"It all started with a Brazilian girl," says Ilya Brotzky, a 24-year-old Canadian in one of Rio de Janiero’s top startup incubators. "She told me about the beaches in Floripa, how the girls there kiss you so easily. You can imagine how I felt: This was in the middle of winter in Ithaca."
Like many young ex-pats here, Brotzky was interested in startups, but demo-days back home were beginning to look less like the American Dream and more like the cut-throat world of American Idol. He imagined China would be too industrial and India too "unsanitary."
"I thought, Brazil is cool for your personal life, and the economy seems to be blowing up—there has to be something there for me."
Blowing up, indeed. In only 18 months, Brazil has developed a social Web that took the United States almost a decade. Now, 40% of the 200 million people here have broadband, 40% are on Facebook, which they affectionately pronounce "Facey-booky," and there are already 50 million smartphones and 255 million 3G devices in use. Brazilians are second only behind Americans when it comes to the amount of time citizens spend on Facebook, second in time spent on Twitter, and also second on Tumblr.
But Brazil is years behind the entrepreneurial spirit of the United States, where colleges produce students like Brotzky: an Applied Economics and Management major with a focus on social entrepreneurship, and a fellowship at StartingBloc, Cornell's on-campus networking group for students building community-driven ventures. (See his Cornell TEDx talk here.) There are about 5.5 million small companies in Brazil, not many for a country of 200 million—the U.S. has over 23 million—and venture capital is a new concept there.
"The way that the companies in Brazil used to be financed would be by retail banks—debt investment," says Ricardo Asse, the founder of a private equity and consulting firm here called Centria Partners. He advises large corporations here like McKinsey about the capital markets, and was retained by the Brazilian government to write its new national IT and innovation policy, which begins rollout this year. "Today the entrepreneurs and the CEOs and the owners are finding professional investors—it’s becoming a more mature market. That means that for the first time, technology is becoming important here." It’s a boom both economic and spiritual for this country as it prepares for the World Cup in 2014 and the 2016 summer Olympics.
Brotzky is one of a handful of gutsy ex-pats I spoke to in Brazil who have fled North America for Brazil's biggest cities. There they’ve found found gung-ho investors and real problems to solve—but so far scant proof that any of it will work. But for many young entrepreneurs that's okay, because what Brazil lacks in financial security, it more than makes up for in quality of life.
Post-grad Americans might identify with Brazil because they're at the same stage of life. "In technology, I would say Brazil is finishing university," says Asse. "If you look at the American technology sector, which is most successful in the world today, it's very open—Russians, Chinese, Indians, Americans participate. Today this is a vision our government has now."
Already having visions of his own, the 24-year-old Brotzky decided to check out Brazil for himself. Through his university, Cornell, he started going on community service trips to cities like Rio and Belo Horizonte, which are technology hubs here, as is Floripa, the city of kissable girls that first allured him. Others include Recife, Campinas, and Sao Paolo, the country’s financial capital, all anchored by excellent federal universities.
Brotzky found a program that let him volunteer in Parque da Cidade, one of Rio's safer favelas, and spent the weekend hanging out in Ilha Grande, an island off the coast of Rio not unlike Nantucket. "In the favelas, there were kids in the street smoking weed with guns in their belts, proud of their gunshot scars," says Brotzky. "I was totally seduced by it. I became irrational about my decisions. I thought: I have to come back here no matter what."
Brazilians in their twenties are sharing the country's coming-out party. "These are the children of a conservative generation," says Marcelo Sales, the founder of Rio’s 21212 incubator. "Their parents are government employees, and they push their children into safe jobs, but this is beginning to change." Most young Brazilians live with their families until they’re married, which, as in the U.S., is an increasingly delayed event. (To wit: in a recent issue of Men’s Health in Brazil this month, one of the top sex tips was, "Don’t ask her to split the motel bill.")
"Startups here compete with government, oil gas, and private equity companies that pay huge bonuses to engineers," says Sales. "I go to all the top universities, and I give talks to show these talents that they can choose to become employee or they can choose entrepreneurship. In a few years it will be Russia or India, but the right market for this is Brazil now. So I tell them: 'If you are geek, if you want to become a millionaire, come with me.'"
When Brotzky returned to Canada after graduation, he became depressed. He worked for eight months at Vale, a large Brazilian mining conglomerate which was integrating a Canadian acquisition. It wasn't going well for Brotzky or the merger.
"Everything I was happy about was gone. The food sucked, the people sucked—my time in Toronto was meaningless. I would spend the whole time at work on chat, talking to my friends from Brazil." He was getting paid well in Canada, he had security and a small group of friends, but he started going to Brazilian parties and dating Brazilian women. "I was so bored at work, and so alive outside of work. I started paying more attention to signs in my life—something to show me this is real."
Brazilians, similarly, are looking for signs that their tech boom is real. In a country where the government is so bloated, following the money behind some startups often leads back to bureaucratic initiatives that have little to do with the marketplace.
Still, major venture funds are beginning to pay attention, if tepidly. Bessemer's Brian Feinstein, Sequoia's David Velez, Redpoint's Anderson Thees and 500Startups' Bedy Yang are just some of the names you hear a lot since the venture boom here. But the real ringleader here may be Monashees Capital, which invests between $250,000 and $2.5 million in early stage companies and holds sway over 10 of the large funds here.
Liquidity events are rare in Brazil, even if they appear to be increasing. According to a dealbook given to me by Brazilian tech blogger Diego Gomes, who founded ReadWriteWeb’s Latin America bureau and the major tech blog here, Webholic, there were 11 startups funded or acquired in 2009, 23 in 2010, and 82 in 2011. This year is on track to be about the same as last.
Simon Olsen, Google’s head of new business development and an ex-pat American here for 10 years, isn’t convinced by all this "Silicon Beach" talk. "I’m afraid investors here will get burned on startups that are more flash than substance, and they won’t invest again," he says. Even for the substantive online businesses, he says the incubator or venture model may not translate.
"In the U.S., they’re going for grand slams, big liquid exits that pay the investors back for the rest of their portfolio. There are no grand slams here, and there might never be. The big companies have no incentive to acquire these guys. We’re at the top of a bubble, and if the world economy goes bad, it could come crashing down."
Read part two here.
[Photos courtesy of: Ilya Brotzky, Chris Dannen, and Guto Azevedo]
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