US fund to back Brazil tech start-ups

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Two US venture capital firms have raised what is thought to be the largest fund yet to back early-stage internet start-ups in Brazil, as well as the first from Silicon Valley, adding to the growing international clamour to tap into an anticipated surge in the country’s online consumer economy.

Redpoint Ventures and e.ventures, previously known as BV Capital, said they had received commitments of $130m for a joint fund that will invest mainly in new consumer internet companies.

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In another sign of Silicon Valley’s rising interest, Sequoia Capital, one of the top US venture capital firms, is about to open an office and is hiring staff in the country, according to a person familiar with its plans. Sequoia declined to comment.

The hunt for the next booming market for tech start-ups has drawn a steady stream of visitors from Silicon Valley to Brazil, turning it into the hottest new venture capital market outside the US.

Venture capitalists around the world rate Brazil above China as a place to invest, putting it second only to the US, according to a survey of investment confidence published last week by Deloitte and the US National Venture Capital Association.

Signs that US venture capitalists are now starting to put down roots by raising funds to invest exclusively in Brazil and opening local offices mark a further evolution of the market. A large and growing middle class, fast-growing online use and an undeveloped consumer internet and ecommerce landscape have contributed to the rush.

“The engagement [of Brazilians] on social media websites is very high, but the number of Portuguese-language websites is relatively low,” said Jeff Brody, a partner at Redpoint, which has invested in Brazil for the past two years. “There’s a latent unmet need.”

Leading US venture capitalists to have been drawn to Brazil in recent months include Kevin Efrusy of Accel Partners, who was responsible for his firm’s landmark investments in Facebook and Groupon and has recently led four investments in Brazilian internet companies. Other Silicon Valley financiers to join the rush include Insight Venture Partners and Benchmark Capital.

Despite the surging international interest, Brazil’s rudimentary tech start-up scene has left few openings for hungry investors, according to a number of US financiers. That has prompted warnings that early investors may already be over-paying for a piece of the most promising new companies.

The country’s tech industry is still in the early stages of developing an entrepreneurial culture and needs more success stories to encourage the sort of risk-taking familiar in Silicon Valley, said Mathias Schilling, a partner at e.ventures.

Redpoint and e.ventures announced earlier this year that they would set up a joint venture in Brazil, with two partners based locally.

(Richard Waters e Samantha Pearson | Financial Times)