March 10, 2002

VENTURE CAPITAL CAN SPUR LATIN AMERICAN GROWTH Experts say mix is needed of public policy, risk investment, technology

FORTALEZA, Brazil –International experts said today that venture capital can bring high returns to investors in Latin America and the Caribbean and contribute to the region’s growth when there is the right mix of public policy, technology and cooperation among government, industry and research institutions.

Donald Terry, managing director of the Multilateral Investment Fund, noted that although risk capital investment in Latin America has grown over the last five years, fund managers report problems in dealing with legal and regulatory barriers that need to be revised.

“There is a need to push forward with reforms if risk capital investment is to continue to grow,” Terry said.

The MIF, an autonomous fund of the Inter-American Development Bank, was a cosponsor of the seminar with Serviço Brasileiro de Apoio às Micro e Pequenas Empresas (SEBRAE).

The conference, titled “Latin America’s Venture Capital Industry: the Silent Partner,” was held in the SEBRAE auditorium in conjunction with the 43rd Annual Meeting of the IDB.
SEBRAE President Sérgio Moreira noted that although “important advances have been made in recent years, much remains to be done, like providing for a better evolution of our stock markets. There is no doubt that if exit mechanisms are improved, emerging market funds will become more attractive to investors.” He said his agency was trying to attract more venture capital for small business and microenterprise, which has been largely bypassed by investors in Brazil.

The MIF has gained experience by approving more than 31 investments in venture capital funds in Latin America and the Caribbean in recent years. The lessons learned in creating and operating these funds have created an awareness that the regulatory and business environment needs to be improved to sustain growth in that sector.

Rafael Hernández, of the Morrison and Foerster law firm, in conjunction with the MIF, presented a report on the investment environment of Argentina, Brazil, Chile, Mexico and El Salvador. It noted problem areas, including regulatory hurdles, limitations of investment structures, pension fund restrictions, lack of accounting conformity, deficient corporate governance and voting rights, contingent liabilities, and inadequate investment fund legislation and local stock exchange structures.

The situation in Brazil, a leader in reforming its investment environment, was described by Eleazar de Carvalho Filho, President of BNDES; Jose Luis Osorio, President of the Comisão de Valores Mobiliários (CVM); Emerson Kappaz, a Brazilian congressman who has been leading reforms to corporate governance legislation; and Mauro Marcondes Rodrigues, president of Financiamiento de Estudos e Projetos (FINEP).

International venture capitalists gave real life examples of the impediments they have faced in raising venture capital funds as well as experiences that have been successful. Among those making presentations were Brazilian Clovis Meurer of CRP; David Panton from the Caribbean Investment Fund; Richard Frank, managing partner and chief operating officer of Darby Overseas Investments; Richard Gluzman, managing director for Brazil of Pegasus Venture Capital (Argentina) and Marcos Regueira, FIR Capital Partners (Brazil) .

Gonzalo Rivas Gómez, executive vice president of Chile’s CORFO, described effective government programs to leverage private investment.

The meeting was closed by Angel Gurría, Mexico’s former finance minister, who has been instrumental in creating new vehicles for venture capital for small- and medium-sized businesses in his country.