The Brazilian Venture Capital Stampede

Although many people would not expect it, the eighth largest economy in the world is gradually remaking itself into the silicon valley of the rainforest and the next hot venture capital market. This is being fueled by a predicted growth rate of 7.1% and expectations to continue this tear through the end of the decade. It also sports 1.7 million IT professionals, 123 national institutes of science and 400 technology incubators throughout the country. There is also a great political environment where the government and private companies are currently spending 1% of GDP on developing high-tech industries such as aerospace, agribusiness, information technology, business-process outsourcing, semiconductors and telecommunications.

Investors have their checkbooks ready and are catching up on their Portuguese.

Brazil's amazing growth is being fueled by their abundant natural resources, stable government policies, a strong banking sector, a middle class that now comprises 50% of the population and a surge in development preparing for the 2014 FIFA World Cup and the 2016 Summer Olympics. The country is known to have one of the strongest Java, open-source and Rube communities in the world. These skills are going to provide Brazil with a competitive advantage now that the internet, cloud computing and open-source databases have lowered the capital costs of launching a tech business.

One man currently living the dream is Marcelo Marzola, co-founder of Predicat.net. Predicta.net has become the go-to standard for online-behavior-targeting tools. The tool is used on over 2,000 websites in 90 countries and boasts users such as Pfizer, Motorola, and Unilever. Marzola had a tough start and had to borrow $80,000 from his family and friends. However, Predicta is now growing at 40% per year and has margins of 20% on revenue of $12 million.

TIME reports that DFJ FIR Capital, one of the few venture capital firms in Brazil, is currently closing a deal with Predicta for $15 million to $20 million for a 35% stake in the company. The Latin American Venture Capital Association (LAVCA) estimates there are currently nine players with roughly $1.9 billion in assets under management. Many entrepreneurs state that it is harder to start a business in Brazil because venture capital funds expect a profit as soon as the company starts because they do not want to take the risk of failure.

Another company that has succeeded in this cut-throat environment is Samba Tech. Samba created a platform to help third-party developers migrate and distribute video over the internet. In three years, the company is not only profitable but, it has 50 employees, $7 million in sales and an annual growth rate of 300%. With this type of growth, you expect the capital to start flowing in.