1. Country Overview
Advice for Local Entrepreneurs
Stop waiting and jump. Brazilians understand the market and government much better than foreign entrepreneurs. However, Brazilians can be passive, resulting in missed opportunities.
Startup lifestyle isn't the Brazilian lifestyle. Startups are not built 180 days/year. It's 24/7 dedication. This doesn't match local customs however, so expect to build flexibility into your employee relationships.
Beware the seed funding gap. There are a lot of foreigners coming to Brazil and investors are becoming more selective. It might be better to obtain seed investments in other markets. Entrepreneurs should try to establish investor relationships in Europe and US in order to get better terms and raise funding successfully.
Government programs are still in their beta stage. If you can afford to wait another year before applying to a government accelerator you will receive more value. Some of the government funds are even looking to go private!
If you choose to clone, be the ﬁrst mover. If you decide to clone, the press will still proclaim you an innovator and you'll have a great shot at "creating your own category."
Brazilians aren't completely aware of what is happening in the the US tech space. You must, if you plan to raise money from foreign investors.
Advice for Foreign Entrepreneurs
Learn Portuguese - It will help you communicate better with employees and show humility in wanting to learn the language and culture. Also, most of the deals happen in Portuguese, so if you're in sales, that's an almost mandatory skill.
Find a Brazillian co-founder, key hire or investor that has experience operating in Brazil. If that person also has experience living, working, or studying abroad even better as they'll be a great cultural and professional bridge for you. This is great for sales and operations roles, given the importance of knowing the local culture and way of doing business in Brazil.
Network with local founders, VC's and everyone that can help you understand what it's like to do business in Brazil. You'll get great advice, be able to source key hires and get connected to local service providers.
People will love to work for you, and investors will pay premium on your valuation if you're foreigner. With the lack of talent and the current Brazilian recession, there is a premium for smart foreigners. Most of the major funding rounds in the past two years had at least one foreigner in the founding team.
Try to stay away from markets that can be disrupted by regulation. In Brazil things are not as fast as you'd like them to be. Unions and industry groups have a lot of power and will outlast any startup in litigation.
Meet the top notch MBA's. The founders of some of the best startups and managers of larger companies like MercadoLibre have MBA's from Stanford and Harvard. They're super well connected, have a great track record and can introduce you to the right people.
Boletos and Installments are a MUST have, not a nice to have. Ecommerce startups incentivize consumers to shop online by offering payment plans with a high number of installments.
Logistics practices can catch startups by surprise. Ecommerce practices like free returns are costly and will catch an entrepreneur off guard.
Go fast because the gap is closing. It will keep getting harder for foreigners to do business in Brazil. At the moment, there are ways around visa's and notaries but these loopholes will close as infrastructure improves.
Advice for Foreign Investors
The young exit market is in the US$10MM to US$100MM range. There has been only 7 really big exits ($500M +) in Brazil over the past decade. Therefore, successful investment strategies tend to focus on high local attrition opportunities and on the "middle of the curve" (i.e. less reliance on outliers). Although both consumer and enterprise-oriented startups have created value, successful business models gravitate around ecommerce and enterprise/SaaS, with very little room for audience-like businesses.
Structure the correct investment vehicle to avoid liabilities. Most of the time, for angel investors, it is better to make convertible debt deals in order to avoid liability. If a portfolio company fails and has debts, the government will look to collect from the angel and founders. Angels that invest in Limitadas (LTDAs) are the most at risk. For S/As, the local equivalent of a C Corp, it is much more difficult to collect from shareholders. However, shareholders with board seats in S/As can possibly be liable. A lot of angel investors prefer to set up a foreign structure and use it as a vehicle to invest in brazilian companies.
Don't invest alone. Meet local VC's and angel groups to learn about government policies and the market in more depth. Also, co-investing with locals will help you to get better terms and deal flow.
Consider investing in a local fund, instead of a bunch of companies. If you are an angel/VC that sees the market opportunity but have a hard time with deal flow and adding value to Brazilian companies, a local fund is your best option.
Expect to wait twice as long for companies to mature. Due to the lack of experience of founders and the bureaucratic policy, companies take a lot more time to mature in comparison with US companies.
Expect to face less competition. There's not a lot of competition between funds to pick companies, especially in early stage deals.
Advice for Foreign Companies
- Find a country manager/consultant.
- It is hard to hire locals who are not accustomed to US or European business standards.
- Some people specialize in bringing US companies to Brazil. The title for this profession is “Country Manager”. A few have brought as many as 2-3 companies from US to Brazil.
- Flexibility is key
- On the infrastructure side, certain technologies like the Boleto payment system can seem archaic. However, the majority of the population use these services and there's no sign they will disappear anytime soon.
- Corporate Structure and Employment Law
- Read and re-read the earlier advice regarding hiring as it proves to be the biggest initial headache for most of the foreign companies.