In Fall 2011, Village Capital partnered with Artemisia to launch our first program in Brazil. Over the course of the Village Capital program, ten enterprises met in São Paulo four times in three months, building a strong peer cohort and learning how to invest in one another. Village Capital-Brazil is made possible by incubation partner Artemisia, investor partners Vox Capital and Potencia Ventures, and philanthropic partner Halloran Philanthropies. Given the unique combination of extreme poverty in Brazil, the booming economy, and the major economic reforms in the past ten years, it’s often surprising that the impact investing world has largely passed by Brazil as a destination. Read the overview for a few reasons:
First and foremost, Brazil lacks what India and most of Africa have: English as the primary business language. One Brazilian told me today: “If we spoke English, we’d be India.” The language barrier serves as a major plus and minus for Brazilian companies. On the positive side, there is tremendous room for entrepreneurial initiative, as major successful multi-national business models have significant barriers to entry in Brazil, if only because they don’t employ Portuguese-fluent developers. One Village Capital fellow is building a business similar to CraigsList or Angie’s List in Brazil, while another is creating a for-profit Khan Academy equivalent (accessible e-learning) that, the entrepreneur readily admits, is only possible because Khan Academy doesn’t broadcast in Portuguese. Impact investing in Brazil is hard because of the language barrier, and it doesn’t appear to be easier anytime soon.
In contrast to India and Africa, where most impact investing initiatives are taking the place of a failed government, Brazilian government initiatives are very proactive and often effective, and the “Bolsa Familia” conditional cash transfer program gives Brazilian families extra cash to purchase needed benefits. Room to provide affordable basic goods/services, therefore, is much lower than other emerging market countries. Brazilian social enterprises, in response, often integrate government rather than replace them. One Village Capital company, for example, is an online platform providing quality information about location and customer reviews on government health care (rather than the common emerging market business model of providing alternative low-cost health clinics).
Barriers to entry in entrepreneurial culture
A series of reforms beginning in the mid-1990s have made things better, but it’s still very hard to start a business in Brazil, and even harder to start a business as a foreigner (a major driver of base-of-the-pyramid initiatives in Brazil). Foreign entrepreneurs require joint local shareholders, and all businesses face stiff regulations. While the government’s regulations have become more entrepreneur-friendly in the last several years, the culture still faces an uphill psychological battle.
That said, there’s something special happening in Brazil. The country’s vertical integration in the impact investing world is unparalleled in the world. Artemisia provides best-in-class incubation; Potencia Ventures provides seed capital as part of our Village Capital program; Vox Capital provides necessary growth equity; and the world’s only local ANDE Chapter coordinates all local activities. If only more people in the world spoke Portuguese, we’d know about it!