Carlos Testolini

Oria Capital

Executive: Carlos Testolini, Senior Partner
Investor Name: Oria Capital
Investor Type: Private Equity Fund Manager
AUM: USD350m
Year Founded: 2011
HQ: Sao Paulo, Brazil
Geo Focus: Brazil; Latin America
Target Sectors: Enterprise Tech; SaaS; Tech-Enabled Companies
Target Sub-Sectors:
ERP; Information/Communications; CRM; Supply Chain; Cloud Computing; Cybersecurity; Healthtech; and Fintech

Oria Capital primarily invests in B2B technology companies in Brazil, with a focus on enterprise software solutions. What are the drivers of growth for enterprise software in Brazil? How do you source your investments?

Enterprise software and SaaS companies are typically mission critical, scalable, with recurring revenues and “sticky” contracts. Even though the enterprise tech market in Brazil is as large as markets such as Canada and India, SaaS adoption in Brazil is historically quite low – an estimated 31% in 2019, vs 87% in the US. The opportunity in this sector is therefore immense. At Oria, we believe that the biggest enemy of SaaS are legacy systems, with businesses running processes on spreadsheets, for example. Those practices have shifted dramatically with the onset of the COVID-19 pandemic.

Oria’s investment team has spent over 25 years in the sector, founding, growing, and scaling tech companies. As a result, we have been able to leverage our networks as both operators and investors over the last decade to source new deal opportunities. What makes our conversations with founders at prospective investee companies different is that we have sat at both sides of the table – we know what it is like to sit in their seats. As Oria continues to grow, we strive to bring in partners and team members who complement our own existing skillset. Quite often, we are a company’s first institutional capital, and being able to bring all of these different perspectives and experiences to the table is enriching.

Once we have developed an investment thesis, we establish a dialogue with the highest potential platform players in that space. It’s a deliberate, long process. On average, we spend 2+ years with a team before making an investment, but once we do, the strategic alignment and growth plan are already in place. When we invested in Gupy earlier in 2020, a detailed 100-day plan had already been implemented before the ink on the contract was even dry.

Oria Capital was recently awarded Certified B Corporation status. Please provide examples from your portfolio to exemplify your approach to ESG, social impact, and environmental sustainability. What is the role of technology in creating impact?

At a fundamental level, B2B technology increases productivity. Higher productivity leads to lower transactional costs to customers and small and medium businesses, fosters employment, and generates higher real income.

As a Certified B Corp, Oria is committed to sustainable, transparent, and responsible business practices and strongly believes in the importance of assessing, measuring, and supporting our investees, while also measuring our own impact metrics. Our current portfolio employs over 2,300 people, services 17,000 clients and 2,500 suppliers directly, and benefits over 100 million consumers.

We look at 31 metrics based on IRIS (Impact Reporting & Investment Standards). Gender representation is one of them, including at the leadership level. Female leadership at Oria Capital companies stands at 40%, well above the national average. Board level representation stands over 10%, in contrast with 6.4% average in Brazil. Our view is that there is a lot of room to grow, and it takes great dedication to continue moving the needle.

Zenvia, a CPaaS solution, is a great example of this commitment. The team at Zenvia routinely engages with meetups and affinity groups promoting women in technology, trains all employees on unconscious bias, including specific support for hiring teams, and has adopted gender-neutral language for both internal and external communications. Female leadership stands at 43%, and 15% for technology roles.

Oria recently invested in Gupy, a Brazilian HR tech software solution. How is this investment representative of your investment strategy?

In many ways, Gupy, a female-founded company, is an “archetypal” Oria deal. We started with a thesis built around the HR Tech segment, which is maturing quickly. For a tech growth investor, timing is very important. It is like surfing – you can’t be too early, or too late.

While early adoption of HR tech solutions was mainly focused on the operational side of human resources, companies now seek more intelligent and comprehensive solutions which allow HR departments to focus on strategic initiatives. With 85%+ of players in this sector emerging in the last nine years, the HR tech market in Brazil is young and its value chain remains highly fragmented, leaving ample space for a market leader to emerge.

Once we developed our thesis and identified the investment, we spent time working with the team at Gupy. Oria already had a longstanding relationship with the company’s founders, with ties going back to 2014 when one of our partners mentored Gupy’s CEO at an accelerator program.

Gupy’s differentiated product offerings and solutions aligned well with our market thesis.  Gupy’s AI-first, deep learning technology platform helps employers eliminate unconscious biases in the recruiting process, looking beyond the traditional selection criteria and identifying candidates who match the company’s cultural fit, with speed and scale. Despite a pandemic, the company is growing 100% this year.

With the onset of COVID-19, business digitization has grown exponentially. As a tech investor, how has your portfolio been affected by the current pandemic and how do you think the changes brought about by the crisis will affect your businesses going forward?

The current pandemic has accelerated a trend that was well underway, as the need to digitize legacy processes and systems happened almost overnight. The pace of M&A activity has picked up at our portfolio, as scale becomes even more important, with our health care portfolio especially expediting its growth under the pressure of the pandemic. Pixeon, a provider of software solutions to imaging and health care providers, closed its sixth acquisition, Boa Consulta. ToLife, which provides triage software to hospitals and clinics, is being rolled out throughout the city of São Paulo’s health clinics, as part of a COVID-response package. Finally, Zenvia closed on two acquisitions during the pandemic.

In addition to the acceleration of existing trends, another shift we have witnessed has been the decentralization of enterprise software purchase decisions. In the past, tucked-away IT departments held control of budgets and software vendors. With SaaS, and now with remote working arrangements, the user group is far more involved and has decision power on the best solution for their particular needs, in collaboration with their tech teams. We don’t believe this will change in the next few years – quite the contrary.

You are currently deploying your third fund. How has interest from both domestic and international investors evolved since your first fund in 2012? Have you seen an increased appetite from international investors for exposure to the tech sector in Brazil?

Yes, absolutely. When we raised our first fund, Brazilian institutional investors were ramping up their PE portfolios, with significant exposure to local energy and consumer markets. Oria was a strong complement to that, offering exposure to high growth, profitable B2B tech companies. Enterprise tech was an entirely new category, and generally less familiar to the local investor community.

A few years later, in 2018, we had the opportunity to purchase a portfolio of SaaS companies, and international investors accounted for two thirds of the LP roster. Since then, we have enjoyed great support from a mix of local and global investors.

The explosive growth of SaaS over the last decade has meant that the landscape has become quite crowded, particularly in developed markets. Valuations are exceedingly rich, and markets can become complacent with subsidized growth. As investors seek growth elsewhere, in a sector they already know well, Brazilian tech companies can be very attractive. It is a massive USD86b market, with an accelerated adoption curve, and is very fragmented. With a plethora of ever-changing regulations in any given sector, “tropicalization” is very challenging for the large global tech firms, and locally grown players have a distinct advantage. Lastly, the US dollar now goes very far. Most software contracts are inflation-adjusted, potentially providing good balance on FX.