The force with which Silicon Valley’s presence is now being felt in Brazil, and so quickly, raises the question: what took them so long? Despite a fast-growing, tech-hungry population and top-rate programmers and engineers, a year or two ago it was nearly impossible to get access to venture capital or angel investment. Indeed, it was very difficult to get any kind of growth capital at all, and the outlook for entrepreneurs and start-ups, unless they were already cash- rich, was bleak.

But this is changing quickly. At the end of 2010, investors from Europe, California and the rest of the US began to show interest in

investing in a few tech firms, some of which were new, and some of which had been going it alone financially for some time. Now, just months later, many venture capitalists are setting up local offices, hiring Brazilians and working to adapt as quickly as possible to the local environment.

It’s not hard to see why. The now-famous Brazilian economic boom is powered largely by a huge, newly empowered consumer base, whose 200 million members are gobbling up digital products and especially fond of online social interaction.

“Internet penetration is growing, broadband penetration is growing very fast, and e-commerce is growing at a rate of 20%- 40% a year,” says Marcelo Sales, one of the entrepreneurs who founded Movile, the mobile phone app success story, and recently left an administrative role to become an angel investor. “Five years ago it was pretty hard to have access to money at all. There were a few angels, but they really were angels – sent from God. It was very difficult to have access to capital in Brazil.”

Though Brazil has been growing steadily for years now, cultural and macroeconomic factors have worked against the small-time entrepreneur. Brazil has some of the highest interest rates in the world – a relic from the age of hyperinflation – a risk-averse population and extremely underdeveloped local corporate debt capital markets. A smart programmer who gave up a secure job at a big company to go it alone was considered extremely brave, if not a little foolish.

But as the rich countries plunged into deep economic crisis in 2008, and Brazil plugged along relatively unscathed, a flood of international interest, not to mention capital, has descended on the country, opening up previously undreamed-of opportunities. When Silicon Valley – broadly defined – woke up to the opportunities here, they found themselves scrambling to cover all available ground.

“The market opportunity is even more attractive than the US, because there´s so much room to grow,” says Angelina Clarke, an American who recently left her position as consultant at McKinsey in São Paulo to make her way in Brazil’s growing entrepreneurial scene.”The $15bn Brazilian e-commerce market in 2010 was bigger than the $12bn Australian market and the $7bn Indian market, [is growing by 35% a year], and if you look around, very few companies are moving fast enough to truly take advantage of it.”

There has been a flurry of activity, though. Movile recently acquired two companies in deals to the tune of $12m-$20m; a Groupon spin-off, Peixe Urbano, attracted a lot of attention and the competition of Groupon’s actual local subsidiary, ClubeUrbano; BuscaPé, a shopping comparison site, is gathering steam; and credit-check software developer Crivo is changing the way Brazilians use banks. Some of the deals are secret, but a number of well-known VCs are arriving and ready to put down money. The catalyst for much of this interest was Brazil’s successful bid for the Olympics, to be held in Rio de Janeiro in 2016, and plans to host the World Cup in 2014, says Bedy Yang, who founded Brazil Innovators, a Silicon Valley-Brazil entrepreneurial development network.

“But apart from the Olympics and the World Cup, there’s a lot of well-placed optimism around the economy itself,” she says. “The middle class is growing, 30 million people have moved from real poverty to the middle class. And Brazilians are very active in social media. They’re early adapters, for sure”

This is more than just healthy optimism. Brazilians demonstrably love social media. They have one of the highest Twitter usage rates in the world. There are more mobile phone accounts than people, and these are increasingly attached to smartphones. And the population has been migrating quickly to Facebook from Orkut, the Google-run favourite of yesteryear.

“If you take the average number of hours that Brazilians spend on social networks, it’s far above the international average, and I don’t know why,” says Sales. “Maybe it’s the social culture. But there is a huge growth of digital goods and everything is coming together to make a good combination.”

The Brazilian entrepreneurial scene has shadowed the upheavals in California. There was a small bit of activity at the beginning of the turn of the century, but the bursting of that bubble left things deflated for almost a decade. “As we know, Silicon Valley has its own cycles and bubbles,” Yang says. “In 1999-2000 there were a few start-ups in Brazil, some of which still exist today. The founders of BuscaPé came from universities at that time and said, ‘Hey, we want to create technology and be entrepreneurs,’ but from 2001 to the end of 2010, there was very little movement. The Brazilian economy was doing pretty well, and if you went to a good school, you just took a good job at a tech company or a bank.”

Despite the better financial prospects for start-ups, there is still not a strong tradition of entrepreneurship, and failure is often looked down upon. Meanwhile the economic boom is pulling bright young graduates in the opposite direction, as there is a shortage of qualified employees across various sectors, especially in technology and engineering. A bright student is likely to be offered a good, stable job, with high pay (São Paulo currently has the highest executive remuneration in the world), and good prospects for advancement. Why throw that aside for something that might go up in flames?

“In Brazil, we tend to take the view that everything is going to go tits up eventually, so if someone tells us in advance that there is a chance it will, we’re positive it has no hope,” says 29-year-old worker Luisa, who was recently approached by international investors with a sizeable headhunting fee to recruit some of her colleagues to a new enterprise with a huge potential upside. She was able to offer them double what they were currently making, but came back empty-handed.

“Everyone was either quite content with where they are now, or extremely wary of a couple of gringos with too much money and not enough reassuring guarantees,” she says. “They tended to assume [the investors] would throw this failed project on their CV and take off back to Europe.” This initially left the investors flabbergasted, but they are now trying to establish local roots and partnerships.

“One thing that I think is really important is that for the first time, the already existing generation of entrepreneurs, that understand digital markets and digital companies, are now becoming angels and investors,” says Sales, noting they have the experience to create a second generation. “ In the US you have a lot of examples like that, but in Brazil, this is just the beginning. The founders of MercadoLibre [South America’s answer to eBay, with roots in Argentina] and BuscaPé are becoming investors, and I myself am now an angel.”

Daniel Turini, founder of Crivo – which rode out the last decade with no outside funding – says he has seen the approach of foreign investors change radically since his company was one of the first approached last year. “Not only are they much more interested, many have bought companies or opened offices here and have hired some of the brightest Brazilians to help them understand our business culture and laws,” he says. “They know a lot more than they did just a few months ago.”

Another surprise for foreigners has been the complexity of tax codes, bureaucracy and business laws. In a culture where most things are relaxed on a personal level, new arrivals are taken aback to find how seriously one must take an arcane set of codes. It’s often impossible to navigate them without experienced local talent.

“I have been warned on countless occasions of the complexities of doing business in Brazil," says Ofer Baharav, a Silicon Valley emerging-markets entrepreneur and CEO of start-up VideoVivo. He rattles off a list of the areas he was cautioned about, including major bureaucratic ineffi ciencies, a complex tax system, cultural misunderstandings, a style of doing business that differs markedly from the US's, an aversion to risk, lack of understanding of the early-stage investment cycle and the absence of a viable investment ecosystem. “Sadly," he says, "these premonitions have been proven to be right on the mark across the board.”

He thinks the opportunities offered by Brazil outweigh the headaches, however, and cites “a core of intellectual elites” who “understand the concepts prevalent in Silicon Valley well, and have a great respect for Silicon Valley and the US at large. Brazilians love to socialise in business, which can make the process more personal and exciting than in the US.

“I continue to be fascinated with Brazil and push through because I believe in the long- term potential this market has to offer," he adds "and many of the more difficult aspects are likely to show improvements as this market matures."

Arun Mathew at Silicon Valley’s Accel Partners, one of the bigger names to be establishing a presence in Brazil, expects to see quick developments on the cultural front. “The entrepreneurial scene is still nascent,” he says. “It’s very early in the life cycle of the career entrepreneur. People are moving to that world. The computer- science programmes at USP and Campinas [two universities in the state of São Paulo] are some of the best in the world. But at the moment a lot of the graduates are going to large corporations.”

Small, innovative firms are especially well- placed to turn revenue in Brazil compared with other emerging markets, he adds, because of the high penetration of credit cards, making online transactions easier. “In Brazil there are opportunities for all types of start-ups, from financial services to consumer internet, and including adaptations of a lot of consumer businesses based here in the US. It’s not just foreigners but Brazilians adapting successful US models.”

Accel recently made a sizeable investment in a Brazilian start-up, but Mathew can’t reveal details at the moment.

“There are two types of start-up activity going on at the moment,” notes Brazil Innovators' Yang. “There are big investors who like to create local copycats of businesses that were successful elsewhere. AirBnB [a US website that connects budget travellers to people with a bed to rent out] is one example. Take that, and target it to 200 million people in Brazil.

“We believe that is just the low-hanging fruit. There is another, deeper space to create really new products here,” she adds. “There’s a lot more capital than there was before – we just need entrepreneurs to show that they will face the risk.”

The tech triangle

An insight into the battle for Brazil’s up-and-coming digital playground can be found on the Wikipedia page for “Brazilian Silicon Valley”, where self-interested parties vie to prove that theirs is the true Silicon Valley of Brazil.

But, does Brazil have an area akin to California’s crescent of technology? Well, yes, but not for exactly the same reasons. Almost all cross-border start-up activity has its locus within the triangle extending from the financial capital, São Paulo, to Campinas (a small city in the same state which is a player because of its university’s excellent computer-science programme) and Rio de Janeiro. While this is quite a bit bigger than the equivalent in California, it is still a very small fraction of Brazil. There is better technology infrastructure here than the rest of the country, but not the heavy-duty stuff of the southern San Francisco Bay.

Campinas, because of its size, is most likely to develop an identity uniquely tied to technology, but shouldn’t ever feel a need to break off from the financial behemoth just to the southeast. Most deals will end up being signed in the offices of São Paulo, probably with alumni of Campinas punching above their weight on the tech side, and some of the flashier businesses close to the beaches of Rio.