Breaking Down the Brazilian Zeitgeist (Plus Memoirs of An MBA Grad)

By Tom Baldwin, Wharton MBA 2013

This post originally appeared on the blog entitled Tropical Considerations: Insights on the Brazilian VC/ Startup Ecosystem.

Annnndddd I’m back. Sorry for the long delay everyone – the last few weeks of school were extremely busy (and extremely fun). I’m now a freshly minted Wharton MBA graduate, ready to take on the world! My 24 months at Wharton / Lauder were truly outstanding, and I wouldn’t trade the experience for the world (or the six figure debt load I took on in order to finance it). I’m now an even stronger believer in the value of a top-tier MBA. While it’s not for everyone, it made a lot of sense for me, and I can say with complete candor that the experience was truly transformative.

That’s me on the left. With my roommates Jordan (middle) and Brett (right).

I gained a lot from Wharton. A new group of amazing friends who would go to hell and back to help me out and see me succeed? Check. Unforgettable international adventures alongside super sharp, super fun-loving people? Check. A robust network of powerful professional relationships that I can leverage to turbo-charge my career and come closer to realizing my long-term aspirations? Check. New insights and new knowledge that have changed the way I interface and interact with the world around me? Check. A job whose central focus is exactly what I’m passionate about, that I’ll actually be excited about waking up for, that puts me in touch with Latin American entrepreneurs and creators every day? Check, check, check. You get the point… For me, Wharton was a wild, crazy, and life-changing ride, and I feel so privileged to have had the experience.

Okay, let’s get down to business. The goal of today’s post is to provide a quick update on my personal story / future plans, and weigh in on a recent NYT article on current trends in the Brazilian startup ecosystem. Tomorrow I’m publishing a post on the importance of CLV, and in a few days I’ll post an extensive comparative analysis which examines the differences between the São Paulo and Mexico City ecosystems. Stay tuned!

My new gig, and how I got it

I generally seek to avoid writing about myself on this blog (apart from a few personal anecdotes / stories here and there). But today I’m going to break from tradition and share a bit about my personal journey over the past two years. Hopefully some of you out there find it interesting, relevant, or useful.

I didn’t know much when I arrived at Wharton two years ago. What I did know, however, was the following: (1) I didn’t want to do anything “corporate” (2) I wanted to do something deeply entrepreneurial, whether launching a startup, working at a startup, or investing in startups; and (3) I wanted to do something that channeled my passion for Brazil.

During my time at Wharton, I maintained a laser-like focus on activities that I felt would help create opportunities consistent with the goals outlined above. I took my Lauder Portuguese classes very seriously, using every opportunity to ramp my Portuguese language abilities. I read startup / VC blogs voraciously. I began tweeting about Latin American startups and the Latin American tech scene. I cold called startup founders, interviewed them, and published the interviews in the Wharton Journal. I became an evangelist for my entrepreneurially inclined friends and colleagues, promoting their projects via facebook, twitter, foursquare, and linkedin. I spoke and wrote and tweeted so much about startups that it actually began to annoy people! I soon became known across campus as the “Brazil startup guy.” Sweet. This is what I was going for.

There’s more. During Wharton’s “DIP Week” (dedicated interview period), when the bulk of my Wharton peers were consumed by interviews with bulge bracket banks and consulting firms, I skipped town, traveling to Brazil to begin building local relationships throughout the ecosystem. I networked aggressively with the Brazilian startup community, leveraging Brazil-based Wharton / Lauder contacts like Davis Smith, Jake Rosenbloom, and Nick Reise in order to establish a local beachhead and grow my Brazilian rolodex. These connections helped me land an awesome summer internship at a São Paulo-based, venture-backed fashion eCommerce startup called olook (coincidentally cofounded by another Whartonite, Peter Ostroske). At olook, I ran a cohort analysis and built out a comprehensive customer lifetime value model, leading the company to embark on an important strategic pivot.

After my summer in SP, instead of returning to Philadelphia, I flew to San Francisco, where I participated in the pilot program for the new Wharton Semester in San Francisco program (Wharton is the only MBA program that offers the opportunity to spend a semester “abroad” in San Francisco). While in San Francisco, I took courses like Venture Capital and the Finance of Innovation, Technology Strategy, The Development of Web-based Products & Services, and Digital Commerce. I also soaked up the insights and advice of those who visited us as part of the Wharton in San Francisco speaker series, including Josh Kopelman of First Round, Andrew Chung of Khosla, Amy Errett of Maveron, Kevin Hartz of Eventbrite, Michael Baum of Splunk, and Davis Smith of, among others. Finally, following the advice of my friends Toby and Pablo, I used my 5-week winter break to travel back down to São Paulo to launch a blog focused on the Brazilian tech scene. Every day while in SP, I met with different entrepreneurs and investors, seeking to develop unique and actionable insights that I could share on my blog. And the result was, which you’re reading right now.

Wharton SF
Wharton’s brand new campus in San Francisco. I encourage all entrepreneurially-minded Whartonites to participate in SSF!

Long story short, I used my time at Wharton to focus on the stuff I love (startups, Brazil, the Portuguese language, entrepreneurship) and stay away from the stuff I don’t (corporate America). At times, it was extremely nerve wracking, and I struggled to deal with the inherent uncertainty of my chosen path. Especially considering my debt load. But in the end, things worked out.

In early June, I’m joining Valor Capital Group, an NYC-based Venture Capital firm focused on opportunities in Brazil. Valor was launched in 2011 by Clifford Sobel, and has invested in, olook, and descomplica, among others. It’s a small shop, but growing quickly. I love the team, love the focus on Brazil, and love the learning opportunity. Additionally, it’ll allow me to keep one foot in NYC (where I’ll be close to fam and friends) and one foot in SP (where I’ll be actively engaged with the ecosystem I’m so passionate about). I’m so stoked. Can’t wait to get started!

Breaking down the Brazilian Zeitgest

The New York Times recently published a solid article detailing recent trends in the Brazilian startup space. It does a great job capturing the current zeitgeist of the Brazilian ecosystem, and I generally agree with their assessment of the state of the industry. But let’s dig a bit deeper. Below I pull out a few of the key themes / quotes and offer some supporting analysis and context:

  • “The consensus among investors and entrepreneurs in Brazil is that the short term will be difficult, but that long-term prospects remain highly favorable.” Wholeheartedly agree with this. As I’ve written about previously, beginning in mid-2012, the funding environment in Brazil began to trend towards conservatism, with some of the more active investors retrenching to focus more on portfolio management than ongoing capital deployment. The ebullience of 2011 rapidly dissipated as investors began to recognize the challenges of scaling in a hyper-competitive marketplace, particularly for companies focused on eCommerce. The shutdown of Shoes4You (more on this in tomorrow’s post) is a case in point. Regarding longer-term prospects, however, I believe positive sentiment is completely justified. Brazil’s nearly 200M citizens are highly digitally predisposed, the country’s middle class continues to expand at a rapid clip, and the local ecosystem is the most advanced in the Latin America. I’m confident we’ll see some big exits in the next 3 – 5 years, thereby validating international and domestic investors’ bets on the South American juggernaut.
  • “Initially, most investments made here by foreign venture capital firms were in a narrow range of Brazilian Internet or technology companies, sometimes called copycats because they replicate existing consumer Web business models in the United States or Europe.” Correct. Putting money to work in Brazilian startups involves an element of risk not present in domestic venture investing: country risk. When compared to investing in the US and Europe, investing in Brazil involves new forms of risk that emerge from backing a company in a foreign market with different consumer behaviors, cultural dynamics, legal frameworks, and bureaucratic practices. To compensate for the country risk associated with investing in Brazil, foreign VCs deploying capital in the country sought to mitigate a separate and distinct type of risk: business model risk. As the NYT points out, the mitigation of business model risk by foreign VCs was achieved by investing in proven business models that have worked in other markets, such as the US or Europe. The result is an investment dynamic focused on copycat models as opposed to genuine innovation. But I believe this is changing…
  • “Investors assumed Brazil’s market was large enough to support multiple successful companies in each e-commerce vertical: for example pet supplies, fashion or taxi services.” Yep. Take a look at the baby space. Yes, it’s a big and fast-growing vertical, but does it really make sense to have three venture-backed companies battling for market dominance in Brazil? was the first player to receive venture backing in the space, and they are funded by a group of all-star investors, including Accel, Tiger, Monashees, Felicis, Thrive, and Menlo Ventures (full disclosure: Valor Capital Group, my new employer, is also an investor). Yet, despite the presence of a well-capitalized player backed by tier-A VCs, other investors felt comfortable putting money into competing firms. Atomico backed Bebestore with a $10.7M investment, and Rocket Internet put 20M Reais into Tricae. This is the hypercompetitive dynamic that has lately given investors pause and prompted them to approach the Brazilian eCommerce space in a more circumspect manner.
  • “Silicon Valley’s expectations were higher than they should have been in terms of the reality of the opportunity down there” Maybe. But can you really tell whether expectations were overblown only two to three years after you put money in the space? Most international investors only began deploying capital in Brazil in 2011. It’s now 2013. In the world of eCommerce, investors don’t generally see a liquidity event for 5 – 10 years after the initial investment. Given most international investors have exposure to Brazil via eCommerce investments, I would argue that it’s a bit early to make a call on whether Brazil has met expectations. Let’s give it a few more years, yeah?
  • “I expect a lot of shut-downs, and that a lot of companies will be firing people” Probably. I’ve commented before on how Peixe Urbano sold off some of its foreign entities, and laid off a bunch of people. We just saw Shoes4You close its doors. Word on the street has it that a bunch of startups with seed stage capital are struggling to scale and / or raise follow-on funding. So I wouldn’t be surprised if we saw further announcements of shutdowns. But remember, this is the world of venture, where shutdowns are natural and expected! So I wouldn’t be very alarmed. Failure is a natural part of any ecosystem.
  • “Companies will have a tough time raising money and do so more by begging and groveling with current investors” Totally. In fact, I think it’s fair to say I called this a few months ago when I wrote about how the investment environment in Brazil has become significantly more challenging. Seed stage funding is still fairly plentiful – you can get it from the German angel mafia (Kai, Florian, Felix, etc), from 500 Startups, or from Redpoint e.Ventures seed program, among others – but Series A / B has become really challenging, and will remain so for some time. Lots of folks with seed or Series A capital have had to turn to existing investors for follow-on funding. An increasingly popular alternative source of follow-on funding is strategic investors. These are larger Brazilian corporates who offer capital and other sources of strategic support in exchange for an equity stake and access to a startup’s unique expertise in a particular area, such as eCommerce operations and customer acquisition. I encourage these sorts of partnerships, especially when access to traditional VC capital dries up.
  • “People realize that Mexico is less developed in the Internet space and that raising follow-on capital is even harder” Keep your eyes peeled for my upcoming comparative analysis of the São Paulo and Mexico City ecosystems, which should be out in the next few days. In that post, I will discuss at length the current state of the Mexican startup / VC landscape, with a particular focus on what it takes to raise $$ for tech startups in Mexico at present.
Touchdown in Mexico. Stay tuned for an upcoming post on the Mexico City ecosystem.
  •  “We’re seeing less flooding by M.B.A.’s and consultants from all over the world” Haha! I loved this line. Yes, it’s true, fewer and fewer of we dreaded “MBAs and Consultants” are coming to Brazil… instead, many of us are heading to Mexico! My friends Toby and Pablo, for example, decided Mexico was the place to launch a new vertical-specific eCommerce startup,… check out their new company’s awesome site. And again, watch out for my next post, where I’ll go into greater detail on why so many aspiring MBA entrepreneurs are heading to Mexico these days.

That’s it for today folks! As mentioned, I’m back into the swing of things, and I’ve got some great material coming up. Tomorrow a look at the importance of CLV, and in a couple days, a kick-ass analysis on the Mexico ecosystem. See you soon!


rio-picBio: My name is Tom Baldwin. I’m a veteran Brazilianist with a passion for startups and entrepreneurship. I’ve spent a little over a year living and working in Brazil at different points in time. I’m a dual citizen of Mexico and the US. I’m a recent graduate of the Wharton Lauder Program. I’m here to build relationships, explore opportunities, and work on a few ideas of my own. Find me on Linkedin and Twitter.