scientific research and business to inhabit parallel but quite distinct worlds, with investors only showing much interest in innovators once they’ve developed marketable products.

Many a would-be scientist entrepreneur has waited nervously for a venture capitalist to “run the slide rule” over his or her ideas. But now a group of scientists has turned the tables, putting Brazil’s venture capitalists themselves under the microscope to measure their efficiency.

They’ve devised a means of evaluating private equity and venture capital funds — those financial firms that fund research innovation in the hopes of making huge profits. They’ve also designed software to help assess how good fund managers really are at picking winners from the welter of new ideas brought to them.

Although Brazil has by far the largest and most innovative market for new companies and their private financing in Latin America, it lags decades behind California’s Silicon Valley in terms of sophisticated financial infrastructure. Despite an average growth rate of 23% a year and unlisted investments now exceeding R$109.4 billion, more can be found out about Brazil’s own venture capital industry and its targets through US monitoring organisations such as TechCrunch,  or CrunchBase, than from domestic sources.

Brazil's  R$109 billion  VC industry looks healthy - but should it be more transparent? Photo Wikimedia

Brazil’s R$109 billion VC industry looks healthy – but should it be more transparent? Photo Wikimedia

Secretive by nature, the private equity industry tends to shield itself from the transparency and scrutiny typical of stock markets. And while the few start-ups making it all the way to stock market flotation are trumpeted, less is heard about the many failures that beset a turbulent market such as Brazil, where “success stories” tend to be limited to financial technology and consumer IT, such as Easy Taxi, the Uber-like ride hailing service.

This is where São Paulo-based Private Equity Bay (Pebay) comes in. “I realized that this market, which also includes venture capital and real estate, among other segments, required an online platform that aggregates and tracks information on funds, asset managers and companies from the participant’s viewpoint,” says Leonardo de Lima Ribeiro, founder and CEO of Private Equity Bay (Pebay), the firm he set up specifically to fill this information gap.

The platform developed by Pebay offers financial performance metrics and analysis regarding funds and deals in Brazil, enabling subscribers to use this information to help make important investment decisions.

For example, the system provides information on cash flow, risk and return rates, management, and investors’ moves, all based on audited reports, among other kinds of decision-support data. In the case of fund managers, the platform even gleans information from LinkedIn. The site offers users a market database, portfolio analysis, and benchmarking.

“In addition to the cutting-edge technology we use, all the information we provide is curated, treated and analysed by specialists, since our clients make high-value, high-impact decisions. New information is added to the platform every single day,” Ribeiro says.

Pebay reflects the long-delayed moves toward some financial transparency in Brazil’s often illiquid capital markets, heralded by new rules from the market regulator CVM (Commissão de Valores Mobiliários). As of this year, instructions 578 and 579 require all investment firms — including private equity funds — to book their holdings at fair value.

Call for transparency:  Brazil's Venture Capital industry  goes under  the microscope. Photo Creative  Commons.

Call for transparency: Brazil’s Venture Capital industry depends on state cash for  true innovators . Photo Wikimedia.

Pebay might sound like a tool purely for financial markets and it is. Yet it was created with public sector funding, using tax revenues. Leonardo de Lima Ribeiro, himself an MBA and experienced manager of venture capital funds who worked at at Getúlio Vargas Foundation’s Private Equity Research Center (CEPE-FGV), set up Pebay in 2013. He received support from the PIPE/PAPPE Grant Program, the result of an agreement between FAPESP and the Brazilian Innovation Agency (FINEP) to help firms bring innovative initiatives to market.

After all, Pebay provides a much needed transparency for Brazil’s often-opaque markets. And it’s just a small part of the infrastructure necessary to complete the financial “magic circle” typical of a modern, high-tech economy. Here, public funds derived from taxation are used to seed risk investments in scientific innovation that later on attract private risk capital and later still generate taxes, employment and even greater wealth through market flotation or trade sales.

“I found that many investors and managers operated in this market without proper information and decided to create a platform to offer this intelligence to the market. Pebay was born from the experience – and risk – of investing without a reliable independent source of information on funds and managers,” Ribeiro recalls.

To find out more about this you can read an article by Brazilian journalist Claudia Izique by clicking here.

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