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Entrepreneurial Companies

Initial Capital

Twenty PIPE companies prepare to take their projects to the market

Twenty companies that have concluded Phases I and II of FAPESP?s Small Business Innovation Research (PIPE) program will be able to use the support of the Financier of Studies and Projects (Finep) to take the results of their research projects into the market place (see table on the page at the side). Each one of them will receive R$500,000.00 from the Support for Company Research Program (Pappe), of the Ministry of Science and Technology (MCT), to invest over a two year period in production engineering and to place their business plans on course. The is the counterbalance to FAPESP’s resources, forecast in the agreement with Finep, invested by the Foundation during the first two phases of the PIPE program, a period during which the researchers developed their project, carried out research and drew up a business plan. “The money from Pappe will be seed capital for phase III of the PIPE program”, sums up José Fernando Perez, FAPESP’s scientific director.

In the context of the agreement with Finep,  FAPESP was responsible for the selection of the projects. Since the research had already been concluded, the choice took into consideration the product’s engineering and the business plan. “We decided to innovate with the evaluation system”, says Perez. The Foundation then signed a partnership with the Endeavor Enterprise Institute, which indicated twenty seven evaluators from within its volunteer executive core – among them directors of IBM, Avon, Rio Bravo, Braskem and professors from the Getulio Vargas Foundation (FGV) – in order to analyze the proposals. The expectation was that the approved projects would demonstrate their potential to achieve a minimum level of growth of two digits and a return level on the capital, higher than Inter-Bank Deposit Certificates (CDI), an indicator of business performance, over the following five years.

Business skills
Once the approval criteria were defined, each one of the future entrepreneurs was interviewed by three evaluators, who observed his/her business skills, capacity for putting things into practice and the future vision of the business. They also analyzed the competitive advantage and the market potential as defined in the business plan; marketing strategy and the commercialization of the product; the financial viability and finally the qualifications of the team responsible for the project. For each one of these criteria the evaluators attributed a value of between one and four and also gave a “qualitative recommendation” as scientific director Perez says,  in favor or against the project’s approval. “We selected the proposals that had three evaluators in favor, then two until the limit of our resources”, says explains Perez. FAPESP will also be responsible for overseeing these projects.

The vast majority of the entrepreneurs whose projects were approved had participated in the PIPE Entrepreneur program, implemented in partnership with the Endeavor Enterprise Institute, the Brazilian Support for Micro and Small Business Service (Sebrae-SP) and FAPESP, during the past year. The program was made up of a series of activities, among them a management and market research training course, conducted by the W. Institute, which lasted a semester and had the objective of preparing the potential entrepreneurs for business administration. The PIPE Entrepreneur program was budgeted at R$ 808,400.00. Sebrae-SP funded 49% of the project’s total cost and Endeavor and FAPESP together, gave financing corresponding to 16.91% of the budget. The companies involved also participated with the program’s cost. “We created a complete synergy”,  Perez celebrates.

The Pappe program was established by the federal government in 2003 to support innovation in technology based companies. “It was thought through looking towards an integration of the national system of innovation and linking together state and federal actions”, explains Odilon Marcuzzo do Canto, Finep’s scientific and technological development director. At that time the Innovation Law – approved in December of last year – was passing through the National Congress and Finep had no way forward for investing resources, on a no-money- back-guarantee basis, in technology based companies. “The Pappe was then designed to support researchers within these companies”, he justifies.

Complementary model
The program can count upon resources from the sectorial funds and is implemented in the states in partnership with each state’s Research Support Foundation (FAP) and the state secretariat of Science and Technology. In 2004, the program’s first operational year, the Pappe program invested R$ 151.8 million in innovation projects in nineteen states. During 2005, in the opinion of director Canto, these resources will total something around R$ 60 million. The investment and financing model adopted by the Pappe program is similar to that of the PIPE program, implemented by FAPESP in 1997 and, for this reason, the program in São Paulo was adapted to complement that of the PIPE. An agreement signed between the Foundation and Finep has permitted the fusion of the two programs into Pappe – PIPE III and channeled federal resources towards the companies involved, up until then supported solely by FAPESP. “We are hoping that this program transforms itself into a permanent budget heading and establishes itself with new tenders”, says Perez.

The partnership between FAPESP and Finep, which allows for the implementation of the program, had been forecast since the launch of the PIPE program in 1997. It only came to fruition last year because of “an act of wisdom by Finep”, which understood that, in São Paulo, the Pappe program would have to be different, emphasizes Perez. The association with Sebrae-SP and Endeavor Enterprises, forecast since the start of PIPE, also only came to fruition seven years later through the PIPE Entrepreneur, and now with the start of the program’s third phase.