Funding the B2B Revolution
Download
1 / 42

- PowerPoint PPT Presentation


  • 233 Views
  • Updated On :

Funding the B2B Revolution April 2001 Summary Section Introduction I Funding Independent B2B Marketplaces II Seed Capital - Internet Incubators A Venture Capital Funds B The Way Out - Capital Markets C Case Studies D Funding B2B Consortia III Consortia - Benefits of B2B Adoption

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about '' - emily


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript

Slide2 l.jpg

Summary

Section

Introduction

I

Funding Independent B2B Marketplaces

II

Seed Capital - Internet Incubators

A

Venture Capital Funds

B

The Way Out - Capital Markets

C

Case Studies

D

Funding B2B Consortia

III

Consortia - Benefits of B2B Adoption

A

Case Studies

B


Slide3 l.jpg

Section I

Introduction


Introduction l.jpg

Section I

Introduction

Is it a Revolution after all? We believe it is and that Latin American B2B commerce will continue to grow at a rapid pace despite the sharp deterioration in investor sentiment towards the internet sector over the last year.

  • According to our estimates global intra-business e-commerce is expected to total US$30 trillion, with approximately US$12 trillion being captured by third party market places.

  • Of this transaction volume, e-marketplaces are expected to generate revenues in the neighborhood of US$425 billion.

  • Growth is expected to be especially pronounced in Latin America, where players will be able to learn from the evolution of more developed markets and leapfrog unsuccessful or obsolete concepts.


Introduction5 l.jpg

Section I

Introduction

  • To grow, however, Latin American companies will have to successfully fund their CapEx requirements. In this respect, we believe that the two main categories of B2B companies, Consortia and Independent B2Bs, will fare differently:

    • For Consortia growth should continue unabated since most of the funding will be provided by the consortia members, who have significant benefits to gain from the development of such platforms.

    • The other main category, Independent B2Bs, will be more dependant on venture capital financing for their development. These investors are today far more thorough in their analysis and reluctant to take risks in this sector.

    • Growth of the independent B2Bs segment is therefore already slowing down.


Slide6 l.jpg

Section II

Funding Independent B2B Marketplaces


Independent b2b marketplaces l.jpg

Section II

Independent B2B Marketplaces

Independent B2Bs are currently facing a difficult moment but those with sound growth strategies, committed financial partners and/or bricks and mortar shareholders are likely to succeed

  • Independent B2B players are currently threatened by:

    • the higher initial liquidity of consortia

    • the internet market correction, which has eliminated one of the most important way-outs for venture capital investors.

  • Independent B2Bs, however, are far from doomed and some successful players should continue to emerge.

  • We believe the market can be currently divided into three categories which reflect the different sources of funding for these companies:

  • Some players, which we have named Fubs, may never function as real market places and will find it very hard to raise additional capital.

  • These players might provide useful databases and several of them may effectively transform themselves into ASPs

Fubs


Independent b2b marketplaces8 l.jpg

Section II

Independent B2B Marketplaces

  • These players are usually the result of alliances forged between banks or Telecom companies and technology partners. Among their main advantages is that of having deep pocket shareholders.

Strong

Bricks

and Mortar

Partners

  • These players will benefit from sound management and committed financial partners, which can contribute among other things substantial capital and valuable strategic advice. The most successful example of this type of player in Brazil is Mercado Eletrônico.

Sound

Management

& Committed

Financial

Partners


Independent b2b marketplaces9 l.jpg

Section II

Independent B2B Marketplaces

The success of Independent B2Bs will depend on their ability to reach critical liquidity and obtain necessary funding

INITIAL LIQUIDITY

Consortia

Strong Bricks and Mortar Partners

Sound Management and Committed Financial Partners

Fubs

AVAILABILITY OF CAPITAL


Independent b2b marketplaces funding l.jpg

Section II

Independent B2B Marketplaces - Funding

Possible Sources of Capital

Angels and

Technology

Venture

Bricks and

Incubators

Partners

Capital

Mortar Partners

M&A

Fubs

Strong Bricks and

Mortar Partners

Strong Financial Partners

Consortia


Independent b2b marketplaces liquidity l.jpg

Section II

Independent B2B Marketplaces - Liquidity

Possible Sources of Liquidity

Bricks and Mortar Shareholder´s Clients

Financial Partners´ Network

Other Third Parties

Sponsors

Fubs

Strong Bricks and

Mortar Partners

Strong Financial Partners

Consortia


Independent b2bs with strong bricks and mortar equity partners l.jpg

Section II

Independent B2Bs with strong Bricks and Mortar Equity Partners

Independent B2Bs with Bricks and Mortar shareholders can benefit from several advantages over independent B2B marketplaces.

Key Contributions of Equity Partners

Banks

Security

Client Base

Capital

Internet Focused Technologies

Infrastructure

Technology

Telecom Companies

Technology


Independent b2bs with strong bricks and mortar equity partners13 l.jpg

Section II

Independent B2Bs with strong Bricks and Mortar Equity Partners

Even though these players can count on their shareholders for part of their funding needs, they have also relied on financing of venture capital funds that are dependant on a way-out sometime in the future.

Selected Horizontal Marketplaces

Other Bricks and Mortar players, such as Citibank, BankBoston, Santander, Unibanco and Embratel, have indicated the intention to participate in independent marketplaces


Typical funding cycle for an independent b2b company l.jpg

Section II

Typical Funding Cycle for an Independent B2B Company

Family, Friends and Other Investors (“Angels”)

Venture Capital

Venture Capital

IPO or other way-out

VALUE OF INVESTMENT

Way-Out

2nd Round

1st Round

Seed Capital

TIME


Slide15 l.jpg

Section II-A

Seed Capital - Internet Incubators


Seed capital internet incubators l.jpg

Section II-A

Seed Capital - Internet Incubators

Internet incubators provide the companies in their portfolio with substantial advantages over other “independent” B2B players. We believe therefore that incubators will continue to flourish in Latin America and that their importance as a source of Seed Capital for B2B Companies will increase.

Real Estate

Space

Technology

Infrastructure

Seed Capital

Benefits of B2B Incubators

Administrative

and Human

Resources

Services

Share Ideas

& Learn from

One Another

Strategic Advice


Seed capital internet incubators17 l.jpg

Section II

Seed Capital - Internet Incubators

Selected Internet Incubators in Latin America


Slide18 l.jpg

Section II-B

Venture Capital Funds


Venture capital funds l.jpg

Section II-B

Venture Capital Funds

Today:

  • Public Markets closed

  • Increase in Internet failures

  • Longer Due Diligence and more thorough valuation process.

  • More investments in later stage deals and less capital available for start-ups.

  • VCs more judicious with investments since limited partners are refusing to put money in smaller VC funds and scaling back investments in general.

  • VCs looking for alternative way-outs.

  • Back to traditional valuation methodologies and importance of profit.

Before the Bubble Burst:

  • Investments in new Ventures rise rapidly.

  • Shortened Due Diligence process - The new “Internet Time”.

  • Higher minimum size investment.

  • Internet focused Latin America Funds sprout

  • Success of Tech IPOs

  • Plenty of Seed Capital available.

  • Venture Capital cycle shortened to 18 months from Seed Capital to IPO.

  • Companies with huge losses, and small revenues are easily funded.


Venture capital funds20 l.jpg

Section II-B

Venture Capital Funds

In 2000, Venture Capital Funds invested approximately US$747 million in Brazil. The B2B sector received US$38 million, or 5.1% of this investment. In the United States, e-commerce accounted for 2.7% or US$ 1.9 billion of the US$ 69 billion invested by Venture Capital Funds

Venture Capital Funds Investments in Brazil in 2000

Figures in US$ mm

Source: Fundação Getúlio Vargas


Venture capital funds21 l.jpg

Section II-B

Venture Capital Funds

Financial Investors in Brazilian B2B Companies

* Includes software companies

Source: Brascan Research


Venture capital funds22 l.jpg

Section II-B

Venture Capital Funds

Latin America B2B Assets of Selected VC Funds


Slide23 l.jpg

Section II-C

The Way Out - Capital Markets


The way out equity capital markets l.jpg

Section II-C

The Way Out - Equity Capital Markets

After the Internet bubble burst in April of 2000, the odds of bringing any Internet company public are nil.

Second Drop: Lower expectations for the Technology sector.

First Drop: Lehman Brothers analyst estimate of unfunded near-term cash flow for Amazon.com.

Second Phase: Downgrade in Internet valuations. Return to traditional valuation methodologies.

NASDAQ

Index

First Phase: High growth expectations for Internet companies. Utilization of unusual metrics to value companies.

Current Phase: Massive Internet failures. Capital Markets shut down for Internet companies.


The way out latin america internet ipos l.jpg

Section II-C

The Way Out - Latin America Internet IPOs

Intense IPO Activity

Window Shut-Down


The way out latin america internet ipos26 l.jpg

Section II-C

The Way Out - Latin America Internet IPOs

Public equity financing for B2B companies is currently unthinkable given the dismal performance of Latin America internet stocks.

(ADR)

Price Performance since IPO: -79%

Price Performance since IPO: -94%

Price Performance since IPO: -84%

Price Performance since IPO: -47%

Price Performance since IPO: -86%


The way out capital market transactions l.jpg

Section II-C

The Way Out - Capital Market Transactions

Selected Internet Debt Capital Market Transactions in Brazil

Source: CVM


The way out m a transaction l.jpg

Section II-C

The Way Out - M&A Transaction

Selected Internet M&A in Latin America - Bricks and Mortar Acquirers

Source: SDC


Slide29 l.jpg

Section II-D

Case Studies


Case study mercado eletr nico l.jpg

Section II-D

Case Study: Mercado Eletrônico

  • The Company was established in 1994 and began operations as a “real -world” outsourcer for the purchase of indirect goods

  • In January 2000, Mercado Eletrônico began its Internet operations, maintaining its client base by gradually driving it to the Internet.

  • The instant liquidity achieved through this strategy was critical for the success of its online marketplace.

  • Mercado Eletrônico has focused on the buyer side, attracting suppliers thanks to the significant purchasing power of its accounts, consisting mainly of medium and large companies.

  • Recently, the company leveraged on its success and purchasing expertise to:

    • Secure contracts to manage all of the indirect goods purchases for certain clients.

    • Create vertical e-markets in specific sectors where it has key accounts

    • Position itself as manager of B2B marketplaces formed by third parties, such as consortias.

Business Model


Case study mercado eletr nico31 l.jpg

Section II-D

Case Study: Mercado Eletrônico

First Mover Advantage

Key Accounts Provide Critical Liquidity

Key Drivers for Mercado Eletrônico´s Success

Strategic Value of Shareholders

Capable of Managing Growth

Committed Financial Partners


Case study mercado eletr nico32 l.jpg

Section II-D

Case Study: Mercado Eletrônico

Seed Capital

June 1994

Company established by Eduardo Nader with Seed Capital from his family.

1st Round - Venture Capital Financing

December 1999

GP Investments and Opportunity acquire a minority stake.

Tentative 2nd Round - Venture Capital Financing

Mercado Eletrônico approaches new investors. Despite March Nasdaq crash company finds several interessed parties. Company decides not to pursue funding because of low valuations and limited strategic and technological contribution of interested parties.

Slow Growth

Management focused on maintaining positive cash flow and profitability.

Professionalization of Company

Company grows rapidly gaining new customers, upgrading technology and becoming dominant player. Cash flow and Profits temporarily negative.


Case study mercado eletr nico33 l.jpg

Section II-D

Case Study: Mercado Eletrônico

Next Steps - Access debt Markets

As company turns EBITDA positive and required coverage ratios are achieved, Mercado Eletrônico will be able to access the domestic and international public debt markets.

Company Continues to grow reaching 310 buyers, 17,000 suppliers and 60 employees.

2nd Round - Venture Capital Financing

February 2001

Additional capital contributed by GP Investments and Opportunity, financing the company until its break-even. In February, the company had revenues of R$ 500.000.

Way-Out

Either through the public markets if open at the time or through sale to strategic or financial investor.


Case study zip net l.jpg

Section II-D

Case Study: Zip.Net

Seed Capital

February 1996

Company named Zip.Net is established by Marcus de Moraes with Seed Capital from his family. The company begins offering telecom services for the corporate market

Zip.Net starts to offer free e-mail accounts for individuals.

1st Round Financing

November 1996

Zip.Net establishes a strategic partnership with Netcom. Netcom’s investments in the venture are later acquired by Zip.Net.

Zip.Net created it’s own portal.


Case study zip net35 l.jpg

Section II-D

Case Study: Zip.Net

Way-Out

February 2001

PT Multimidia, acquired 19% of UOL, one of the most successful portals in Brazil, for US$ 100 million and subsequently merged Zip.Net and UOL.

Folha, already a shareholder of UOL at the time, injected additional capital of US$ 100 million in the combined entity.

2nd Round Financing

November 1999

Unibanco acquires a 10% stake in Zip.Net for US$ 15 million.

Way-Out

February 2000

PT Multimidia, a subsidiary of Portugal Telecom, acquires 100% of Zip.Net for US$ 315 million and injected US$ 50 million as additional capital. Zip.Net begins to provide content to the entire Portuguese community.


Slide36 l.jpg

Section III

Funding B2B Clicks and Mortar Consortia


B2b consortia l.jpg

Section III

B2B Consortia

Consortia will play an important role in the development of the B2B industry in Latin America

  • Latin America is witnessing a rapid development of online exchanges by consortia composed of some of the region´s most powerful corporations.

  • Funding is provided by the members of the consortia and usually also by one or more venture capital firms.

  • These consortia can be either vertical (Estrutura.net) for the procurement of direct productions goods or horizontal (Agrega.com) for purchasing indirect goods.

  • One the key advantages of these consortia relative to independent B2B companies, is the instant liquidity provided by the collective muscle of its shareholders.

  • Consortia also differentiate themselves because of the technical information and know-how these incumbents can add to online trading.

  • The main disadvantage that we identify in this B2B model is that it might force companies to share information about their operations with competitors.

  • We believe, however, the economic benefits to be attained by consortia members should pay for costs and most any other risks associated with going online.


Slide38 l.jpg

Section III-A

Consortia - Benefits of B2B Adoption


Consortia benefits of b2b adoption l.jpg

Section III-A

Consortia - Benefits of B2B Adoption

We believe corporations will be willing to invest heavily in the formation of B2B platforms given the significant benefits to be obtained

Increase in Sales

  • Broad customer base will increase and diversify sales

  • Lower process costs through elimination of inefficient overhead:

  • - Lower order entry costs

    • - Lower customer service costs

  • Margin improvement also driven by demand aggregation and greater competition resulting from larger supplier base.

  • B2B appeal is greater for more fragmented sectors: greater scope for gains from higher bargaining power and reduction of labor force.

Higher Margins

Higher Return on Invested Capital

  • Unlock value through sale of used and obsolete capital equipment and excess inventory

Benefits Amplified in Latin America

  • The overwhelming majority of transactions is not conducted in any kind of electronic platform.

  • Lower systems integration costs given incipient nature of electronic procurement and resource planning in the region.


Slide40 l.jpg

Section III-B

Case Studies


B2b consortia case studies l.jpg

Section III-B

B2B Consortia Case Studies

  • Estrutura.net is a vertical B2B portal that combines the market leaders of the Brazilian construction industry.

  • Equity partners:

    - Bricks and Mortar players: Votorantim, Tigre, Docol and Pirelli Cabos.

    - Private Funds: Votorantim Venture Capital and Bradespar.

  • Investments amount to approximately US$ 20 million.

  • Latinexus is a horizontal B2B marketplace for Latin America comprised of 4 equity partners.

  • Equity partners:

    - Bricks and Mortar players: Votorantim, Cemex and Alfa.

    - Private Funds: Votorantim Venture Capital and Bradespar.

    - Latinexus is seeking further investment from 20 of the largest companies in Mexico, Brazil, Argentina, Chile, Colombia and Venezuela.

  • The partners expect to invest at least US$75 million over the next three years.


B2b consortia case studies42 l.jpg

Section III-B

B2B Consortia Case Studies

  • Agrega is a horizontal B2B marketplace.

  • Equity partners:

    - Bricks and Mortar players: Souza Cruz and Ambev

  • Seed capital was US$ 5 million.

  • The shareholders aim to obtain economies of US$ 10 million over the next 6 months.

  • Clicon is a B2B marketplace established by the Brazilian Martins Group, the biggest distribution company in Latin America.

  • Equity partners:

    - Bricks and Mortar player: Martins Group

    - Private Funds: Garantia Participações (GP) and Opportunity

  • The partners expect to invest at least US$25 million until 2003.


ad