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A 15-min guide by World Startup Report
Last Updated: 6/30/2014
Drew Beaurline
Co-founder @ConstructLATAM
!
Research Lead
@WorldStartuprpt
!
Techstars and SEED Graduate
@wheretodrew
Diego Gomes
Co-founder @Rock Content
!
Volunteer @Dealbook.co
!
Blog @webholic
@dttg
AUTHORS
Nico 

Berman
Eric
Acher
Luciano
Tavares
Luiz
Octavio Maluf
André
Barrence
Cássio
Spina
Matt
Montenegro
Bowei
Gai
CONTRIBUTORS
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Document
Document our world’s startup ecosystems through a series of reports
detailing the local culture, trends, key players and challenges. Share these
reports for free to benefit everyone in the global startup community.
OUR MISSION
Connect
Identify and empower local startup activists to become the ambassadors of
each ecosystem. Leverage this network of ambassadors to help connect
people to each other and build a global startup community.
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Brazil is the gateway to success in Latin
America.
WHY BRAZIL?
!
The companies that have won Brazil are the
largest in the region.
BRAZIL AT A GLANCE
Brazil India United	
  States
Popula4on 202M 1237M 314M
GDP	
  (2013) $2.4T $1.8T $15.6T
GDP	
  per	
  capita	
  (2012) $11,339 $1,503 $51,748
Infla4on	
  rate	
  (2014) 6% 7% 2%
Area	
  (km2) 8,515,767 3,166,414 9,372,610
Ease	
  of	
  doing	
  business	
  (2014) 123 134 4
%	
  of	
  popula4on	
  that	
  speaks	
  
english	
  (2012)
5% 10% 94%
Number	
  of	
  millionaires	
  (2014) 126,000 190,000 9,630,000
World	
  Cup	
  match	
  
victories	
  (all	
  4me)
70	
   0 8
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WEB AND MOBILE STATISTICS
Brazil India United	
  States
Popula4on 202M 1237M 314M
Internet	
  popula4on	
  (2013) 50% 13% 81%
Mobile	
  phone	
  penetra4on	
  (2013) 126% 72% 106%
Smartphone	
  penetra4on	
  (2014) 23% 10% 76%
Credit	
  card	
  penetra4on	
  (2013) 69% 1.6% 71%
Facebook	
  penetra4on	
  (2013) 35% 5% 53%
E-­‐commerce	
  revenue	
  (2013) $13.1B $16B $207B
Largest	
  internet	
  company B2W	
  
($2.1B)
Flipkart	
  
($2.5B)
Google	
  
($410B)
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BRAZIL
=
ALL OTHER SOUTH AMERICAN COUNTRIES COMBINED!
Brazil All	
  Other	
  South	
  American	
  
Countries	
  Combined
202M Popula4on 190M
8.51M	
  km2 Geographic	
  size 9.39M	
  km2
64B Foreign	
  direct	
  investment 64B
99M Internet	
  users 95M
242M Mobile	
  subscrip4on 215M
2.34B PE	
  &	
  VC	
  Raised	
  in	
  2013 2.53B
“Startups across other South American countries also understand the opportunity, and will try
to bring their businesses to Brazil once a model is partially validated.” @nicoberman
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"Brazil's economic miracle actually occurred in the
1970's. The country already has basic
infrastructure and is not starting completely from
scratch like India.” @eacher
ECOSYSTEM HISTORY
1998-2008: PIONEERS
The first wave of Brazilian internet startups started in
1998 during the hype of the Internet Bubble.
The Akwan office in Belo Horizonte remains Google’s South American research and development center.
Zeek and Cadê?
Search (1999)
!
Acquired by Starmedia
UOL
Media (2005)
!
IPO but no longer
publicly traded
Akwan
Search (2005)
!
Bought by Google
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“When the bubble burst in 2000, almost all
startup activity disappeared. Similar to the USA,
the internet startups that did survive became
some of the biggest tech companies in Brazil.”
@dttg
THE BRAZILIAN BUBBLE BURSTS
2009: A HERO EMERGES
The Global Financial Crisis lightly impacted Brazil
!
While the developed world witnessed low growth rates, American and European investors
along with companies like Naspers, Tiger Global, NEA, Goldman Sachs and Barclays
Capital saw growth opportunities in Brazil.
!
Local Venture Capital firms like Monashees Capital and Confrapar were doing early stage
deals and passing them to foreign firms for follow on rounds.
When Buscapé (a price comparison engine) sold to Naspers for $342 million, foreign investors
had a success case to prove their investment thesis. Capital then poured into Brazil.
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2010-2012: ATTACK OF THE CLONES
Replicating a proven internet business model was hot!
• E-commerce business models were the most commonly copied.
• Forrester forecasted that the e-commerce market in Brazil would grow by 18%
annually.
• High profile VC's competed for deals and valuations were inflated.
Dafiti
(Amazon clone)
!
Total investment of $249 million
!
Estimated revenues of $200 million
in 2013
BrandsClub
(Gilt clone)
!
Raised more than $17 million
!
Facing crisis and considered a
failure by some
Peixe Urbano
(Groupon clone)
!
0-500 employees in under a year
!
Underwent a complete restructuring
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“Investors could be convinced more easily in 2010
that copying a proven internet business model
from the United States was a sure bet. Many
were too early and did not understand the
market.” @ClemensRaemy
RACING TO REPLICATE
2013: NEW BEGINNINGS
Foreign investors get nervous
● By 2013, prominent foreign investors like Sequoia and Accel Partners closed their
offices in Brazil because startups were not growing at expected rates.
!
So local investors moved in
● Local investors with more knowledge of the Brazilian landscape quickly took their
place and are now leading the ecosystem.
● There are at least three funds with more than $100 million under management
that are focused on investing in Brazilian companies: eBricks Ventures, Redpoint
eVentures and Kaszek.
!
But no one wants to miss out on Brazilian opportunities
● Foreign investors are choosing to keep their operations in the USA and invest
alongside local venture capital and private equity funds.
● This allows foreign investors to take advantage of the large market and skip the
complications of deal flow and bureaucratic policies.
The new (2014) $135 million fund of Kaszek Ventures received participation from both
Sequoia and Accel Partners whose departure worried many entrepreneurs.
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NAMES TO KNOW
TOP STARTUPS
Dafiti
(Amazon Clone)
!
Raised $249 million dollars
Funded by Rocket Internet
EasyTaxi
(Uber Clone)
!
Available in over 27 countries
Funded by Rocket Internet
Resultados Digitais
!
First marketing automation
company in Brazil
0 to 500 clients in 2 years
ContaAzul
!
Leading B2B accounting software
More than 10k customers
Funded by 500 startups
Bidu
!
Raised $9 million
Mercado Livre partner for
online insurance sales
Rising Stars
Recent Success
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ANGELS, ACCELERATORS, VCs
Angels Accelerators VCs
Florian	
  O=o	
  
(Founder	
  Groupon	
  Brazil)
21212 Kaszek	
  Ventures
Kai	
  Schoppen	
  
(CEO	
  of	
  BrandsClub)
Wayra Monashees
Fabrice	
  Grinda	
  
(Serial	
  entrepreneur)
Papaya	
  Ventures Tiger	
  Global
Manoel	
  Lemos	
  
(Chief	
  Digital	
  Officer	
  of	
  Abril)	
  Media)
MicrosoY	
  Accelerator Rocket	
  Internet
Luciano	
  Tavares	
  
(Founder	
  of	
  Magne]s)
AceleraMGTI RedPoint	
  eVentures
Cassio	
  Spina	
  
(Anjos	
  do	
  Brasil	
  founder)
Outsource	
  Brazil eBricks	
  Capital
Jose	
  Marin Aceleratech Insight	
  Venture	
  Partners
SEED 500Startups
Startup	
  Rio Trive	
  Capital
Astella	
  Invest
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MEDIA, MEETUPS, EVENTS
Blogs	
  &	
  Media Meetups Events	
  &	
  Conferences
Startupi BR	
  NewTech PREI
Webholic Circuito	
  Startup Campus	
  Party	
  Brazil
Exame	
  PME SanPedroCerva Lean	
  Startup	
  Machine
Man	
  in	
  the	
  arena Brazil	
  Founders Demo	
  Day	
  Minas
Terceiro	
  Turno Geeks	
  on	
  a	
  Plane Campus	
  Party
Startup	
  Stars Startup	
  Weekend
Startup	
  Farm
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“Brazil is so diverse that a Brazilian passport is
one of the most coveted items on the black
market. Anyone can be a Brazilian!”
@CassioSpina
CULTURE
BRAZIL CULTURAL SURPRISES
Trust is the only scarce commodity in Brazil
• Brazilians must trust someone before they ever sign a contract due to the country’s
history of violence and corruption.
!
But foreigners are loved!
• Brazilians are incredibly hospitable and often times more willing to trust a foreigner.
• Foreign founders can use this to their advantage in order to fundraise and receive
introductions to prominent figures in the ecosystem.
!
Friendship and celebration are obsessions
• “Americans typically conduct business in a transactional way with companies.
Brazilians do business with people. Friendship is typically the first step in a
business relationships and it causes longer sales cycles than in USA.” @dttg
• Brazilians are extremely extroverted and enjoy celebrating every occasion.
• Municipalities can decide to make Brazil's World Cup matches into public holidays.
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“Carnival is a holiday that starts 46 days before
Easter. 80% of Brazil's annual consumption of
beer and 70% of the annual tourism comes during
this time. This month of decreased business
activity is great for making new connections but
expect much lower B2B sales numbers.” @dttg
CARNIVAL
BRAZILIAN CULTURE v STARTUP CULTURE
Brazilians only work 228 days a year and expect to pay double
• Brazilian law mandates that no one can work more than 44 hours a week without
receiving additional pay.
• Employees are entitled to a 13th month salary 30 days paid vacation per year and cost
employers an additional 40% in payroll tax.
!
1st time Brazilian founders and investors tend to be short-sighted
• The culture of young entrepreneur working for free for an experienced entrepreneur to
learn and establish a network, is not common in Brazil.
• 1st time Brazilian investors can handcuff founders and push them to focus on revenue
• Most Brazilians are focused on the now instead of the long-term future.
!
Talented entrepreneurs are hard to find
• Staying in the same job and moving up the corporate/government hierarchy is regarded
as the most effective way to obtain wealth.
• However, a startup community with a higher appetite for risk is growing fast because
startups are now “TV cool.”
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ONLINE CULTURE
Brazil are some of the most active Facebook users in the world!
• Brazilians publish the most number of posts out of all Facebook countries
• The global average time spent on Facebook is 361 minutes per user/month
• Brazilians spend 535 minutes per month on Facebook!
• It’s not uncommon for high level introductions to come through Facebook instead of email.
!
E-commerce is solving major pains for consumers
• The difficulty of transportation in major Brazilian cities makes shopping a headache
• The average e-commerce order size is $170!
!
Brazilians are early adopters
• Companies are more willing to invest in innovation than any other South American Nation.
• 35% of the population is perceived as an early adopter.
"Online culture is also extroverted and focused on friendship.” @wheretodrew
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“Truck drivers are waiting weeks to put their
containers on a ship! Lines of trucks stretch over
50km long.” @wheretodrew
LOGISTICS AND
INFRASTRUCTURE
PHYSICAL INFRASTRUCTURE
Getting logistics right is crazy
• Practices like free returns are costly and will catch an entrepreneur off guard.
!
Poorly maintained roads cause unbearable traffic in large cities
• Wealthy executives travel by helicopter in Sao Paulo to avoid getting stuck in street
traffic.
!
Trucks are everywhere
• Only 25% of goods and services are transported by train as opposed to 43% in the
USA.
!
Ports lack capacity
• Commodity exporters are trying to meet demand from China and USA but fail due to
portuary infrastructure problems.
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TECHNOLOGICAL INFRASTRUCTURE
Brazil lacks an API Ecosystem
• Payment API's, logistics tracking systems and public data API’s are outdated and
sometimes non-existent.
!
Boletos and Installments are MUST-HAVES
• 30% of e-commerce transactions occur using “boletos”. Shoppers will print out a
serial code and then pay at a local corner store or ATM.
• Although these methods of payment seem archaic, e-commerce startups
incentivize consumers to shop online by offering payment plans with a high
number of “parcelas” (installments.)
• “Brazilians are buying shampoo with a boleto or paying for it in parcelas over 6
months.” @lmzmendes
!
3g is really 1g
• Operators are only obliged to offer 30% of the contracted speed!
!
“Brazilian entrepreneurs in the mobile space need to spend a lot more time optimizing
applications to function well with limited connectivity.” @wheretodrew
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TAXES
Most startups are taxed on their revenues, not profit
• There are two main types of tax regimes, lucro presumido (estimated profits) and
lucro real (real profits).
• Setting up a company that is taxed lucro real will cost a startup more money in
legal/setup fees than being taxed on revenues.
!
The “simples” tax regime is great for local entrepreneurs
• The simples tax model offers lower tax rates to young companies (around 8% on
revenue).
• Unfortunately, foreign founders can't incorporate under the simples tax regime.
• Foreigners should expect to be taxed around 17% on every invoice from day one.
!
Accountants are a commodity and necessity
• Due to the complexity of the system, every startup needs an accounting service.
Luckily, they are not very expensive.
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BUREAUCRACY
DEEPLY INGRAINED IN THE CULTURE
Dealing with the Brazilian government is costly and complicated
• 13.2% of the population is employed by the government vs. 6.9% in the USA.
• The cost of corruption and bureaucracy are often called “Brazil Costs.”
• Common internet business models in the USA, involving online legal services, peer to
peer lending and ticketing are complicated or illegal in Brazil.
• The lack of legal templates for company incorporation can cause thousands of dollars in
upfront costs.
!
It’s even worse for foreign entrepreneurs
• Foreign entrepreneurs should expect to spend about 70 days and around $3,000 in
legal fees to incorporate.
“It's critical to prioritize certain legal matters over others to avoid having a startup
become stagnant. A great lawyer is your best friend.” @dttg
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“To innovate, it takes risk. And for a high-risk business
to succeed, a long and uncertain investment return is
required. The investor in Brazil has to deal with an
inhospitable environment and can not support the
risk to build a billion dollar business.
!
Let’s say we put risk on a numerical scale. The
investor typically can handle a risk of 10. Our
economy now accounts for 5, then the other 5 are
insufficient to truly innovative sectors of the economy
which would be incredibly beneficial to the economy.”
!
@gusguida
RISKS
TALENT POOL
Startup hires typically choose an increased salary and
benefits over equity
• Most individuals would rather work for the government, banks or big corporations.
• Technical talent is so scarce that they are usually not afraid of being fired.
!
Competitors are dangerous but employees can hit harder
• The government will always take the side of the employee in any legal dispute.
• Employers will often have salaried employees punch in and out of a time clock to
avoid a dispute where an employee claims they were overworked.
!
A salary raise cannot be reversed
• Companies cannot fire anyone in the month where the employee is supposed to
negotiate a raise on their own behalf or through their union.
Minimum annual salary by law is $4300
Talent	
  Costs	
  USD	
  	
  
(including	
  benefits)
Entry	
  Level Good/Experienced	
  Hire
Developer	
  Salary	
  (yearly) $50,000 $109,000
Startups	
  Salary	
  (yearly	
  
es4mate)
$20,000 $36,000
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COMPETITION
Brazil has less competition than the USA or China.
• The lack of startups serving the local market leads to very little competition
among startups.
• Culturally, Brazilians tend to be less nasty and cut-throat in business than they
are in soccer.
!
Bureaucracy as a benefit
• Foreign competitors are often afraid to enter Brazil given the thick bureaucracy.
This can help shield an early stage startup from a mature foreign competitor.
!
Young startup ecosystem
• Startups are still a new concept so many do not have local competitors.
“Local startups are usually competing against adversity rather than against other startups. This
can be good or bad, depending on the startup and its sector. Our company, for instance, does not
have local competitors. But we also don’t have regulatory incentives that similar startups find in
the US.” @dmbranco
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FUNDRAISING
High interest rates make bootstrapping difficult
• Brazilian credit cards have insanely high interest rates.
• Business loans require a local friend/family member to assume liability for unpaid
company's debt.
!
Few Angels have the expertise to mentor a growing startup
• Local term sheets are typically not as “startup friendly” as they are in the USA.
• It’s important to find local angels that will understand the unit economics of internet
business models.
!
Series A’s are led by 3 major players
• Monashees, Kaszek and eBricks Digital are usually the best options for a series A.
• They will also participate in Series B rounds that are led by international VC’s.
!
Stay close to the tech hubs
• Strong communities are forming in Belo Horizonte (San Pedro Valley) and Rio de
Janeiro but São Paulo is still the place to be when fundraising from local investors.
“If you find yourself in the ‘seed round crunch,’ get on the night bus to São Paulo and find a
couch to sleep on.” @wheretodrew
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GOVERNMENT PROGRAMS
Both Federal and State governments in Brazil are creating programs that support technology
startups. The two main programs are Startup Brazil and SEED, both modeled after StartupChile.
A third program is being launched in Rio de Janeiro. The fierce competition among these
programs is benefitting the ecosystem and becoming a major opportunity for entrepreneurs.
SEED Startup	
  Brazil
Loca4on Belo	
  Horizonte Many	
  Ci]es
Total	
  funding Up	
  to	
  R$80,000 Over	
  R$200,000
Government	
  responsible? State Federal
Required	
  private	
  accelerator	
  
involvement?
No Yes
Equity	
  taken	
  for	
  money? No Yes
Free	
  office	
  space? Yes Yes
Visa	
  help? Lots Some
Rules	
  for	
  use	
  of	
  funds? Few Many
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"If the government wants to help entrepreneurs,
they shouldn't incentivize them with more capital.
They should be removing bureaucratic obstacles."
@eacher
LOOKING AHEAD
COMPETITIVE ADVANTAGES
Brazil has 99 million tech-savvy internet users
• Brazilians can be easily found on social networks.
• Paid traffic sources like Facebook advertising and Google Adwords cost a lot less than in
the US.
• By 2016 broadband and 3G penetration are projected to increase by 32% and 103%
respectively.
!
Few competitors in a big potential market
• The bureaucratic environment and lack of entrepreneurs protects companies from
competition.
• The 5th largest market in the world based on population and geographic area presents a
huge opportunity if bureaucracy is managed correctly.
!
Brazilians are accustomed to paying high prices for goods/services
• The government has set high tariffs for any imported good or service which has caused
Brazilians to become accustomed to paying double for basic necessities.
“Brazilians have a hard time perceiving a product or service as valuable if the
price is too cheap.” @wheretodrew
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OPPORTUNITIES
B2B software (Saas)
• Brazil is following a similar evolution as the United States. The first entrepreneurs
pursued the exponential growth curves that are typical in B2C startups.
• However, a new generation of B2B Startups has emerged.
• Saas providers like ContaAzul and Resultados Digitais are expected to be huge exits
and are leading the cloud computing movement.
• B2B companies will have an easier time bootstrapping off of revenues and
navigating local funding complexities.
!
E-commerce
• E-commerce remains attractive, but most of the companies in the sector are raising
series B,C and D rounds.
• E-commerce sales are expected to reach $22 billion by 2016.
!
Infrastructure and logistics
• Services that are bureaucratic and costly due to infrastructure constraints are
creating huge opportunities for disruption.
• Payments, ticketing, legal documents and construction are just to name a few.
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Title Text
BRAZIL COMMODITY
INNOVATION MAP
Mobile
Communication
(Whatsapp)
Whatsapp
Job Board
(Monster)
Catho
Taxi
(Uber)
EasyTaxi
Accounting
(Quickbooks)
Contazul
Fashion
(Aalora)
Dafiti
Auction
(Ebay)
Mercado Livre
Home Purchase
(Zillow)
Vivareal
Hotels
(hotels.com)
Hotel Urbano
Listing
(Craigslist)
OLX
Auto Sales
(Autotrader)
Webmotors
Private Sales
(FAB)
Brandsclub
Microwork
(Taskrabbit)
Get Ninjas
Crowdfunding
(Kickstarter)
Catarse
Education
(Coursera)
Portal Educação
Furniture
(One Kings Lane)
Oppa
Content Marketing
(Contently)
Rock Content
Marketing
Automation
(Hubspot)
Resultados Digitais
Reservation
(Opentable)
Zuppa
Field Team
Management
(FieldLens)
Construct
Groceries
(Freshdirect)
Frutas em casa
Legal
(Legalzoom)
???
Taxes
(Turbo Tax)
???
Lending
(Lending Club)
???
Ride Sharing
(Lyft)
???
Social community
(Reddit)
??
Saturated
Mature
Semi-Mature
Infancy
Non Existant
ADVICE: LOCAL ENTREPRENEURS
Stop waiting and jump
• Brazilians understand the market and government much better than foreign
entrepreneurs.
• Yet often times local entrepreneurs lack agility, determination and access to capital,
thus resulting in missed opportunities.
!
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.
• Finding an establish investor in Europe or the USA might help a local entrepreneur
get better terms and raise funding successfully.
!
You don't need to be a visionary
• Early technology adopters can follow global startup trends to identify when an
international business model is ready for the local market.
• Just make sure you are the first mover and prioritize bureaucratic obstacles.
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ADVICE: FOREIGN ENTREPRENEURS
Focus on language and culture
• Find a co-founder, key hire, investor or mentor that has experience operating in
Brazil.
• Only 5% of the population speaks English and the Brazilian way of doing business is
hard to understand.
!
“Gringo” is not a bad thing
• People will love to work for you, and investors will pay premium on your valuation if
you are a smart foreigner.
• Most of the major deals in the past two years had at least one foreigner in the
founding team.
!
Stay clear of markets that can be disrupted by regulation
• Unions and industry groups have a lot of power and will outlast any startup in
litigation. Make sure to avoid these.
!
Meet the top notch MBAs
• The founders of some of the best startups and managers of larger companies like
MercadoLivre have MBAs from Stanford and Harvard. They're super well
connected, have a great track record and can introduce you to the right people.
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ADVICE: INVESTORS
Look for exits in the $10 million to $100 million range
• There have only been 7 exits of over $500M in 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).
!
Structure the correct investment vehicle to avoid liabilities
• Most of the time it is better for angels to do convertible debt deals in order to avoid
liability.
!
Consider investing in a local fund, instead of individual
companies
• If you see the market opportunity but have a hard time adding value to Brazilian
startups, a local fund could be a good option.
!
Expect to wait twice as long for companies to mature
• Due to a lack of experienced founders and bureaucratic policies, companies take a
lot more time to mature when compared to the USA.
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ADVICE: FOREIGN COMPANIES
Find a country manager/consultant before expanding
• It is hard to hire locals who are accustomed to USA or European business
standards.
• Some people specialize in becoming country managers for USA companies in
Brazil. Seek these people.
!
Flexibility is key
• 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 soon.
• If you worry about every bureaucratic detail you will be overwhelmed so prioritize
effectively.
!
Corporate structure and employment law
• Read and re-read advice regarding hiring and visas. This tends to be the biggest
initial headache for most foreign companies.
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FOOD FOR THOUGHT
Brazil is NOT the best place to run a business and
entrepreneurs have a million complaints!
!
!
!
So why does everyone still want to come here?
!
CONCLUSION
!
The answer is simple. Brazil is equal to the rest of
the South American market COMBINED.
!
!
If you can win Brazil, you will have an easier time
winning other South American markets.
!
!
Those who can bring both relevant sector expertise
and a deep understanding of the local environment
will be positioned for big wins.
WORLD STARTUP WIKI
•If you would like to:
• Learn more about navigating the Brazilian ecosystem
• Compare statistics with countries all over the world
• View more sources for our data
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Brazil Startup Report

  • 1. A 15-min guide by World Startup Report Last Updated: 6/30/2014
  • 2. Drew Beaurline Co-founder @ConstructLATAM ! Research Lead @WorldStartuprpt ! Techstars and SEED Graduate @wheretodrew Diego Gomes Co-founder @Rock Content ! Volunteer @Dealbook.co ! Blog @webholic @dttg AUTHORS Nico 
 Berman Eric Acher Luciano Tavares Luiz Octavio Maluf André Barrence Cássio Spina Matt Montenegro Bowei Gai CONTRIBUTORS @2014 All Rights ReservedJoin us: @WorldStartupRpt
  • 3. Document Document our world’s startup ecosystems through a series of reports detailing the local culture, trends, key players and challenges. Share these reports for free to benefit everyone in the global startup community. OUR MISSION Connect Identify and empower local startup activists to become the ambassadors of each ecosystem. Leverage this network of ambassadors to help connect people to each other and build a global startup community. @2014 All Rights ReservedJoin us: @WorldStartupRpt
  • 4. Brazil is the gateway to success in Latin America. WHY BRAZIL? ! The companies that have won Brazil are the largest in the region.
  • 5. BRAZIL AT A GLANCE Brazil India United  States Popula4on 202M 1237M 314M GDP  (2013) $2.4T $1.8T $15.6T GDP  per  capita  (2012) $11,339 $1,503 $51,748 Infla4on  rate  (2014) 6% 7% 2% Area  (km2) 8,515,767 3,166,414 9,372,610 Ease  of  doing  business  (2014) 123 134 4 %  of  popula4on  that  speaks   english  (2012) 5% 10% 94% Number  of  millionaires  (2014) 126,000 190,000 9,630,000 World  Cup  match   victories  (all  4me) 70   0 8 @2014 All Rights ReservedJoin us: @WorldStartupRpt
  • 6. WEB AND MOBILE STATISTICS Brazil India United  States Popula4on 202M 1237M 314M Internet  popula4on  (2013) 50% 13% 81% Mobile  phone  penetra4on  (2013) 126% 72% 106% Smartphone  penetra4on  (2014) 23% 10% 76% Credit  card  penetra4on  (2013) 69% 1.6% 71% Facebook  penetra4on  (2013) 35% 5% 53% E-­‐commerce  revenue  (2013) $13.1B $16B $207B Largest  internet  company B2W   ($2.1B) Flipkart   ($2.5B) Google   ($410B) @2014 All Rights ReservedJoin us: @WorldStartupRpt
  • 7. BRAZIL = ALL OTHER SOUTH AMERICAN COUNTRIES COMBINED! Brazil All  Other  South  American   Countries  Combined 202M Popula4on 190M 8.51M  km2 Geographic  size 9.39M  km2 64B Foreign  direct  investment 64B 99M Internet  users 95M 242M Mobile  subscrip4on 215M 2.34B PE  &  VC  Raised  in  2013 2.53B “Startups across other South American countries also understand the opportunity, and will try to bring their businesses to Brazil once a model is partially validated.” @nicoberman @2014 All Rights ReservedJoin us: @WorldStartupRpt
  • 8. "Brazil's economic miracle actually occurred in the 1970's. The country already has basic infrastructure and is not starting completely from scratch like India.” @eacher ECOSYSTEM HISTORY
  • 9. 1998-2008: PIONEERS The first wave of Brazilian internet startups started in 1998 during the hype of the Internet Bubble. The Akwan office in Belo Horizonte remains Google’s South American research and development center. Zeek and Cadê? Search (1999) ! Acquired by Starmedia UOL Media (2005) ! IPO but no longer publicly traded Akwan Search (2005) ! Bought by Google @2014 All Rights ReservedJoin us: @WorldStartupRpt
  • 10. “When the bubble burst in 2000, almost all startup activity disappeared. Similar to the USA, the internet startups that did survive became some of the biggest tech companies in Brazil.” @dttg THE BRAZILIAN BUBBLE BURSTS
  • 11. 2009: A HERO EMERGES The Global Financial Crisis lightly impacted Brazil ! While the developed world witnessed low growth rates, American and European investors along with companies like Naspers, Tiger Global, NEA, Goldman Sachs and Barclays Capital saw growth opportunities in Brazil. ! Local Venture Capital firms like Monashees Capital and Confrapar were doing early stage deals and passing them to foreign firms for follow on rounds. When Buscapé (a price comparison engine) sold to Naspers for $342 million, foreign investors had a success case to prove their investment thesis. Capital then poured into Brazil. @2014 All Rights ReservedJoin us: @WorldStartupRpt
  • 12. 2010-2012: ATTACK OF THE CLONES Replicating a proven internet business model was hot! • E-commerce business models were the most commonly copied. • Forrester forecasted that the e-commerce market in Brazil would grow by 18% annually. • High profile VC's competed for deals and valuations were inflated. Dafiti (Amazon clone) ! Total investment of $249 million ! Estimated revenues of $200 million in 2013 BrandsClub (Gilt clone) ! Raised more than $17 million ! Facing crisis and considered a failure by some Peixe Urbano (Groupon clone) ! 0-500 employees in under a year ! Underwent a complete restructuring @2014 All Rights ReservedJoin us: @WorldStartupRpt
  • 13. “Investors could be convinced more easily in 2010 that copying a proven internet business model from the United States was a sure bet. Many were too early and did not understand the market.” @ClemensRaemy RACING TO REPLICATE
  • 14. 2013: NEW BEGINNINGS Foreign investors get nervous ● By 2013, prominent foreign investors like Sequoia and Accel Partners closed their offices in Brazil because startups were not growing at expected rates. ! So local investors moved in ● Local investors with more knowledge of the Brazilian landscape quickly took their place and are now leading the ecosystem. ● There are at least three funds with more than $100 million under management that are focused on investing in Brazilian companies: eBricks Ventures, Redpoint eVentures and Kaszek. ! But no one wants to miss out on Brazilian opportunities ● Foreign investors are choosing to keep their operations in the USA and invest alongside local venture capital and private equity funds. ● This allows foreign investors to take advantage of the large market and skip the complications of deal flow and bureaucratic policies. The new (2014) $135 million fund of Kaszek Ventures received participation from both Sequoia and Accel Partners whose departure worried many entrepreneurs. @2014 All Rights ReservedJoin us: @WorldStartupRpt
  • 16. TOP STARTUPS Dafiti (Amazon Clone) ! Raised $249 million dollars Funded by Rocket Internet EasyTaxi (Uber Clone) ! Available in over 27 countries Funded by Rocket Internet Resultados Digitais ! First marketing automation company in Brazil 0 to 500 clients in 2 years ContaAzul ! Leading B2B accounting software More than 10k customers Funded by 500 startups Bidu ! Raised $9 million Mercado Livre partner for online insurance sales Rising Stars Recent Success @2014 All Rights ReservedJoin us: @WorldStartupRpt
  • 17. ANGELS, ACCELERATORS, VCs Angels Accelerators VCs Florian  O=o   (Founder  Groupon  Brazil) 21212 Kaszek  Ventures Kai  Schoppen   (CEO  of  BrandsClub) Wayra Monashees Fabrice  Grinda   (Serial  entrepreneur) Papaya  Ventures Tiger  Global Manoel  Lemos   (Chief  Digital  Officer  of  Abril)  Media) MicrosoY  Accelerator Rocket  Internet Luciano  Tavares   (Founder  of  Magne]s) AceleraMGTI RedPoint  eVentures Cassio  Spina   (Anjos  do  Brasil  founder) Outsource  Brazil eBricks  Capital Jose  Marin Aceleratech Insight  Venture  Partners SEED 500Startups Startup  Rio Trive  Capital Astella  Invest @2014 All Rights ReservedJoin us: @WorldStartupRpt
  • 18. MEDIA, MEETUPS, EVENTS Blogs  &  Media Meetups Events  &  Conferences Startupi BR  NewTech PREI Webholic Circuito  Startup Campus  Party  Brazil Exame  PME SanPedroCerva Lean  Startup  Machine Man  in  the  arena Brazil  Founders Demo  Day  Minas Terceiro  Turno Geeks  on  a  Plane Campus  Party Startup  Stars Startup  Weekend Startup  Farm @2014 All Rights ReservedJoin us: @WorldStartupRpt
  • 19. “Brazil is so diverse that a Brazilian passport is one of the most coveted items on the black market. Anyone can be a Brazilian!” @CassioSpina CULTURE
  • 20. BRAZIL CULTURAL SURPRISES Trust is the only scarce commodity in Brazil • Brazilians must trust someone before they ever sign a contract due to the country’s history of violence and corruption. ! But foreigners are loved! • Brazilians are incredibly hospitable and often times more willing to trust a foreigner. • Foreign founders can use this to their advantage in order to fundraise and receive introductions to prominent figures in the ecosystem. ! Friendship and celebration are obsessions • “Americans typically conduct business in a transactional way with companies. Brazilians do business with people. Friendship is typically the first step in a business relationships and it causes longer sales cycles than in USA.” @dttg • Brazilians are extremely extroverted and enjoy celebrating every occasion. • Municipalities can decide to make Brazil's World Cup matches into public holidays. @2014 All Rights ReservedJoin us: @WorldStartupRpt
  • 21. “Carnival is a holiday that starts 46 days before Easter. 80% of Brazil's annual consumption of beer and 70% of the annual tourism comes during this time. This month of decreased business activity is great for making new connections but expect much lower B2B sales numbers.” @dttg CARNIVAL
  • 22. BRAZILIAN CULTURE v STARTUP CULTURE Brazilians only work 228 days a year and expect to pay double • Brazilian law mandates that no one can work more than 44 hours a week without receiving additional pay. • Employees are entitled to a 13th month salary 30 days paid vacation per year and cost employers an additional 40% in payroll tax. ! 1st time Brazilian founders and investors tend to be short-sighted • The culture of young entrepreneur working for free for an experienced entrepreneur to learn and establish a network, is not common in Brazil. • 1st time Brazilian investors can handcuff founders and push them to focus on revenue • Most Brazilians are focused on the now instead of the long-term future. ! Talented entrepreneurs are hard to find • Staying in the same job and moving up the corporate/government hierarchy is regarded as the most effective way to obtain wealth. • However, a startup community with a higher appetite for risk is growing fast because startups are now “TV cool.” @2014 All Rights ReservedJoin us: @WorldStartupRpt
  • 23. ONLINE CULTURE Brazil are some of the most active Facebook users in the world! • Brazilians publish the most number of posts out of all Facebook countries • The global average time spent on Facebook is 361 minutes per user/month • Brazilians spend 535 minutes per month on Facebook! • It’s not uncommon for high level introductions to come through Facebook instead of email. ! E-commerce is solving major pains for consumers • The difficulty of transportation in major Brazilian cities makes shopping a headache • The average e-commerce order size is $170! ! Brazilians are early adopters • Companies are more willing to invest in innovation than any other South American Nation. • 35% of the population is perceived as an early adopter. "Online culture is also extroverted and focused on friendship.” @wheretodrew @2014 All Rights ReservedJoin us: @WorldStartupRpt
  • 24. “Truck drivers are waiting weeks to put their containers on a ship! Lines of trucks stretch over 50km long.” @wheretodrew LOGISTICS AND INFRASTRUCTURE
  • 25. PHYSICAL INFRASTRUCTURE Getting logistics right is crazy • Practices like free returns are costly and will catch an entrepreneur off guard. ! Poorly maintained roads cause unbearable traffic in large cities • Wealthy executives travel by helicopter in Sao Paulo to avoid getting stuck in street traffic. ! Trucks are everywhere • Only 25% of goods and services are transported by train as opposed to 43% in the USA. ! Ports lack capacity • Commodity exporters are trying to meet demand from China and USA but fail due to portuary infrastructure problems. @2014 All Rights ReservedJoin us: @WorldStartupRpt
  • 26. TECHNOLOGICAL INFRASTRUCTURE Brazil lacks an API Ecosystem • Payment API's, logistics tracking systems and public data API’s are outdated and sometimes non-existent. ! Boletos and Installments are MUST-HAVES • 30% of e-commerce transactions occur using “boletos”. Shoppers will print out a serial code and then pay at a local corner store or ATM. • Although these methods of payment seem archaic, e-commerce startups incentivize consumers to shop online by offering payment plans with a high number of “parcelas” (installments.) • “Brazilians are buying shampoo with a boleto or paying for it in parcelas over 6 months.” @lmzmendes ! 3g is really 1g • Operators are only obliged to offer 30% of the contracted speed! ! “Brazilian entrepreneurs in the mobile space need to spend a lot more time optimizing applications to function well with limited connectivity.” @wheretodrew @2014 All Rights ReservedJoin us: @WorldStartupRpt
  • 27. TAXES Most startups are taxed on their revenues, not profit • There are two main types of tax regimes, lucro presumido (estimated profits) and lucro real (real profits). • Setting up a company that is taxed lucro real will cost a startup more money in legal/setup fees than being taxed on revenues. ! The “simples” tax regime is great for local entrepreneurs • The simples tax model offers lower tax rates to young companies (around 8% on revenue). • Unfortunately, foreign founders can't incorporate under the simples tax regime. • Foreigners should expect to be taxed around 17% on every invoice from day one. ! Accountants are a commodity and necessity • Due to the complexity of the system, every startup needs an accounting service. Luckily, they are not very expensive. @2014 All Rights ReservedJoin us: @WorldStartupRpt
  • 28. BUREAUCRACY DEEPLY INGRAINED IN THE CULTURE Dealing with the Brazilian government is costly and complicated • 13.2% of the population is employed by the government vs. 6.9% in the USA. • The cost of corruption and bureaucracy are often called “Brazil Costs.” • Common internet business models in the USA, involving online legal services, peer to peer lending and ticketing are complicated or illegal in Brazil. • The lack of legal templates for company incorporation can cause thousands of dollars in upfront costs. ! It’s even worse for foreign entrepreneurs • Foreign entrepreneurs should expect to spend about 70 days and around $3,000 in legal fees to incorporate. “It's critical to prioritize certain legal matters over others to avoid having a startup become stagnant. A great lawyer is your best friend.” @dttg @2014 All Rights ReservedJoin us: @WorldStartupRpt
  • 29. “To innovate, it takes risk. And for a high-risk business to succeed, a long and uncertain investment return is required. The investor in Brazil has to deal with an inhospitable environment and can not support the risk to build a billion dollar business. ! Let’s say we put risk on a numerical scale. The investor typically can handle a risk of 10. Our economy now accounts for 5, then the other 5 are insufficient to truly innovative sectors of the economy which would be incredibly beneficial to the economy.” ! @gusguida RISKS
  • 30. TALENT POOL Startup hires typically choose an increased salary and benefits over equity • Most individuals would rather work for the government, banks or big corporations. • Technical talent is so scarce that they are usually not afraid of being fired. ! Competitors are dangerous but employees can hit harder • The government will always take the side of the employee in any legal dispute. • Employers will often have salaried employees punch in and out of a time clock to avoid a dispute where an employee claims they were overworked. ! A salary raise cannot be reversed • Companies cannot fire anyone in the month where the employee is supposed to negotiate a raise on their own behalf or through their union. Minimum annual salary by law is $4300 Talent  Costs  USD     (including  benefits) Entry  Level Good/Experienced  Hire Developer  Salary  (yearly) $50,000 $109,000 Startups  Salary  (yearly   es4mate) $20,000 $36,000 @2014 All Rights ReservedJoin us: @WorldStartupRpt
  • 31. COMPETITION Brazil has less competition than the USA or China. • The lack of startups serving the local market leads to very little competition among startups. • Culturally, Brazilians tend to be less nasty and cut-throat in business than they are in soccer. ! Bureaucracy as a benefit • Foreign competitors are often afraid to enter Brazil given the thick bureaucracy. This can help shield an early stage startup from a mature foreign competitor. ! Young startup ecosystem • Startups are still a new concept so many do not have local competitors. “Local startups are usually competing against adversity rather than against other startups. This can be good or bad, depending on the startup and its sector. Our company, for instance, does not have local competitors. But we also don’t have regulatory incentives that similar startups find in the US.” @dmbranco @2014 All Rights ReservedJoin us: @WorldStartupRpt
  • 32. FUNDRAISING High interest rates make bootstrapping difficult • Brazilian credit cards have insanely high interest rates. • Business loans require a local friend/family member to assume liability for unpaid company's debt. ! Few Angels have the expertise to mentor a growing startup • Local term sheets are typically not as “startup friendly” as they are in the USA. • It’s important to find local angels that will understand the unit economics of internet business models. ! Series A’s are led by 3 major players • Monashees, Kaszek and eBricks Digital are usually the best options for a series A. • They will also participate in Series B rounds that are led by international VC’s. ! Stay close to the tech hubs • Strong communities are forming in Belo Horizonte (San Pedro Valley) and Rio de Janeiro but São Paulo is still the place to be when fundraising from local investors. “If you find yourself in the ‘seed round crunch,’ get on the night bus to São Paulo and find a couch to sleep on.” @wheretodrew @2014 All Rights ReservedJoin us: @WorldStartupRpt
  • 33. GOVERNMENT PROGRAMS Both Federal and State governments in Brazil are creating programs that support technology startups. The two main programs are Startup Brazil and SEED, both modeled after StartupChile. A third program is being launched in Rio de Janeiro. The fierce competition among these programs is benefitting the ecosystem and becoming a major opportunity for entrepreneurs. SEED Startup  Brazil Loca4on Belo  Horizonte Many  Ci]es Total  funding Up  to  R$80,000 Over  R$200,000 Government  responsible? State Federal Required  private  accelerator   involvement? No Yes Equity  taken  for  money? No Yes Free  office  space? Yes Yes Visa  help? Lots Some Rules  for  use  of  funds? Few Many @2014 All Rights ReservedJoin us: @WorldStartupRpt
  • 34. "If the government wants to help entrepreneurs, they shouldn't incentivize them with more capital. They should be removing bureaucratic obstacles." @eacher LOOKING AHEAD
  • 35. COMPETITIVE ADVANTAGES Brazil has 99 million tech-savvy internet users • Brazilians can be easily found on social networks. • Paid traffic sources like Facebook advertising and Google Adwords cost a lot less than in the US. • By 2016 broadband and 3G penetration are projected to increase by 32% and 103% respectively. ! Few competitors in a big potential market • The bureaucratic environment and lack of entrepreneurs protects companies from competition. • The 5th largest market in the world based on population and geographic area presents a huge opportunity if bureaucracy is managed correctly. ! Brazilians are accustomed to paying high prices for goods/services • The government has set high tariffs for any imported good or service which has caused Brazilians to become accustomed to paying double for basic necessities. “Brazilians have a hard time perceiving a product or service as valuable if the price is too cheap.” @wheretodrew @2014 All Rights ReservedJoin us: @WorldStartupRpt
  • 36. OPPORTUNITIES B2B software (Saas) • Brazil is following a similar evolution as the United States. The first entrepreneurs pursued the exponential growth curves that are typical in B2C startups. • However, a new generation of B2B Startups has emerged. • Saas providers like ContaAzul and Resultados Digitais are expected to be huge exits and are leading the cloud computing movement. • B2B companies will have an easier time bootstrapping off of revenues and navigating local funding complexities. ! E-commerce • E-commerce remains attractive, but most of the companies in the sector are raising series B,C and D rounds. • E-commerce sales are expected to reach $22 billion by 2016. ! Infrastructure and logistics • Services that are bureaucratic and costly due to infrastructure constraints are creating huge opportunities for disruption. • Payments, ticketing, legal documents and construction are just to name a few. @2014 All Rights ReservedJoin us: @WorldStartupRpt
  • 37. Title Text BRAZIL COMMODITY INNOVATION MAP Mobile Communication (Whatsapp) Whatsapp Job Board (Monster) Catho Taxi (Uber) EasyTaxi Accounting (Quickbooks) Contazul Fashion (Aalora) Dafiti Auction (Ebay) Mercado Livre Home Purchase (Zillow) Vivareal Hotels (hotels.com) Hotel Urbano Listing (Craigslist) OLX Auto Sales (Autotrader) Webmotors Private Sales (FAB) Brandsclub Microwork (Taskrabbit) Get Ninjas Crowdfunding (Kickstarter) Catarse Education (Coursera) Portal Educação Furniture (One Kings Lane) Oppa Content Marketing (Contently) Rock Content Marketing Automation (Hubspot) Resultados Digitais Reservation (Opentable) Zuppa Field Team Management (FieldLens) Construct Groceries (Freshdirect) Frutas em casa Legal (Legalzoom) ??? Taxes (Turbo Tax) ??? Lending (Lending Club) ??? Ride Sharing (Lyft) ??? Social community (Reddit) ?? Saturated Mature Semi-Mature Infancy Non Existant
  • 38. ADVICE: LOCAL ENTREPRENEURS Stop waiting and jump • Brazilians understand the market and government much better than foreign entrepreneurs. • Yet often times local entrepreneurs lack agility, determination and access to capital, thus resulting in missed opportunities. ! 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. • Finding an establish investor in Europe or the USA might help a local entrepreneur get better terms and raise funding successfully. ! You don't need to be a visionary • Early technology adopters can follow global startup trends to identify when an international business model is ready for the local market. • Just make sure you are the first mover and prioritize bureaucratic obstacles. @2014 All Rights ReservedJoin us: @WorldStartupRpt
  • 39. ADVICE: FOREIGN ENTREPRENEURS Focus on language and culture • Find a co-founder, key hire, investor or mentor that has experience operating in Brazil. • Only 5% of the population speaks English and the Brazilian way of doing business is hard to understand. ! “Gringo” is not a bad thing • People will love to work for you, and investors will pay premium on your valuation if you are a smart foreigner. • Most of the major deals in the past two years had at least one foreigner in the founding team. ! Stay clear of markets that can be disrupted by regulation • Unions and industry groups have a lot of power and will outlast any startup in litigation. Make sure to avoid these. ! Meet the top notch MBAs • The founders of some of the best startups and managers of larger companies like MercadoLivre have MBAs from Stanford and Harvard. They're super well connected, have a great track record and can introduce you to the right people. @2014 All Rights ReservedJoin us: @WorldStartupRpt
  • 40. ADVICE: INVESTORS Look for exits in the $10 million to $100 million range • There have only been 7 exits of over $500M in 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). ! Structure the correct investment vehicle to avoid liabilities • Most of the time it is better for angels to do convertible debt deals in order to avoid liability. ! Consider investing in a local fund, instead of individual companies • If you see the market opportunity but have a hard time adding value to Brazilian startups, a local fund could be a good option. ! Expect to wait twice as long for companies to mature • Due to a lack of experienced founders and bureaucratic policies, companies take a lot more time to mature when compared to the USA. @2014 All Rights ReservedJoin us: @WorldStartupRpt
  • 41. ADVICE: FOREIGN COMPANIES Find a country manager/consultant before expanding • It is hard to hire locals who are accustomed to USA or European business standards. • Some people specialize in becoming country managers for USA companies in Brazil. Seek these people. ! Flexibility is key • 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 soon. • If you worry about every bureaucratic detail you will be overwhelmed so prioritize effectively. ! Corporate structure and employment law • Read and re-read advice regarding hiring and visas. This tends to be the biggest initial headache for most foreign companies. @2014 All Rights ReservedJoin us: @WorldStartupRpt
  • 42. FOOD FOR THOUGHT Brazil is NOT the best place to run a business and entrepreneurs have a million complaints! ! ! ! So why does everyone still want to come here? !
  • 43. CONCLUSION ! The answer is simple. Brazil is equal to the rest of the South American market COMBINED. ! ! If you can win Brazil, you will have an easier time winning other South American markets. ! ! Those who can bring both relevant sector expertise and a deep understanding of the local environment will be positioned for big wins.
  • 44. WORLD STARTUP WIKI •If you would like to: • Learn more about navigating the Brazilian ecosystem • Compare statistics with countries all over the world • View more sources for our data Take a look at the World Startup Wiki! ! (A crowdsourced effort by the top entrepreneurs and investors in startup ecosystems around the world)
  • 45. LIKE THIS REPORT? CHECK OUT OUR OTHER REPORTS! @2014 All Rights ReservedJoin us: @WorldStartupRpt
  • 46. SPECIAL THANKS TO: Brad FeldDave McClure @2014 All Rights ReservedJoin us: @WorldStartupRpt
  • 48. PLEASE HELP SUPPORT THIS PROJECT! World Startup Report is run by volunteers who believe in never charging for the information they curate. It’s made by the startup community and for the startup community. ! But we need help to sustain this project. Please consider making a donation to keep our not-for-profit work going. donate@worldstartupreport.com 132qZEgJ6wgcz3jxriNkbdMLsAbUJiHEVV @2014 All Rights ReservedJoin us: @WorldStartupRpt