I was fortunate to be able to join a bunch of great people (too many to name) this week on the GeeksOnaPlane trip. We visited Brazil, Chile and Argentina. Our mission was to meet with entrepreneurs, investors and government officials to learn a little bit about their tech startup culture and to share a little of ours.
I feel that I understand what’s going on in Brazil much better than I do Chile, so I am going to just cover Brazil in this post (I was tired after going non-stop for 4 days in Brazil and unfortunately I did not join the group in Argentina so that I could return to the US for a friend’s wedding. Hopefully someone else will write a similar post on Chile and Argentina.)
Here is what I observed:
Brazil
– the country recently overcame a period of hyper inflation and their currency is now stable
– taxes are high and complex, but also stable
– nobody thinks the govt will lower taxes any time soon to spur more business growth
– they have a rapidly growing middle class (consumers!) = opportunity
– Sao Paulo is the tech & business hub
– Rio de Janeiro wants to be the tech & business hub
– Rio is a beautiful city but businesses moved to Sao Paulo over the past 30 years due to drug related crime
– Rio is aggressively cleaning up it’s image by pushing the drug gangs out, closing and remediating their environmental catastrophe of a landfill (see film “Waste Land”), and building infrastructure to host the upcoming World Cup and 2016 Olympics
Brazil’s Startup Scene
– most startups I met are creating consumer internet businesses that copy successful US business models
– most are first time entrepreneurs, because until recently there wasn’t an appetite for engineers to take risk relative to getting a high paying govt job; this is changing because of the opportunity presented by the growing number of middle class consumers
– Brazilian VCs suck; they make investments to grow established businesses rather than investing in the riskier early stage companies that are innovating
– entrepreneurs are inexperienced and lack guidance when it comes to raising money. VCs rape entrepreneurs by taking huge equity stakes for a small investment (I heard one case of a guy giving up 80% of his company for a couple hundred thousand dollars!)
– entrepreneurs don’t collaborate with each other; again due to lack of experience they don’t understand the value of the feedback they would get from an open culture where ideas and data are shared, rather than being stealthy
– there are very few successful entrepreneurs advising and founding new startups; I think this is because there aren’t many exits and the entrepreneurs that get acquired are staying with their companies long afterward
– big established companies don’t think they can be disrupted by startups. They believe that startups should and will just go after new opportunities rather than reinvent old industries using technology. I guess a big disruption has never happened there before. They’re in for a shocker.
Brazilian consumers have money to spend and their culture is similar to the US. There will be a land grab this decade to bring the types of products and services that we have in the US to Brazil. Local entrepreneurs are racing for it, but could really use our help. They need our experience and our money. I mentioned to the organization that hosted part of our trip,Brazil Innovators, that they need to get an entrepreneur exchange program going. I hope they do. They should recruit Silicon Valley entrepreneurs to come to Brazil for 6 months after they sell their company and before they start their next one, and send some Brazilians to work in Silicon Valley. The knowledge transfer that would occur from such a program would be tremendous and I bet some folks would stay. Startups cofounded by an experienced Silicon Valley entrepreneur plus a local Brazilian entrepreneur would crush it down there right now.
Some great comments from when this blog used to be hosted at Posterous…
savastano (Twitter) responded:
Being a Brazilian I must say this is very accurate.
Industries are no longer coming to São Paulo. The city is now based on services and commerce, and its value to Brazil’s economy is unmatched. The State of São Paulo, for example, will pay for 40% of the 2014 World Cup investments. The city is responsible for 12% of the country’s GDP, being pointed as one of the top 10 richest cities in the world. The 11 million population makes São Paulo the most populated city in America.
Because of this, São Paulo attracts more visitors than Rio de Janeiro — most of them on business, of course. As Rio will be in vogue during this decade, hosting the 2014 World Cup final and the 2016 Olympics, tourism (clearly underdeveloped) emerges as a great business opportunity there.
Brazil is living a great moment but people say it won’t last more than 10-20 years. So this is probably the right time to come.
Bedy responded:
Bill, great piece mapping the current startup scene in SP and RJ. Your request of recruiting Silicon Valley to Brazil is on top of my list , will keep you posted on the several fronts that I am working on! AMAZING to have you with us during Geeks on a Plane.
Few comments on your points:
– on bad-VC, there is increasing availability of capital in the Brazilian market and for sure the current situation will change. We need more investments and more mentorship to build the cases. So interaction with investors who were in the GoaP (starting with Dave McClure) will for sure help disrupt this current situation.
– on collaboration between entrepreneurs, we have created a platform with around 1000 entrepreneurs, investors, educators who joins to collaborate and network – http://www.meetup.com/brnewtech
Finally, I’d love to have you back in a year, because I believe we are in a turning point of transformation of the current culture. With the opportunities that Brazil provides added to the change of entrepreneurship culture, we have a unique opportunity to make a real impact.
A request: Also, can you add the link to Brazil Innovators and GeeksonaPlane webpage?
Bedy
neigrando responded:
Brazil in not only a big country but it is also a Great one!
I love to live here and to help the young entrepreneurs guys as a counselor and friend. My blog is dedicated to them. I had two IT companies here developing Web software and solutions. As an Internet pioneer as Solution Provider on those difficult times when there was few information about this kind of business and technology completely unsupported I learned a lot, but now is quite different, we have all kind of support, books, blogs, social networks, MeetUPs, and opportunities. I believe 2011 is the entrepreneuship year here and so my firends don´t waste your time, translate your ideas into actions, do your best, go ahead and enjoy the jorney not only the targets, and do it with passion not only for the money, because thanks our governament taxes it will not be easy anyway.
Thank you all for this post and comments.
@neigrando
Reinaldo Normand responded:
This is spot on. Congrats. Don’t forget that, to change the environment, we need the help of our government in terms of decent legal infrastructure and less taxes that startups cannot afford. I wrote an article for GOAP Blog about it which you can also see here: http://palebluedot.posterous.com/33683360
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vcbrazil (Twitter) responded:
Bill,
You nailed it, although as a partner in a new VC fund with offices in Brazil, I’d like to think we don’t ALL suck :).
In the past, VCs in Brazil approached VC, even early-stage, like private equity — not a good thing when most of the entrepreneurs need lots of hands-on help.
This is linked to another issue: almost no VCs in Brazil have ever been entrepreneurs (we are fortunate that everyone in our fund has been).
BUT, the VCs I have met there are good people and have done a ton of hard work in getting the ecosystem to where it is now. They have had their hands tied by limited partners that sit on the investment committee, opine on deal terms and veto deals they don’t like.
A couple of add-ons:
– inflation is an ever-present boogeyman in Brazil and it is returning. this is the one thing that could derail the current boom
– the bridge to SV is getting built effectively and quickly by people like Bedy Yang and Reinaldo Normand
– Many Brazilian entrepreneurs are intoxicated by SV; this is good and bad: I have seen startup CEOs decide to take 3 month trips to the Valley in the middle of critical times for their companies, as if just by breathing the air in Northern California would turn them into Mark Zuckerberg. Also, there is little appreciation that SV is one of many fertile ecosystems in the US — places like NY and Austin, which may be easier to break into, are wildly under-appreciated.
In sum — exchange of best-practices are important but there are a lot of miscommunications/misconceptions that can lead to problems. it needs to be managed effectively by realistic connectors, like Bedy and Reinaldo.
– I assume you are a Hokie fan, as am I. put me down as believing the Hokies will be a lot better this season than anyone thinks (if Logan Thomas is half-decent), which is the reverse of most seasons, when we are usually ranked too high. we are horrible front-runners and good underdogs, so this bodes well.
Best,
Ted
komel responded:
Bill,
It is amazing how accurate you were in this post. Brazil is really booming and, right now, there really is a cultural change going on. There is, still, lots o room for learning and improvement. An exchange between SV and Brazil would benefit both sides.
Best,
komel
obvio171 (Twitter) responded:
Very accurate post. Great insight into the Brazilian scene given how little you spent here.
One marker I’d add to the map is the city of Campinas. We aren’t as developed as São Paulo, but there’s lots of exceptional talent here (Unicamp is the 2nd best university in comp sci in Latin America IIRC), and we’re starting to see the kind of “capital recycling” that is so central to SV. Many successful entrepreneurs (Cesar Gon, Fabrício Bloisi and other Unicamp alumni who are part of the “Unicamp Ventures” group) have built great companies and are now mentoring and investing in the booming ecosystem that’s growing around the university. They give mentoring for free (“Conselho de Startups” – Startup Counsel), and now started an early-stage fund called IVP. There’s also a local group, called Campinas Startups (http://www.campinasstartups.com.br/), which organizes events like the upcoming Startup Weekend Campinas, and also serves as networking and mutual help for founders.
Another place with a growing startup scene – which I know less about – is Belo Horizonte. They also have great engineering talent coming out of UFMG (no wonder Google has an engineering office there).
I really love your idea of a Brazilian startup with a co-founder who’s an SV veteran. I think that could indeed help a great deal. We desperately need that kind of experience. Let the matchmaking begin! 🙂
carribeiro (Twitter) responded:
As a brazilian I was really surprised that you managed to learn this much about our market in such a short time. At 44 I’m a little (meaning “fairly”) older than most people on the local scene, and one of the things that always bothered me is that very few (if any) people from the US really understood how things work out here, without falling into popular misconceptions. Congratulations!
You raised a very interesting point: you are right, the market here is not used to disruption. I see a few reasons for that:
a) the barriers to entry used to be pretty high, favoring stablished companies so much that it made nearly impossible to achieve mass scale without selling out;
b) Market dynamics here are still relatively immature. Customers still have limited knowledge about their choices, and also, about how to exert their choices. Many customers are afraid to defend their own rights and talk about their opinions and experiences openly.
c) For a long time, competition in Brazil was based on price alone. Expensive goods were good, inexpensive ones were of lower quality. Relly good things were out of reach for most people. Customers were just used to it, and that limits their ability to make conscious choices. It takes time to change this behavior (but this is clearly changing).
d) Customers historically had very little information about products, and most people still dont know how to properly search about it. Many companies here still thrive on “ignorance based pricing”.
Just a few years ago, typical brazilian customers from what is now regarded as “the new middle class” were proud of buying cheap chinese counterfeit goods, such as simple MP3 players with something that resembled a fruit badly painted on, or what we call “Hi-Phones” of similar quality. Most of them never heard about Apple before and would laught at you at the mention of buying a R$1.500,00 mobile phone. Now you can hear the same people proudly talking to their friends about their new iPhones. It’s not just about the money (or having money to buy it), or even about just “showing it to your friends”; it’s also about knowing more about what it is, what you can do with it, appreciating the quality, and getting more out of it.
This is just the start of a transition. I believe that it will still take some time before the market really matures, and start to appreciate things build here for what they are (their qualities and features), and not just out of ignorance of other options or blind brand recognition. We still need to educate our customers. That will take time and patience, and that may be the ultimate test to entrepreneurs coming from the US as they try to understand (and win a share) of the growing brazilian market.
Bill Addison responded:
Hey Bill, as already mentioned, you’ve taken a remarkably accurate snapshot of the environment here in Brazil. I also agree with Ted about inflationary risks. Hopefully Dilma with her economist background can stabilise the situation.
I’m an Australian designer living in Rio for the past 3 years. I was recently approached by a group engineers from IME in a similar situation to what this article outlines to collaborate on some ideas. There are some really great opportunities here in Brazil and it’s exciting to see developers taking risks in a historically “big-business” country.
Cheers,
Bill
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Robert responded:
Enjoyed your post. Please visit our site. Sorry we missed you in Rio, but we had a launch date (yesterday) in front of us.
The Tropical Angels Team
Robert responded:
Please visit: http://www.startuprio.com
Help us crush it!
Johnes responded:
You should visit Florianópolis and Joinville in Brazil.
over 1 year ago Andre responded:
What does VC stand for?
Bill Boebel responded:
@Bedy links added
@Bedy @vcbrazil sorry for stereotyping all of Brazil’s VCs as sucking but that’s what I heard from several entrepreneurs. Would love to come back next year and meet the ones that don’t suck and here from entrepreneurs how things have evolved
@Andre VC = venture capitalist