LAVCA | The Association for Private Capital Investment in Latin America
  • About
    • About LAVCA
    • Board, Team, & Advisors
    • Media
    • Contact
  • Members
    • Membership Benefits
    • Current Members
    • Member Access
  • Education & Programs
    • About
    • LAVCA Week
    • Calendar & Past Programs
    • LAVCA Education
  • Research & Directories
    • LAVCA Research
    • Industry data
    • LP Survey
    • Directories
  • ESG & Impact
    • Deal Book
    • LAVCA ESG Deal Awards
    • Impact Report
    • ESG Guidelines
  • Articles
    • Featured Articles
    • Industry News
  • VC
  • Member Login
  • Member Access

LAVCA | The Association for Private Capital Investment in Latin America

A non-profit member organization

  • About
    • About LAVCA
    • Board, Team, & Advisors
    • Media
    • Contact
  • Members
    • Membership Benefits
    • Current Members
    • Member Access
  • Education & Programs
    • About
    • LAVCA Week
    • Calendar & Past Programs
    • LAVCA Education
  • Research & Directories
    • LAVCA Research
    • Industry data
    • LP Survey
    • Directories
  • ESG & Impact
    • Deal Book
    • LAVCA ESG Deal Awards
    • Impact Report
    • ESG Guidelines
  • Articles
    • Featured Articles
    • Industry News
  • VC

Despite Stumbles, a Promising Path for Start-Ups in Brazil

May 24, 2013

(The New York Times DealBook) RIO DE JANEIRO – Brazil’s Internet start-ups were once the darlings of emerging markets, attracting venture capitalists from around the world. But after two-plus years of growth, the sector is facing tougher times.

Numerous young companies, even those with prominent investors, are struggling to show sustainable profitability despite early rapid growth in revenue. A case in point: Shoes4You, an e-commerce site selling designer footwear, decided to close down last month, despite being backed by the prominent United States investment firms Redpoint Ventures, Accel Partners and Flybridge Capital Partners.

Many in the industry consider its failure a harbinger of things to come. “I expect a lot of shut-downs, and that a lot of companies will be firing people,” said one of the site’s backers, Fabrice Grinda, a prominent French angel investor.

Some blame the business environment and the costs of doing business. In the case of Shoes4You, costs like legal and tax matters along with underdeveloped e-commerce logistics made operations difficult, Olivier Grinda, the company’s founder and Fabrice Grinda’s brother, told DealBook. Ultimately, the company’s subscription-based business model did not prove sustainable.

Brazil’s deteriorating macroeconomic conditions are also not helping entrepreneurs. Economic growth, for instance, slowed last year to 0.9 percent, compared with 2.7 percent in 2011. On April 17, the central bank raised its benchmark interest rate for the first time in almost two years in response to rising inflation. But despite the difficult environment, Brazilian start-ups still have supporters.

The consensus among investors and entrepreneurs in Brazil is that the short term will be difficult, but that long-term prospects remain highly favorable. And even Silicon Valley investors who have seen ideas fail are still willing to make large bets. Accel says it has invested more than $25 million in Brazil over the last few years and expects to find more opportunities. Redpoint, including the Redpoint e.ventures fund, put in almost $40 million in 2012.

“Silicon Valley’s expectations were higher than they should have been in terms of the reality of the opportunity down there,” said Jeff Brody, a founding partner of Redpoint Ventures. Yet he expects to maintain the same pace of investing this year, citing improved deal-flow and noting that “one of the things we have learned is that you need to invest steadily through the cycles.”

Together with San Francisco-based e.ventures, the firm raised a $130 million fund Last year run out of São Paulo. Even those critical of the sector are not yet replacing Brazil with other markets. At the Founders Forum, an annual gathering here in March, few investors spoke of shifting their investments to other Latin American markets like Mexico, Latin America’s second-largest economy after Brazil.

“People realize that Mexico is less developed in the Internet space and that raising follow-on capital is even harder,” said Jose Marin, a partner at the IG Expansion investment firm in Madrid and a host of the Founders Forum meeting.

Local and regional firms also increased activity. Kaszek Ventures in Buenos Aires says it invested close to $30 million last year, and Monashees Capital, a São Paulo-based early stage fund, put just over $25 million in start-ups, according to a person with direct knowledge of the investments.

All these firms and other resources like incubators helped make initial financing easier, but subsequent financing is still difficult, and investors are already warning founders to tighten their belts.

“Companies will have a tough time raising money and do so more by begging and groveling with current investors,” Fabrice Grinda, the investor, said. “It’ll be a year of retrench and consolidation.”

Initially, most investments made here by foreign venture capital firms were in a narrow range of Brazilian Internet or technology companies, sometimes called copycats because they replicate existing consumer Web business models in the United States or Europe.

Investors assumed Brazil’s market was large enough to support multiple successful companies in each e-commerce vertical: for example pet supplies, fashion or taxi services.

That turned out to be wildly optimistic. As a result, there was excessive competition for limited market share.

Many of the complaints about Brazil “have very little to do with the market and more to do with our self-inflicted dynamics,” said Kevin Efrusy, partner at Accel Partners, referring to hyper-competition in a narrow range of companies such that their success depends solely on execution rather than ideas.

Still, Brazilian entrepreneurs have several trends in their favor. Overall e-commerce grew by 20 percent in 2012, according to the Brazilian consulting firm e-bit, and mobile represented only 2.5 percent of transactions, making it ripe for growth.

Numerous sectors remain overlooked, like health care and education, and innovation in Brazil remains woefully underfinanced.

Yet that is starting to change. For instance, Intel Capital, the venture capital arm of the Santa Clara-based chipmaker Intel, recently invested in Geofusion, a São Paulo-based software company. Finding more innovative companies that can leverage Brazil’s market is not easy for foreign investors, but it can help reduce woes.

Accel Partners, for example, made a later-stage growth investment in 2011 in the education company MindLab, but only after introduced to it by an earlier investor, Monashees Capital.

Mr. Efrusy said Accel would not have invested in MindLab’s earlier financing rounds because what the company did was “not a pattern we recognized as successful in the U.S.”

But Monashees Capital helped convince them that the company had value. Accel is now focused on finding more such companies here.

Chinese Internet companies are also showing interest. Mr. Brody of Redpoint, who has invested heavily in China, said he expected strategic partnerships involving Chinese firms this year to bolster Brazilian start-ups.

China’s Internet sector itself experienced overhype more than a decade ago, but that was later followed by exits and hefty returns to investors; that could be a pattern duplicated in Brazil.

The prevailing mood, although less euphoric, may actually help bring on more sensible growth in Brazil, investors say.

Mr. Efrusy, who is living temporarily in Rio de Janeiro, said that he was seeing “less flooding by M.B.A.’s and consultants from all over the world,” a move that is affording entrepreneurs here “a more serious and authentic community.”

Despite Stumbles, a Promising Path for Start-Ups in Brazil was last modified: May 24th, 2013 by Editor
Brazile-commerceStart-upsVenture Capital
0
Facebook Twitter Google +

Sign up for LAVCA’s bi-weekly Latin American Private Capital Update and the LatAm Venture Bulletin, produced specifically for venture investors, entrepreneurs, and technology startups in the early stage ecosystem.






Which LAVCA Newsletter would you like to receive?

VC Partner Events

    Tweets

    • Private capital funds deployed a total of USD5.5b across 215 transactions in Q1 2022, representing an 88% increase… https://t.co/U2ljIBGrFp

      20-May-2022

      Reply Retweet Favorite
    • #LAVCAData for Q1 2022 recorded a total investment of USD2.8b across 190 transactions in Latin America. Compared to… https://t.co/AZRsVwOcbn

      19-May-2022

      Reply Retweet Favorite
    • LAVCA's Associate Director of Research Emanuel Hernandez and Executive Director @naitafur explain trends in regiona… https://t.co/jMIUJfa6KZ

      16-May-2022

      Reply Retweet Favorite
    • Today's top takeaways from the #LatAmVentureBulletin: https://t.co/TdVT3WZ6YT

      12-May-2022

      Reply Retweet Favorite
    • Despite the political challenges in Latin America, LAVCA's Executive Director @naitafur, highlights that the privat… https://t.co/DiI1dGwFGr

      10-May-2022

      Reply Retweet Favorite

    Submit VC News

    Have private equity or venture capital related news that you would like to share? Submit your press releases and news to [email protected].

    VC Industry News

    • Vinci Partners Acquires USD20m Stake in Brazilian Credit Provider DMCard

      February 21, 2022
    • 8VC Leads ~USD35.4m Round for Brazilian Insurtech 180 Seguros (em português)

      February 2, 2022
    • Glade Brook Capital Leads USD125m Series C for Chilean Insurtech Betterfly

      February 2, 2022
    • SP Ventures and Acre.VC Lead USD10m Series A for Brazilian Carbon Trading Marketplace Moss (em português)

      January 31, 2022
    • Brazilian Healthtech Nilo Saúde Raises USD10m Series A from Canary, MAYA, SoftBank, GFC and Tau Ventures

      January 28, 2022
    • Valor Capital Group Leads ~USD16m Series A for Brazilian Agtech Agrolend (em português)

      January 23, 2022
    • DILA Capital and Kayyak Ventures Lead USD15m Series A for Mexican Financing Platform Fairplay

      January 18, 2022
    • Astella Investimentos Leads ~USD4.6m Seed Round for Brazilian Blockchain Trading Platform Gavea (em português)

      January 12, 2022
    • SoftBank Leads USD48m Series B for Colombian E-commerce Laika

      January 12, 2022
    • KASZEK Leads USD13.2m Round for Mexican Fantasy Sports Platform Draftea

      January 7, 2022
    • IDC Ventures Leads ~USD5m Series A for Brazilian Microcredit Platform SuperSim (em português)

      January 6, 2022
    • Mexican Verification Platform MetaMap Raises USD70m Series B

      January 5, 2022
    • DRADS Capital Leads USD7m Pre-Series A for Chilean Foodtech The Live Green Co. (en español)

      January 3, 2022
    • SoftBank Leads USD127m Round for Brazilian Healthcare Provider Alice

      December 21, 2021
    • DILA Capital and ALIVE Ventures Lead USD14m Series A for Edtech Slang

      December 20, 2021
    • Astella Investimentos and SoftBank Lead ~USD3m Seed Round for Brazilian Automation Platform BotCity (em português)

      December 20, 2021
    • GIC Leads USD80m Round for Colombian POS Lending Platform ADDI (em português)

      December 20, 2021
    • Yara Growth Ventures Leads USD30m Series C for Argentine Agtech Agrofy (em português)

      December 16, 2021
    • Tiger Global Leads USD60m Series B for Mexican Freight Platform Nowports

      December 16, 2021
    • SoftBank Leads ~USD120m Round for Brazilian Fintech OpenCo (em português)

      December 15, 2021
    • DN Capital Leads ~USD22.2m Series A+ for Brazilian Healthtech Sami

      December 14, 2021
    • Riverwood Capital Leads ~USD52m Series B for Brazilian Fiscal Management Platform Arquivei (em português)

      December 14, 2021
    • KASZEK Leads USD2.7m Seed Round for Peruvian Edtech Crack the Code

      December 13, 2021
    • GIC Leads ~USD32m Series C for Brazilian Delivery Platform Shopper (em português)

      December 13, 2021
    • Tiger Global Leads USD20.5m Round for Mexican Freight Platform Nuvocargo

      December 10, 2021
    • Advent International and SoftBank Lead USD60m Series B+ in E-Commerce Aggregator Merama

      December 9, 2021
    • Volpe Capital Leads ~USD5m Series A for Brazilian Corporate Governance Platform Atlas Governance

      December 8, 2021
    • Lachy Groom Leads USD14.8m Series A for Brazilian Fintech Stark Bank (em português)

      December 8, 2021
    • Prosus Ventures Leads USD60m Series B for Colombian Edtech Platzi

      December 6, 2021
    • KASZEK Leads USD10m Series A for Brazilian Workspace Marketplace Beer or Coffee (em português)

      November 30, 2021
    • Galapagos Capital Invests ~USD20m in Brazilian Cosmetics MedBeauty (em português)

      November 18, 2021
    • Oak HC Leads USD27m Series A for Mexican Payment Platform Aplazo

      November 15, 2021
    • Colombian E-commerce Fulfillment Platform Melonn Raises USD4.5 Seed Round

      November 3, 2021
    • DNA Capital, Temasek and Fit Participações Lead ~USD20m Round for Brazilian Healthtech Memed

      November 1, 2021
    • Astella Investimentos Leads ~USD5m Round for Brazilian Proptech Homelend (em português)

      October 28, 2021
    • KASZEK Leads USD8m Round for Brazilian Car Documentation Platform Gringo

      October 27, 2021
    • SoftBank Leads USD75m Series C for Brazilian BPO Platform Pipefy

      October 26, 2021
    • Mexican Delivery Platform Skydropx Raised USD20m Seres A from Cometa, Base10 Partners, 645 Ventures

      October 26, 2021
    • Brazilian Car Insurtech Justos Raises ~USD35.8m Series A from SoftBank, KASZEK and Others

      October 25, 2021
    • Andreessen Horowitz and Base Partners Lead USD15m Series A for Colombian Foodtech Foodology

      October 22, 2021
    • Unbox Capital Leads USD30m Series B for Brazilian Marketing Platform Rock Content (em português)

      October 22, 2021
    • L Catterton Leads Investment in Mexican DTC Eyewear Brand Ben & Frank

      October 21, 2021
    • Anthos Capital Leads USD18m Series A for Venezuelan Delivery Platform Yummy

      October 21, 2021
    • Flourish Ventures and GFC Lead USD10m Series A for Brazilian Wholesale Marketplace Merce do Bairro

      October 21, 2021
    • Tiger Global Leads USD35m Series A for Argentine Fintech Pomelo

      October 21, 2021
    • Brazilian Wholesale Marketplace Inventa Raises ~USD6m Seed Round (em português)

      October 20, 2021
    • QED Investors and KASZEK Lead USD40m Series C for Brazilian Fintech Hash

      October 20, 2021
    • SoftBank, Amazon and Accel Lead USD108m Series B for Brazilian Fintech Pismo (en español)

      October 19, 2021
    • SP Ventures and Astella Investimentos Lead USD17m Series A for Brazilian Fintech Traive (em português)

      October 18, 2021
    • Tencent and SoftBank Lead USD200m Series F for Brazilian Trucking Marketplace CargoX (em português)

      October 15, 2021
    • Valor Capital Group Leads USD22m Series A for Mexican Edtech Aprende Institute

      October 11, 2021
    • Square Capital and Hard Yaka Invest USD15m in Colombian Digital Payments Platform Movii (en español)

      October 6, 2021
    • Atlantico Leads USD6m Series A for Brazilian Wholesale Marketplace ZAX

      October 5, 2021

    About LAVCA

     

    LAVCA is the Association for Private Capital Investment in Latin America, a not-for-profit membership organization dedicated to supporting the growth of private capital in Latin America and the Caribbean through research, education, networking and advocacy.

    LAVCA Office

        New York City:
        589 8th Ave, 18th Floor
        New York, NY 10018

    Explore LAVCA.org

    • About LAVCA
    • Board, Team, & Advisors
    • Media
    • Contact Us
    • Membership Benefits
    • Members Only Access
    • Education and Programs
    • Research
    • Policy
    • LAVCA VC
    • Contact Us

    @2020 - LAVCA. All Rights Reserved.


    Back To Top