Brazil’s Startup Industry: Impressions, Insights & Lessons from Israel (Part II)

This post is co-written with Daniel Cunha, my partner at Initial Capital.

In Part I, we outlined some of the challenges facing the Brazilian startup community as it sets-out to reap the massive opportunity the local market has to offer. In Part II below, we’re going to suggest a course of action, and how it could benefit through the experience of the Israeli startup industry.

Step One: The nascent Brazilian startup community must embrace the fact that it’s going to take approximately 10 years and a lot of work and coordination to become competitive with the likes of Silicon Valley & Israel (and there aren’t any guarantees).

There are no shortcuts. Accelerated 1/3/6-month programs are a great start, but they can’t produce an entire workforce, or accelerate the accumulation of plain old experience.

Let’s look at Israel for a moment… Traditionally, Israel’s forte has been enterprise technologies. The fact that it has been able to push out consumer startups in recent years is not taken for granted. It took thirty years to get to this point. Israelis know ‘consumer Internet’ doesn’t come naturally to them and that they are competing with the best in the business, namely, Americans. Getting to where it is didn’t come easy, and staying there will remain a continuous challenge.

For Brazilians to get to this point will take time, experience, coordination and a general improvement of the business environment.

It will also take resilience. Consider that the Brazilian start-up scene back in 1999 / 2000 almost vanished after the tech-bubble burst, and was resurrected only in the past 18-24 months.

The stakeholders will have to grow tougher skin and persevere through both good and bad times if a true Internet industry is to be formed.

The good news is that the Brazilian startup ecosystem seems ready to buckle-up for a lot of hard work ahead – there is potential, talent, capital and entrepreneurial passion already in play. And frankly, 10 years go by pretty quickly in the startup world.

Step Two: If a supporting ecosystem is accepted as pivotal, physical proximity is a prerequisite to achieve it. If Brazil wants to establish a true startup industry, a critical mass of ecosystem players will have to converge on a single physical location – a Brazilian startup epicenter if you will.

While we were impressed with the quality of entrepreneurs and startups in all three cities we visited, unquestionably, it was in Belo Horizonte that we sensed the highest level of community. To share an anecdote, Belo Horizonte was the only city where entrepreneurs that came in and out of our Office Hours meetings knew each other – a subtle, but telling sign.

Again, let’s take Israel as an example… The gross majority of startups are located in two cities that are 10-minutes apart, Tel-Aviv and Hertzeliya. True, Haifa, 90km to the north also has some startups. It’s also home to the Technion (Israeli’s MIT), as well as Google’s, Yahoo’s & Apple’s R&D centers, but the honest truth is, the odds of a consequential Internet startup coming out of Haifa are small.

Consider that most entrepreneurs and investors I know are in San Francisco more often than they are in Haifa.

The same is true for the US – while Boston has its place on the Internet entrepreneurial map, it’s in Silicon Valley that gravity’s pull is felt strongest.

Is this fair to other cities? Not at all, and yet, it’s an absolute must. And as nature takes its course, secondary centers will rise, increasing competition and improving the Brazil’s Internet industry across the board. Call it ‘Geographic Darwinism’, but it’s a harsh reality that the Brazilian startup community must internalize as well.

Step Three: The establishment of an ‘umbilical connection’ between the Israeli and Brazilian startup communities.

If there is one key insight we learned, it’s that entrepreneurs become such *in-spite* of Brazil. Similar to their Israeli counterparts, Brazilian entrepreneurs are battling against all odds. It’s this similarity that has driven us to ask ourselves what role can Israel play in helping the Brazilian startup community grow. And how can we at Initial Capital put our skills and connections to use for the benefit of Brazilian entrepreneurs.

Here are the key areas we see as a basis for this so called ‘umbilical connection’:

Traffic: Israelis are mavericks at all forms of web-traffic acquisition and monetization, an expertise we noticed a current Brazilian deficiency in. A foundation of our ‘umbilical connection’ strategy, we are already mapping Israeli-based media players that are running ad traffic in Brazil.
Funding: We’re going to ring-in our co-investor network on our deals. These will include private and institutional investors from Israel, Silicon Valley and Europe.
Product & Technology: Logistically tricky, but we’re confident that an effective knowledge transfer can occur between Israeli & Brazilian entrepreneurs in areas such as UX and development methodologies. We see this being manifested via webinars and face-to-face events.
Legal & Accounting: No real Israeli connection here, but we’re going to work with leading Brazilian commercial law and accounting firms to offer entrepreneurs ‘startup specials’ in the form of discounted fees, and free pre-funding consulting.

Ultimately, Brazilian entrepreneurs will have to prove their worth by way of execution. That means forming strategies that fit the local market, and then implementing with excellence, efficiency, foresight, and a strong orientation to cash-flow.

For us at Initial Capital, this means a commitment to working closely with our portfolio and the local startup community et large, to build-up a winning entrepreneurial culture to go along with the lucrative potential Brazil has to offer.

Mãos a obras, e aquele abraço!