What Brazilian tycoon Saverin’s fund is looking for after raising US$2.1 billion

Brazilian Facebook (Meta) co-founder Eduardo Saverin intends to invest in Latin American startups through B Capital Group.

Earlier this year, his venture capital firm raised US$2.1 billion for its Growth Fund III and related funds.

The São Paulo billionaire founded B Capital eight years ago with investor Raj Ganguly, and the firm started with partner capital representing more than 10% of the funds.

B Capital, which opened an office in Miami in 2022 to be “the closest place to Latin America in the US,” as Ganguly told Bloomberg Line in an interview, is also led by Howard Morgan and Sheila Patel.

Now the company is looking for founders in the region willing to take its business abroad, with regional and global plans, who can leverage Saverin and Ganguly’s experience as founders and entrepreneurs.

B Capital has US$6.3 billion in assets under management.

It has already invested in Latin America through Yalochat in 2020, an AI (Artificial Intelligence) based conversational trading platform based in Mexico, as well as offices in San Francisco (USA), Brazil, and India.

Ganguly, also a managing partner at B Capital, said the company invests globally, but the focus has been very much on Asia and the Middle East.

“Latin America is obviously a very interesting market, my co-founder is from a city there [Sao Paulo], so it’s very close, and we invested in Yalochat in our last fund.”

“It’s definitely a market we’re excited about; we opened a small office in Miami last year, which gives us better coverage in Latin America,” he said.

Ganguly said the firm is “especially excited about fintechs and enterprise software in Latin America” and that B Capital is cautious about investing in technology migrating to generative AI powered by OpenAI’s ChatGPT and its peers.

“We caution that sometimes the furor and excitement about it will outweigh the reality of these technologies,” he said.

Below is the interview with Raj Ganguly, co-founder and managing partner of B Capital, edited for clarity:

B Capital invests in India’s most valuable startup, Byju’s. What are your thoughts on education technology right now?

The challenge for education technology in the US is that there haven’t been as many significant exits in the market.

We see more opportunities outside the US and in emerging markets like Southeast Asia.

In fact, we see acquisitions of Byju in the US as it takes its learning modules worldwide.

The international edtech model is an exciting thing for us, and crucially, much of Latin America has international business.

Even in Brazil, which is the largest market, we’re seeing companies expanding to other countries in the region, and it’s something we always think about.

If you are a single country-focused company, there are already big investors in Brazil, but we can help support these companies expanding in the region and worldwide.

Does B Capital prefer global companies to regional ones?

I would say regional and global. We believe we are less useful if they focus on a single country.

Our goal is to invest our capital to be value-added partners.

We have a partnership with BCG [Boston Consulting Group] to connect our companies to be partners. That’s why we focus on Pan-American companies like Yalochat, which started in Latin America and has now expanded to markets like Asia.

What is the partnership with BCG like?

In our partnership, we have our due diligence, but we leverage BCG to insert themselves inside companies where they can help them grow their network. It’s much more on the value-added side.

Is it more related to an eventual IPO?

Preparing for IPOs and corporate mergers and acquisitions.

Our partnership with BCG is about adding value to our portfolio companies.

That comes from the fact that Eduardo [Saverin] and I were entrepreneurs and founders before we became investors.

The company that Eduardo founded is very well known today [Facebook], and as founders, we always thought we wanted investors that really added value.

Our goal is to be providers of capital that give access to our network. We know what it takes to build a company. And our goal is to be great partners to transformative founders.

Are you late-stage investors?

We like to get into companies early, so we have a venture fund and a growth fund, and in both funds, we like to invest early.

In the growth fund, we tend to invest in B and C seeds, the early growth type.

The reason is that we like to follow those companies to help them scale and grow, and we also like to invest in multiple rounds of those companies. We do some late-stage pre-IPOs, but generally, when we do that, it’s for companies we’ve been following for many years.

We look at companies that have done extraordinarily well and probably should have invested in even earlier, but now we invest in late-stage.

But in general, we prefer to invest in the early stage of growth and really partner with the company.

How much does B Capital acquire from a company when it invests?

We don’t want to be a small investor in a company. We get involved and want to be an investor that matters to the company, and it matters to us, so we tend not to make small investments.

We tend to follow it, build a relationship, and open up our value-added and BCG networks before investing.

And that’s because we want to make a relationship; we don’t want a 2.3% equity stake.

Ideally, we want a more significant stake in the company.

Do you invest in equity, or are you willing to finance debt as well?

We are flexible, we can do things like structured equity, and we can be flexible regarding how the equity is structured.

We have a venture fund, a growth fund, and a late-stage pre-IPO opportunity fund, but by having these three funds and being life-cycle investors, we can follow these companies as they grow, and sometimes we are fortunate enough to back them from seed and Series A through growth and late-stage.

Would you invest in a bearish round?

At a time when the market has a lot of volatility, like now, I’ll be honest; we haven’t seen as many bear rounds. We will probably see more companies delaying funding or with more complicated terms to avoid down rounds.

Down rounds are not the worst thing in the world. Companies grow and go through ups and downs; it’s a natural part of being a founder and building a business.

So we have no problem investing in rounds where the valuation may be lower than before.

Between a valuation lower than a previous round and one with very complicated conditions that will bring problems to the company as it grows, we much prefer the first option.

We like to participate from an operational point of view. We are not afraid of companies that have zigzags and ups and downs. Not all companies grow all the time.

For companies in our portfolio that have had ups and downs, we always look to be great partners, and when it comes to making new investments, we are always open to companies where growth has not always been linear.

What are the key trends for this year?

We say that, first of all, in the long term, we believe that technology is just getting started.

We entered this business because we thought about the digitization trends in healthcare, banking, finance, manufacturing, and transportation.

But if you look at those things, they’re just getting started. We’re probably 1% or 2% of the way there regarding total opportunity.

Basically, generative AI, which everybody is talking about now in technology, is very nascent. We caution that sometimes the hype about it outweighs the reality of these technologies.

Ultimately, we take a long-term view. My other co-founder, Howard [Morgan], always says that our business is about getting in early and finding trends, but not too early. Because too early can take too long for those trends to manifest themselves.

Frankly, when we look at 2023, we think of a much better market environment than in 2020 and 2021, when valuations were really early. And we also think that some of the best companies will be founded.

If you look at companies like Microsoft, they started in tough times; even companies like Facebook, which Eduardo co-founded, didn’t start at the best time in the market.

We believe that some of the best founders and entrepreneurs started companies in those times because capital was not so easy, and revenue and customers were not so easy, so some of the best founders emerged.

We believe 2023-2024 will be significant investment years, and we are very excited to have this dry powder to invest in and support great founders in the coming years.

Which Limited Partners (investors) are backing Fund III?

We started with more than 10% equity, partners’ equity. So we are very committed. Our LPs are large institutions, mainly from the US, but there are also foundations from outside.

I can’t mention the names of the individual LPs, but we have some of the largest institutions in the world, especially in the US.

Our goal is to guarantee extraordinary returns for our partners.

Our goal is to guarantee exceptional returns for our investors, and we do that by supporting the best founders and being great partners for them.

Do you think a window for IPOs will open again this year?

The first two quarters of this year will continue to be difficult, maybe the whole year. If you look at previous cycles, the IPO window could be closed for a year or two.

It will take some time for the window to reopen, and when it does, a small number of companies may come through.

It will be many years before the window fully reopens.

But in the meantime, there are trillions of dollars on company balance sheets and plenty of opportunities to create great companies.

To all of our companies, we say this: make sure you have the capital to get through this crisis and not just play defense but look for opportunities to acquire smaller companies, great talent, and grow and scale.

An IPO may not be viable, but the upside is that these can be very disruptive to companies that lose a year or two of growth while preparing for one.

I think capital will continue to be expensive, and companies will focus on fundamental, profitable growth.

I think companies adopted some bad habits in 2020 and 2021 to make capital so cheap that they were acquiring customers that were destructive to the business.

There was more money to acquire the customer than the value they were getting.

I think focusing much more on efficiency and optimizing unit economics is something we always talk about with our founders, regardless of whether capital is cheap or expensive.

We talk to our founders daily and don’t produce letters to our founders or things like that because all of our business is day-to-day.

Do you think there will be a recession in the United States?

That’s a tough question. My personal view is that the US job market is still very strong.

If you look at a year ago, I think people were very convinced that the US would go into recession with China’s Zero Covid policy and some regulation on tech and that the US labor market would start to see higher levels of unemployment and potentially a recession.

None of those things turned out to be true. China escaped the Zero Covid policy and the US labor market remained strong.

There are many reasons to be optimistic, but there were days when there was so much capital in the market that anyone who wanted to start a company could access cheaper capital.

I think it’s a better time for us as investors because the founders want to build something, not just raise a company in two years, get unicorn status, and sell their shares.

I’m quite optimistic, and if history is anything to go by, some of the best years for technology investing have been after that kind of volatile period.

Byju’s is trying to restructure its US$1.2 billion loan as it struggles to cut costs. How does B Capital intend to play its role in this particular case?

We invested in Byju’s two years ago because of the education technology market in India, specifically where a rapidly growing middle class wants better access to education for their children.

We continue to believe in the promise that Byju’s team has built one of the leading companies in that space.

The short term is a difficult time in the market, but we remain genuinely committed to the Indian edtech market and Byju’s as a business.

With information from Bloomberg

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