There are few other countries with Brazil’s “tremendous competitive potential”, according to Switzerland-based non-profit World Economic Forum, and its opportunities for growth are attracting a host of investors looking to unleash its innovation and entrepreneurialism.
The country will certainly have enough of the world’s attention over the next few years as it hosts the 31st Olympiad in Rio de Janeiro in 2016 and football’s World Cup in two years’ time.
Corporations and their venturing units are already thinking ahead to these opportunities. Technology company IBM is working closely with Rio to make the city a “smart” or technology-enable conurbation.
IBM Venture Capital Group has also been working in Brazil since 2010 to tap the entrepreneurial community and support local venture capital firms (VCs) as the corporate venturing unit acts as a limited partner (investor) in funds rather than taking direct equity stakes in start-ups.
IBM’s SmartCamp for entrepreneurs, which is part of the strategy of offering support to the venture ecosystem more broadly to spot trends and innovative ideas, crowned shopping cart sensor developer IDXP as winner of its Rio competition.
Opará won the People’s Vote Award at the Rio SmartCamp in a group of five finalists selected in November.
In July, competition to SmartCamp come from Spain-based phone operator Telefónica, which launched its Wayra Academy for start-ups in São Paulo.
Eleven teams were selected for the academy from 518 entries to the Challenge Brazil competition held in conjunction with Getúlio Vargas Foundation.
Antonio Carlos Valente, chief executive of Telefónica in Brazil, said: “At present, when the Brazilian market is very attractive for international investors, it is very important for entrepreneurs to have the backing necessary to develop their ideas.”
Gonzalo Martín-Villa, global director of Wayra, which operates across a dozen countries in Latin America and Europe, added: “Brazil is one of the largest global hubs for talent and innovation.”
Other corporate venturing units are looking at Brazil. Last month, Intel Capital, the corporate venturing unit of US-listed chipmaker Intel, invested an undisclosed amount in Elike, its third deal for a Brazil-based fashion company this year and its 25th overall.
Intel Capital’s track record of investment performance and global coverage in many emerging markets means it is a natural firstpoint of call for peers seeking to build a team.
Technology peer Qualcomm Ventures in the summer expanded its Qprize to Brazil and hired Carlos Kokron as managing director of Latin America based in São Paulo.
His previous roles have included director of Intel Capital for Latin America and southwest US and partner at Stratus Group in Brazil responsible for the firms growth capital platform.
Local corporations are also developing their venturing units, including industrial group Votorantim and oil major Petrobras.
But Hirbis Girolli, director at Brazil-based consultant Laborativa, said more could be done. “We have a long and promising way to go in Brazil. Corporate venturing here still needs a lot of evangelisation and quality information on what happens in the world.”
Corporates are joining VCs travelling to Brazil from the northern hemisphere, including Atomico, Sequoia and Accel. VCs Redpoint Ventures and E.ventures – previously known as BV Capital after its erstwhile corporate parent, Germany-based publisher Bertelsmann – said they had received commitments of $130m for a joint fund to invest mainly in new consumer internet companies.
Redpoint and E.ventures hired Yann de Vries, a former corporate venturing director at computer equipment company Cisco Systems, and Anderson Thees, formerly chief executive of Brazil-based search engine Apontador, to run the fund.
Meanwhile, despite the departure of de Vries, Cisco has committed to setting up a research and development and corporate venturing group in Brazil.
Overall, VCs around the world rate Brazil above China, another so-called Bric emerging market – (the others being India and Russia) – as a place to invest, putting it second only to the US, according to a survey by accountant Deloitte and US trade body the National Venture Capital Association.
Local VCs are also being set up or expanding, such as Trindade Investimentos, which has just backed local mobile application developer Appies’ seed round of undisclosed value.
Meanwhile, in one of the largest ven-ture deals in the world, Brazil-based technology provider Realtime, which allows the internet to update continuously rather than use protocols that ask for the pages to be updated, and was originally founded in Portugal, raised $100m from local investment company BRZTech.
With hyperinfltion beaten back and strong economic growth encouraged by high commodities prices in the past few years, investors are attracted by consumer goods companies and other cyclical industries appealing to the expanding middle class.
Hedge fund Tiger Global and Accel were part of a consortium investing $20m in children’s outfitter Baby.br, while education provider Open English raised $43m from a consortium including Redpoint to expand into the Brazilian market from its Venezuelan birthplace.
They are following in the footsteps of emerging markets corporate venturing pioneer Naspers, a South Africa-based media company that has been investing in Brazilian e-commerce companies through its Myriad Investment Holdings corporate venturing unit for years.
Naspers, which won Global Corporate Venturing’s Firm of the Year 2012 award, looks for fast-growing companies in often emerging markets but with proven business models and strong defensive characteristics, including Editora Abril and BuscaPe in Brazil.
The disruptive influence of technology and the opening of economic sectors to greater competition also creates plenty of opportunities to entrepreneurs to put in place new business models or online services, such as Printi, an on-demand, web-based printing service that has raised $1.2m in its seed round.
Half of Brazil’s 200 million population now have internet connections, up from 8% in 2003, but the government is only starting to remove obstacles to setting up a business in a country with a large bureaucracy, a payroll tax rate of nearly 70% and strong worker protection.
Brazil’s Financing Agency for Projects & Studies (Finep) has launched Project Prime to provide $65,000 to start-ups. Finep expects to help 10,000 innovative companies over four years.
The World Economic Forum summed up Brazil’s competitiveness – which has improved fiveplaces in the 2011-2012 table to 53rd – as broadly positive.
Its latest Global Competitiveness Report said: “The country benefits from several competitive strengths, including one of the world’s largest internal markets (10th) and a sophisticated business environment (31st), thus allowing for important economies of scale and scope.
“Moreover, the country has one of the most efficient financial markets (40th) and one of the highest rates of technological adoption (47th) and innovation (44th) in the region.
“On a less positive note, Brazil still suffers from weaknesses that hinder its capacity to fulfilits tremendous competitive potential. The lagging quality of its overall infrastructure (104th) despite its Growth Acceleration Programme, its macroeconomic imbalances (115th), the poor overall quality of its educational system (115th), the rigidities in its labour market (121st), and insuffcient progress to boost competition (132nd) are areas of increasing concern.”
The forum also noted the relatively close collaboration between industry and Brazil’s universities, which include University of São Paulo and University of Campinas (Unicamp).
In a research paper, “University start-ups for breaking lock-ins of the Brazilian economy”, published in 2009, Anne-Marie Maculan and José Manoel Carvalho de Mello argued that while Brazilian universities were created initially with a teaching mission, later incorporating research activities, new public policies supporting the innovation process have been implemented to encourage them to commercialise the results of their research activities.
In its series on the future of the Brazilian economy, news provider Christian Science Monitor wrote about university incubator-backed start-ups, such as software for mass-transit services provider PV Inova, which was one of 47 companies that graduated from the Genesis Institute at the Pontifícia Universidade Católica in Rio de Janeiro.
It could be said Brazil as a innovative region is graduating towards the top of its class.
Fact box
Population: 195.4 million
GDP: $2,090.3bn
GDP per capita: $10,816
GDP as share of world total: 2.94%
Source: World Economic Forum Global Competitiveness Report 2011-2012