Venture capital funds have been trying to show investors that venture capital does not compete – or should not compete – with fixed income. But with the basic interest rate at 14.75% per year, this has not been an easy task. By barely comparing, it would be like explaining that an orange is not a banana, and that you can grow both. But the orange trees are bearing numerous fruits today. And banana trees will only bear fruit in 10 years.
In Brazilian venture capital, the majority of Limited Partners (LPs), the investors in these funds, are family offices, which manage family assets, normally with businesses linked to traditional industry sectors. When the interest rate rises, attracting these investors to investments linked to the CDI, the capital available for venture capital tends to shrink.
The panel The Capital Allocators: How Multi Family Offices Decidewhich took place this Wednesday (25) at in Porto Alegre sought to understand the factors that lead families to seek risk capital even in the midst of this scenario. The discussion was moderated by Sung Lim, CIO of Grão VCand participation by Fernando Donnay, portfolio manager at G5 Partnerse Andrew Hancock, CEO e founder da INC Capital Family Office.
For Fernando, there is permanent tension between family office managers and their clients. “Any class that demands a risk allocation with higher interest rates ends up being more difficult to convince families, even if we try somehow to have portfolios already aligned with how much participation there will be, for example, venture capital”, he points out. The same goes for the opposite scenario: “when interest rates are low, families want to add more risk than we think they should. So we also have to convince them otherwise.”
Andrew points out a clear division between investor profiles. “When you talk about larger, more structured, more technical families, they understand. But when you go to a less sophisticated universe, it’s more difficult. And, naturally, there’s the j-curve there, making families, even the most sophisticated ones, uncomfortable, especially when we have a corridor that is the CDI”, he says.
The expectation is that, with a resumption of the downward trend in interest rates, the scenario will improve for higher risk assets. However, investors are talking about a Selic rate of around 10% for this to happen, which is still far from reality. The market expects the base rate to end 2026 at 12.5%, according to the latest Focus bulletin, released by the Central Bank. For the following years, the market projects a rate of 10.50% in 2027 and 10% only in 2028.
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With Selic on the rise, Fernando recognizes the difficulty of the moment. “At this level of interest, one of the best things is to allocate it to public bonds”, he admits, considering that the thesis that fixed income is not enough is still alive. “We see that you also have to have some type of allocation for assets that have greater power.”
For him, convincing is easier for older clients, who have already obtained positive results in the past. “We have already managed to demonstrate this in practice with several success stories, this ends up being more tangible. But from clients who are just starting out, it demands more trust work”, says Fernando.
The panel’s central argument converges on one point: venture capital is not a product for those thinking about rescue. “It’s a business that will return money in 12, 14, 15 years. Even though the interest rate is 14.75% today, you don’t know if it will fall to 5% in 10 years. It’s not a short-term business, of trading, investing now and redeeming it next year”, observes Andrew.
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But falling interest rates are not the only hope for the venture capital market. Managers point to a new window of opportunities opened by the arrival of new generations in control of family assets. This is also a generation that is more attuned to new technologies, such as artificial intelligence itself, and the impacts of these innovations on the family business.
“In the next 10 years we will go through the biggest transmission of wealth in history. The second generation will take over this wealth, and they are usually much more excited about the stories behind the investments than the first”, highlights Andrew.
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