Where the Money's Headed: Brazil

The Octávio Frias de Oliveira Bridge in Sao Paulo, Brazil.

Image: CelsoDiniz / ShutterStock

It's hard to miss all the chatter about China. Signs that the country is the next venture capital hotbed seem to emerge on an almost daily basis. But Brazil? It's certainly one of the big four BRIC nations with emerging economies (Besides Brazil and China, the other members are India and Russia), but aside from the occasional magazine story, we don't hear much about entrepreneurs in the South American country.

"We started seeing a tremendous number of deals coming from Brazil," said Seth Zalkin, a former entrepreneur and the founder of the Astor Group, a mergers and acquisitions consultancy based in New York.

The latest media deep dive on Brazil comes from a Barron's story that ran this past weekend. Here's what it said: "With a growing middle class, healthy banking system, stable government, abundant natural resources, and globally focused companies, the world's seventh-largest economy has become a beacon for foreign capital and the engine of regional growth."

Indeed, the amount of capital committed in Brazil reached a record of $34 billion in 2009, up from $5.6 billion five years earlier, according to the latest data available from the Brazilian Association of Private Equity and Venture Capital. There were just eight fund managers working in Sao Paulo, Brazil's largest city, in the mid-1990s. By 2008, that number had grown to 132. (No Wall Street, but still.) Time magazine ran a story last year on "Brazil's Startup Generation."

Zalkin rattled off all the venture capitalists he could think of who are doing deals in the country: Benchmark Capital, Flybridge Capital Partners, and Redpoint Ventures, among others. Redpoint and Flybridge recently partnered on an initial funding round into the Brazilian company Shoes4you, which sells shoes through a monthly subscription model, according to TechCrunch.

Europe's well-publicized financial problems and the continuing economic woes in the United States have all helped push investors toward Brazil, said Zalkin, who was calling from an office he'd opened in Rio de Janeiro to take advantage of the business opportunities, uprooting his entire family in the process. That's a pretty big move if you're not sure of the potential.

But before you buy your plane ticket, consider the downsides, of which there are some, of course: The country has a very high crime rate, and taxes are high. Its infrastructure to support startups is fledgling (although, arguably, this could also make it an exciting time to get involved, especially as Rio prepares to host the 2016 Summer Olympics Games), and many new Brazilian startups are knockoffs. Shoes4you, for example, is similar to the American company Shoedazzle.

"In the United States, you'll often see a lot of snobbery about what we want to invest in—we want to invest in innovative companies, not someone else's business model," Zalkin said. "In Brazil, they're OK with that."

And, as Zalkin explained, Brazil requires two things: patience and commitment.

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