Why asset manager KPTL is bullish on Brazil’s venture capital market

Brazilian venture capital investors that stayed away from “flashy” firms had a good year in 2022, especially those that targeted early-stage startups and the B2B and IoT segments.

That is the opinion of Renato Ramalho (pictured), CEO of Brazilian asset management group KPTL, which was created by the merger of A5 Capital Partners and Inseed Investimentos. 

“We’re today the biggest IoT investor in Brazil. We have 16 or 17 companies in IoT,” Ramalho (pictured) told BNamericas, adding that 2022 was a very strong year for KPTL.

Founded in 2003, the group has so far invested in 110 companies, focusing on agribusiness, biotech, climate change-focused firms, govtechs and IoT-focused players, among others.

Of the total, KPTL has exited 49 of the investments and it has over 1bn reais (US$183mn) in assets, managed by six funds.

“A third of our investments tend not to succeed, for different reasons: technological, regulatory, etc, which is totally expected. For another third I’ll deliver something very close to what I had committed to [KPTL] investors. And then another third will really be the big hit, the great success,” said Ramalho.

As for the startup “winter”, this impacted only a small fraction of the market, according to the executive. "Not to say minuscule. Basically big companies that have always made headlines allocated a lot of funds. This winter occurred mainly in late-stage and B2C companies."

For its part, KPTL looked at 1,500-2,000 projects for VC allocation last year. 

In a more aggressive year, up to 3,000 companies get assessed although roughly 1% or less make the cut and obtain the investment, said Ramalho. "We study a deal for four, five months. Then we take a few more to decide on the investment.” 

For 2023, KPTL is targeting around 20 deals, among follow-on funding and investments in new companies, Ramalho said, adding it has investments in various sectors close to be announced.

The last three, worth a combined 12.7mn reais, were follow-ons in startups Ativa Soluções, Mereo and Preâmbulo Tech.

Ativa Soluções received 5.7mn reais, totaling 10mn in investments from KPTL.

“The investment thesis is to consolidate the company's governance for sustainable growth. Our goal is to become the unicorn of IoT,” said Edson Rennó, CEO of Ativa Soluções, in a release.

Mereo, which developed an HR management platform that is used by more than 200 companies, obtained 3mn reais in fresh funding.

With a focus on law firms and legal issues, software firm Preâmbulo Tech received around 4mn reais in the latest investment, bringing the total from KPTL to 7mn.

"Our checks range from 5-10mn reais, on average. KPTL comes in when there’s a minimum viable product and minimum market consistency and leaves when the project matures or when I’m no longer able to contribute to the company's management," said Ramalho.

KPTL reported 35mn reais in follow-on funding last year.

IoT

KPTL is not the only investor that is betting strongly on the IoT segment.

Launched in 2021, Indicator Capital’s Fundo Indicator 2 IoT claims to be the largest fund exclusively dedicated to early-stage IoT projects in Latin America.

The fund plans to invest in 20-30 projects in five years, mostly through series A and seed capital rounds, Fabio Iunis de Paula, co-founder and partner told BNamericas last year.

Indicator was created in 2014 and launched its first fund in 2016, and it has so far made investments in 20 companies with four exits.

Fund 2 was born after Indicator was selected in a public call by Brazilian development bank BNDES and Qualcomm Ventures to choose managers for a new fund dedicated exclusively to IoT, as part of a BNDES-promoted national IoT plan.

The fund’s goal is to make around six investments per year.

KPTL’s Ramalho said there are several attractive projects that are emerging with developers needing funding and 5G technology driving industrial automation.

The number of connected devices in Brazil could reach 27.1bn by 2025, according to projections by ISG Provider Lens and the Brazilian association of Internet of Things (Abinc). KPMG for its part forecasts 20bn by 2025.

According to Abinc, 81% of companies expect investments in IoT to grow by more than 10% over the next five years.

Research firm IDC projected that Brazil's IoT market would generate US$1.6bn in investments in 2022, up 16% year-over-year.

Ramalho said the public sector represents an attractive segment as different levels of government are expected to increase spending on IoT solutions in the coming years.

As for other segments, KPTL is placing its 2023 investment bets on agriculture, electric cars, mining and renewables.