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Venture Capital Heads to Brazil, Defying Economic Slump

Venture Capital Heads to Brazil, Defying Economic Slump

Posted by PanamericanWorld on May 05, 2015

To understand the venture capital scene in Brazil, follow the smartphones -- not the economy.

That’s the message from Doug Leone, a partner at Sequoia Capital, an early investor in both Google Inc. and LinkedIn Corp. His firm committed funds last year to Sao Paulo-based Nubank, a technology-based financial-services company.

Local startups are reaping the benefits of a global venture capital community that’s hunting for markets with large, uptapped bases of Internet-using consumers. The current economic malaise aside, Brazil fits the bill: Tens of millions of people joined the middle class during a decade-long commodities boom.

“A month doesn’t go by where we don’t have a Brazilian company that we’re looking at,” Leone said last month in a phone interview from Menlo Park, California. “What you’re seeing is a moderated Brazil still. If things start to turn, you’re really going to see the avalanche of investors.”

Brazil has 282.6 million mobile-phone lines, or 1.39 per person, and users are quickly transitioning to newer technologies conducive to mobile Internet use, according toAnatel, the nation’s telecommunications regulator. The usage numbers make Brazil the world’s fifth-biggest mobile-phone market, according to research group Mobiforge.

Investments Quadruple

Brazil’s sputtering economy doesn’t seem to be dissuading venture capitalists: Firms quadrupled investments in the country last year to $197 million, the most since the Emerging Market Private Equity Association started compiling the data in 2010. Sequoia, Amadeus Capital Partners and Phenomen Ventures all say they expect to make more investments there this year. While China and India are the top developing-nation recipients of venture cash, Brazil’s share of the total is rising.

Brazilians also happen to love the Internet -- the favored sector of venture capitalists.

According to management consulting company A.T. Kearney, 71 percent of Brazilians say they connect to the Internet at least once every waking hour, the most among 10 nations studied. More than half of respondents say they’re connected more or less constantly throughout the day.

‘Huge’ Implications

That’s “huge” for companies, according to Hana Ben-Shabat, a partner at A.T. Kearney.

“The implication of that is you can actually target very specific consumers at any given time,” Ben-Shabat said by phone. “You can reach these consumers on the go.”

Smartphone sales rose 7 percent to 70 million units in Brazil last year, compared with a 48 percent drop in sales of simple mobile phones, according to consulting group Teleco. In the first two months of 2015, smartphone sales expanded another 26 percent from the year-earlier period.

And the population is young. Of about 195 million people in 2010, 52 percent of Brazilians were under 30, according to United Nations data. Only India is younger among the group known as the BRIC nations: Brazil, Russia, India and China.

The most significant Brazil venture capital investments of the past year sought to tap that potential.

Hotel Urbano, a Brazil online hotel booking service, got $52 million last year in the nation’s biggest venture capital funding of the period. The investors were Insight Venture Partners, an early Twitter Inc. investor, and Tiger Global Management, an early investor in Facebook Inc.

Easy Taxi, a car service application for mobile phones similar to Uber Technologies Inc., got $40 million in a funding led by Phenomen Ventures, while Movile, another application-maker, got $35 million from Innova Capital.

Tiger Global declined to comment, while Insight Venture didn’t respond to requests for comment. Veronica Allende Serra, a partner at Innova, said the Brazilian companies she invests in -- including Movile -- have operations beyond just Brazil and show “exceptional potential” for global growth.

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