Marcelo Marzola, the 33-year-old co-founder of Predicta.net, is a perfect example of how hot Brazil's $1.6 trillion economy has become and why its entrepreneurs are now getting their phone calls returned by venture capitalists after a decade of "You're from where?"
Marzola was invited to present his company's free online behavioral-targeting tool, BTBuckets, at the Google I/O Web-developer conference in San Francisco in May. To get ogled at the Google conference is the goal of any Web developer. Marzola earned rave reviews for creating what has become a de facto standard, used on more than 2,000 websites in 90 countries by such corporate titans as Pfizer, Motorola and Unilever. The product fills an overlooked niche in the industry by allowing websites to segment their users according to their online habits and then direct targeted content and advertising to them in real time. "It has turned the industry on its head, and it's gaining mass recognition," says Daniel Waisberg, an industry consultant and a former chair of marketing of the Web Analytics Association.
The spotlight has attracted about 10 VC firms to Marzola over the past six months. His track record will impress them: the company has been growing at a compound rate of 40% annually since 2005 and has a profit margin of more than 20% on $12 million in revenue. Now he is in the midst of closing a deal with DFJ FIR Capital, a local venture firm with $160 million under management, to raise $15 million to $20 million in exchange for a 35% equity stake to fund his company's expansion efforts. BTBuckets plans to open offices in major markets in Latin America and the U.S.
To Marzola, who had to hustle $80,000 in start-up capital from family and friends, the newfound interest is indicative of a VC power shift from Silicon Valley to developing economies like Brazil's. "Ten years ago, when I launched my business, getting start-up capital was impossible," he says. "At the time, I called on 20 banks, venture-capital and private-equity firms, and everyone turned me down. No one wanted the risk of investing in a fledgling. Finally, there are signs that the equity-capital market for entrepreneurs is igniting."
This is a breakout that thousands of Brazil's newbies have been waiting for. Today there are only about nine players including Antera, Confrapar, DFJ FIR Capital, Monashees Capital and Status Capital with an estimated $1.9 billion in assets under management, according to the Latin American Venture Capital Association (LAVCA). These firms are run by trailblazers who have been promoting the merits of entrepreneurship to a Brazilian business community that has been risk-averse and to the government of President Luiz Inácio Lula da Silva, which has been leery of California capitalism.
Preaching the gospel of Silicon Valley has been missionary work. "Venture capital is a concept just beginning to filter into the public's consciousness," explains Robert Binder, CEO of Antera Gestão de Recursos, an asset-management company established in 2004 that runs the $50 million Criatec Fund, an early-stage equity fund capitalized by BDNES, the Brazilian development bank. For a country with a huge state investment in technology, it's been a surprisingly tough sell. The 123 national institutes of science and 400 incubators scattered across the country are wellsprings of ideas. But only recently have CEOs from private midsize Brazilian corporations been willing to lend a hand to promising upstarts by offering mentoring support and angel finance.
Their timing is understandable. The IMF projects that Brazil's economy now the eighth largest in the world will grow by 7.1% this year and soar throughout the decade. A confluence of factors will contribute to growth: abundant natural resources, stable government policies, a sophisticated banking sector, a rapidly growing middle class that now comprises about half the population of 190 million and a surge in real estate and infrastructure development to prepare for Brazil's hosting the 2014 FIFA World Cup and the 2016 Summer Olympics.
The Tech Transformation
Another catalyst has been the focus on developing world-class high-tech industries in a variety of sectors from aerospace, agribusiness and energy to information technology, business-process outsourcing, semiconductors and telecommunications. "The goal is to push the country's exports up the value chain," explains Antonio Gil, president of Brasscom, an association of Brazilian IT and communications companies. He notes that today Brazil can claim 1.7 million IT professionals. This brainpower has helped the country attract top-tier multinationals like IBM, which in June announced it is opening its ninth research center in Brazil and its first in Latin America.
As part of its grand plan, the government is investing heavily in programs that spark homegrown innovation around these key industries. These initiatives from venture forums to R&D grants are led by the Financing Agency for Projects and Studies (FINEP), the innovation arm of the Ministry of Science and Technology. "Our country invests 1% of GDP in R&D and leads the region in entrepreneurship," explains FINEP's Eduardo Sette Camara. "Now 15 out of 100 residents are involved in a start-up."
Tiago Lins, business-development director and co-founder of SiliconReef, a company that has developed a microchip that harvests energy from the environment to power mobile devices and wireless networks, has been a prime beneficiary of government support. He and his partner, CEO Marília Lima, incubated their breakthrough technology at CESAR, the country's well-known R&D center and incubator in Recife. Since incorporating two years ago, the duo have raised grants from FINEP to design and test their product, known as EHO1. They are looking to raise an additional $1 million to fund a product launch. "Right now our biggest hurdle is gaining credibility in the international business community," Lins says.