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Sao Paulo’s Startup Scene: Thriving in the Midst of a Capital Boom

Two years from now, Rio de Janeiro will have its moment in the global spotlight when the 2016 Olympics descend upon the city. Until then, Sao Paulo will be enjoying its own time in the spotlight—at least when it comes to the startup scene.

One of the 10 largest cities in the world, Sao Paulo combines the urban feel of New York with the thriving investment scene of Silicon Valley. The result is a highly concentrated center of tech innovation, says Luis Novo, founder of SuperNova Labs.

“You have all these great, smart people just blocks away from each other all exploding with ideas of new, innovative things,” he said. “Brazilians are entrepreneurs by nature, and that is not different for startups.”

According to Daniel Izzo, cofounder of Vox Capital, Sao Paulo concentrates the majority of Brazil’s economic activities. The difference between the business capital being generated in Sao Paulo versus Rio de Janeiro or Recife is huge, he says.

“It’s a confluence of factors that make it easier to make your own company here—a more developed ecosystem, a large concentration of accelerators, venture capital funds, more schools with talent,” he said. “People who create their businesses in Rio are traveling to Sao Paulo much more often than the other way around.”

Of course, Brazil hasn’t always had an “entrepreneurial” reputation. Historically, Brazil was a Portuguese colony that primarily exported coffee beans and sugar cane. Even now, Brazilian taxes and bureaucracy can make it hard to do business, Novo says.

“It’s expensive to hire; it’s expensive to invest; it’s complicated (and) takes a lot of documents,” he said. “Infrastructure—logistics and postal—are getting better every day but are still very weak compared to U.S. standards.”

But Sao Paulo is changing, adapting to the 21st century. Today, Sao Paulo is a target for many luxury brands, which are focused on a specific audience: Sao Paulo’s Millennials. They’re educated at some of the country’s best schools, and they’re hungry to make a name for themselves.

“Many of our startup chiefs are very young and getting started in this world even before having worked on other industries,” Novo says. “So while there is energy to innovate and make things different, there also is a huge need to bring the experienced people that can help these new companies execute and scale.”

Without that mentorship from experienced entrepreneurs and investors, Sao Paulo could end up being a city without a clear plan for its startup scene in the near future, says Izzo. As the director of Vox Capital’s fund, he says he struggles to find investable businesses with high-quality entrepreneurs leading them.

“There’s more capital than good deals right now,” he said.

Through Vox, Izzo and his cofounders specifically seek companies that generate both financial return and positive social impact, a model known as impact investing. He’s seeking companies that serve Brazil’s low-income population through education, health, housing and financial services.

“We are, perhaps, on the leading edge of a new movement in which we ask for every business to be a ‘social business,’” he said. “The tendency in the whole market is that companies will make ever more accountable for the impact that their activities make in society.”

Izzo says he has noted strong trend toward impact investing in the U.S. and Europe, where investors can now support entrepreneurs in developing countries without ever even leaving the office. His advice? Partner with a local fund or accelerator on the ground.

“I would try to co-invest with local funds to figure out how to best navigate the market,” he said. “You may suffer more than you should if you don’t partner with someone who could be the local feet on the ground.”

When 1776’s Challenge Cup rolls into town tomorrow night, the local partner will be none other than Novo’s own SuperNova Labs. The competition will feature 24 of Brazil’s most promising startups, all of whom are competing for the chance to pitch their company at the Challenge Cup Festival in D.C. in May.

But even for those who don’t advance to the finals or win the top prize, the investment situation in Sao Paulo doesn’t seem so bad: As Izzo says, “If you find a good team with a good model, you’d raise money really easily right now.”

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Melissa Steffan

Melissa is the former assistant editor for 1776, where she worked on the media team to create compelling, idea-driven content and reporting. A Seattle native, she graduated from Seattle Pacific…