FAPESP issues call for investment funds to boost support for innovation

The call is one of several initiatives designed by FAPESP to help science and technology startups supported by its entrepreneurship and innovation program attract investors and survive “death valley”.

By Elton Alisson  |  Agência FAPESP – On September 18, 2023, FAPESP issued a public call for proposals from seed capital funds that are fundraising or investing in deep tech startups. FAPESP will invest in the selected funds on condition that the latter invest matching amounts in companies that have participated in the FAPESP Innovative Research in Small Business Program (PIPE). Its allocation will correspond to 15% of each fund’s committed capital or BRL 30 million, whichever is less.

“We’re interested in hearing proposals from investment funds with a similar focus to ours, which is support for technology-intensive firms based in São Paulo state," said Carlos Américo Pacheco, Chief Executive Officer of FAPESP.

Since PIPE was launched in 1997, it has supported 1,871 firms based in 167 cities throughout the state. Some of these firms have developed technology that is exported to various countries. “The firms supported by PIPE are tech startups and should be on the radar of venture capital funds, which typically invest in such firms. However, this isn’t the case right now,” Pacheco said.

FAPESP’s senior management has concluded that deep techs need access to financing instruments and investors who can help them scale to market and survive “death valley”, an early stage in science-based innovation when many startups fail without reaching the market or generating positive cashflow.

A survey of former recipients of PIPE funding conducted in April 2021 showed that 75% had not received any further capital injections. About 20% said they had received funding from other firms, and venture capital or private equity funds had invested in a similar proportion.

To help startups in São Paulo state surmount this obstacle, FAPESP’s Board of Trustees approved a resolution calling for investment of BRL 150 million in a six-year period in new initiatives aimed at diversifying support for innovative small enterprises that previously received funding from PIPE. Planned actions also include partnerships with equity crowdfunding platforms, angel investor networks and accelerator programs, as well as participation in a credit guarantee fund.

On the investment fund front, in addition to the call for proposals just issued, FAPESP recently joined the Criatec 4 and Indicator 2 IoT funds sponsored by BNDES, Brazil’s national development bank, with participation by public and private investors. FAPESP will allocate BRL 30 million to each of these two funds for a period of four to five years.  

“In contrast with FAPESP’s traditional arrangement via PIPE, which makes direct grants to startups exclusively to support scientific and technological research, the new initiatives will provide funding to enable these firms to scale to market,” Pacheco said.

Since 2013, FAPESP has participated in the São Paulo State Innovation Fund (Fundo Inovação Paulista, FIP), established that same year as a partnership between the state’s Department of Economic Development and FINEP, the Brazilian Innovation Agency, an arm of the Ministry for Science, Technology and Innovation (MCTI), alongside the São Paulo branch of the Small Business Support Service (SEBRAE-SP) and the Latin American Development Bank (CAF). FAPESP has allocated BRL 10 million to this fund, which holds a total of BRL 105 million but has significantly influenced the choice of firms in which to invest, as more than half are former or current recipients of PIPE funding.

FAPESP is also analyzing ways of contributing to the design of guarantee instruments, and possibly of investing in these, especially existing ones in São Paulo state, to support recipients of PIPE funding that apply for loans and financing.

Other initiatives  

In addition to these initiatives, FAPESP will soon issue a call to register equity crowdfunding platforms and angel investor groups. “These partnerships will be conducted via PIPE Invest, a program that allocates up to BRL 1.5 million to research projects to match funding from these two sources of investment,” said Márcio de Castro Silva Filho, FAPESP’s Scientific Director. 

The idea is to register equity crowdfunding and angel investor groups that want to hold rounds of investment in firms funded by PIPE. Invested firms will then submit proposals to PIPE Invest for further funding from FAPESP, which will also register accelerators interested in providing services to firms funded by PIPE. The firms will receive extra funding to help retain these service providers.

FAPESP already funds acceleration programs in partnership with SEBRAE-SP and FINEP, which is preparing to issue a call for accelerators to bid in the third round of its Tecnova program. Tecnova supports the development of innovative products and processes in strategic sectors for public policies. This will be FAPESP’s first initiative of its own with regard to accelerators. It will register accelerators with the right profile to support deep techs funded by PIPE, Castro explained.