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Start-Up Brasil | Acorns to Oaks

TIMaior

«… solving the problems of an industry or a corporation is not a sexy way to make a living»

Source: Folha de S. Paulo | Brasilianas.Org
By: Reinaldo Chaves
Translation: C. Brayton

The Start-Up Brasil program, launched by the Ministry of Science, Technology and Innovation in November of last year, is an attempt to replicate international success stories in support for start-ups — fledgling companies in the IT sector — based on a joint effort by government and the private sector.

Chile founded a similar program two years ago and has already attended 397 companies and 888 entrepreneurs. The annual budget of Start-Up Chile is US$ 14 million. Israel has invested heavily in start-ups since the 1990s, mostly in the areas of military, energy and aerospace technologies. The University of Jerusalem receives annual funding of more than US$ 1 billion.

The Brazilian program calls for investing R$ 40 million in three years in at least 150 companies. At the outset, six accelerators will be selected to service the selected start-ups.

The accelerators will create incubators and provide research and consulting — see the «Mission Statement», below.

The program has already selected an operational director: Felipe Matos, 29. Matos is the CEO of the accelerator Start-Up Farm, from which he will take a leave of absence while working on Start-Up Brasil.

In an interview with the Folha de S. Paulo, Matos admits that Brazil has very few accelerators but says he hopes the program will serve this market.

Folha— How did you come to be invited to run Start-Up Brasil?

Felipe Matos — The invitation came in October. It was not an easy choice. I will have to give up certain things and take a leave of absence from Start-Up Farm. Having long complained of the lack of support for Brazilian start-ups, I realized that I would have to plunge right in.

The government admits it is copying successful models from around the world in creating Start-Up Brasil. Why has it taken so long?

There are certain difficulties, such as bringing about a better relation between government and the private sector. A number of countries now have support programs for start-ups. Chile was the first Latin American country to do so, and has used aggressive marketing campaigns to attract entrepreneurs from a number of other countries.

Fortunately, the Brazilian version of the program is creating partnerships for the development of new ideas. It has listened to the voices of established companies, accelerators and start-ups. My own career reflects something of this new posture.

The deadline for registering the accelerators is January 31. Is that not a short deadline?

The program was announced in September but was not officially launched until late November. The deadline gives participants adequate time.

We will select up to six accelerators. The federal ministry requires us to distribute the winners geographically.

We will look at teamwork and infrastructure, social networking, market access, and alignment with the program TI Maior.

Does Brazil even have six accelerators that can qualify?

There are a number of studies seeking to discover how many accelerators there are. The consensus seems to be that there are around 30. This is a small number, it is true. The prospectus calls for the selection of up to six candidates. We will weigh the quality of the proposals along with their geographical location in order to achieve nationwide coverage. Most likely, however, there will be concentration in the Southeast.

We expect to accept six candidates based on the level of activity of interested players. But this is nothing more than a first run-though. We will learn, improve, and eventually expand the program with future tenders.

The program also provides for the selection of companies with up to 3 years in the market, as well as foreign companies.

What rules will foreign companies have to obey?

Up to 25% of the start-ups selected can be of foreign origin. The condition is that they must be physically present in Brazil. More detailed rules, such as a minimum tenure in the program, will be defined by the tender document, which will be published in March of this year. It is already well established, however, that attracting brainpower to Brazil and negotiating relationships between foreign companies and domestic start-ups is a major objective.

One of the main points of interest in this program will be to install an office in Silicon Valley. Will this office work to bring investors into Brazilian or Brazil-based start-ups?

That will be one of its main goals, certainly. The Silicon Valley office is in the process of selecting a director, who will be someone with extensive experience in the market. The United States have a vastly superior market, with hundreds of investment funds, individual investors … In short, yes, it is important to relate to that ecosystem.

Start-ups complain that they lack support, that the bureaucracy is oppressive and that taxes are high. But is it not also true that Brazilian companies make too many wrong decisions?

The most common mistakes we see are related to unqualified entrepreneurs. We do not have much experience as a country with start-ups, so we have a lot of virgin entrepreneurs. The business schools have not yet given venture capital and innovation the emphasis they deserve.

It is also important for veteran entrepreneurs to serve as mentors, something that Silicon Valley is very good at.

Start-ups often make additional mistakes when trying to insert their products into the market, because many of their products are extremely technical and difficult for the end user to make use of.

The 10 largest accelerators in the U.S. have a joint market value of US$ 7.8 billion. An accelerator makes money, basically, by taking a percentage of the companies they support. Can this win-win dynamic catch on here in Brazil?

An accelerator succeeds in the long term as its start-ups mature. In Brazil, however, this continues to be a novel idea. Of the approximately 30 Brazilian accelerators, only two were created prior to 2010. So it’s still too soon to say how this model will play itself out in Brazil.

In mature economies, the creation of and investment in start-ups tends to result in an IPO, which in turn stimulates new businesses and investments . In Brazil, the capital markets remain on the sidelines. Will this present a problem to Brazilian start-ups?

In the long term, I see this more as an opportunity. With interest rates falling, variable-income investing should attract more investors. The development of start-ups will attract more investors, and so we can expect that the stock exchange becomes a home to more and more start-ups. These days, however, return on investment mostly comes from M&A.

In presenting the Start-Up Brasil program, Virgilio Almeida — in charge of IT policy for the federal tech ministry — called on Brazilian start-ups to create solutions that will implement the intelligent networks of the Internet in Brazilian industry, as they have already been implemented in the retail and services sectors. Should this be given the highest priority?

Our start-ups are still in their infancy, and so it is natural for them to focus more on B2C — business to consumer — applications, or to emulate successful models from abroad, such as smartphone applications.

It is a question of timing. Risk is lower, both for the investor and the entrepreneur. As time goes by, however, the tendency is for new businesses to spring up in the B2B sector. The CEO of LinkedIn, Jeff Weiner, recently gave a widely discussed lecture on this topic.

This is a worldwide problem: 9 out of 10 U.S. start-ups still focus on the end user, despite the presence of a B2B market hungry for new products. Also, solving the problems of an industry or a corporation is not a sexy way to make a living. Entrepreneurs are young and have little experience of this world. Recall, however, that

TI Maior has made progress with its support for B2B start-us, privileging such sectors as oil & gas, defense, energy, environment, mining, finance and telecommunications.

TI Maior also wants the accelerators selected to be the fruit of public-private partnerships. Is this something new in Brazil?

It is new. I am only familiar with initiatives underway in Recife, in partnerships with the Porto Digital This is another way in which we need to mature and improve.

Mission Statement

Aiming to accelerate the development of fledgling tech-based companies, Start-Up Brasil — initially focused on software and services — will create and provide

  1. a network of mentors and venture capitalists
  2. funding for R&D and Innovation
  3. Tecnology and market consulting
  4. Research institutes and incubators
  5. Infrastructure
  6. Coordination with major national and international companies

The program seeks to leverage a growing number of start-ups each year, taking innovative new products and services to market, connecting Brazilian tech firms with global trends and markets, as well as to build a partnership between the public and the private sectors that seeks to generate a climate favorable to entrepreneurial projects,

Goal: Acclerate the growth of 150 software and IT services companies by 2014, 25% of which may be foreign firms physically present in Brazil. .