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 @2014 All Rights ReservedJoin us: @WorldStartupRpt

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

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 @2014 All Rights ReservedJoin us: @WorldStartupRpt

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

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

"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 @2014 All Rights ReservedJoin us: @WorldStartupRpt

“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. @2014 All Rights ReservedJoin us: @WorldStartupRpt

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

“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. @2014 All Rights ReservedJoin us: @WorldStartupRpt

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 @2014 All Rights ReservedJoin us: @WorldStartupRpt

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

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

“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. @2014 All Rights ReservedJoin us: @WorldStartupRpt

“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.” @2014 All Rights ReservedJoin us: @WorldStartupRpt

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

“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. @2014 All Rights ReservedJoin us: @WorldStartupRpt

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

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

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

“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 @2014 All Rights ReservedJoin us: @WorldStartupRpt

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

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

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

"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 @2014 All Rights ReservedJoin us: @WorldStartupRpt

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

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. @2014 All Rights ReservedJoin us: @WorldStartupRpt

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

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

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

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 Take a look at the World Startup Wiki! ! (A crowdsourced effort by the top entrepreneurs and investors in startup ecosystems around the world)

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SPECIAL THANKS TO: Brad FeldDave
McClure @2014 All Rights ReservedJoin us: @WorldStartupRpt

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