He was always interested in world, politics, business, and entrepreneurship. That’s how I met him. We were both undergraduates living at the International House at UC Berkeley. After leaving for his Master’s at Harvard, he came back to Stanford to study how to build companies. But Raj Patel’s hometown San Francisco felt like well-traveled territory already. He needed a change in lifestyle and culture. He needed something more international. So he packed his bags to become an entrepreneur in Sao Paulo, Brazil. In this week’s interview, Raj Patel will tell you what it’s like to pack your bags and head to Brazil to start a company.
Hey Raj, can you tell us your background and what you’re up to?
Sure. So I’m a recent transplant to Sao Paulo, but my interest in Brazil started in the late 90s when I was in college. I had the opportunity to do social work in rural Sao Paulo for a summer, then returned to Berkeley and enrolled in Portuguese and Brazilian studies classes. After graduation from college I did two more stints in Brazil: one in Rio and the current one in Sao Paulo. I studied information systems and history in college, went to Harvard to continue with Latin American studies, and then ended up at Stanford studying philosophy. At Stanford, I got hooked on startups with the famous second year MBA elective on entrepreneurial analysis and Stanford Ignite. My work history has been equally diverse. I’ve worked in management consulting, intellectual property law, educational consulting, financial sales, and venture capital.
What I’m up to now is growing a phenomenal product: Bunker. Bunker is a venture studio that combines a marketplace for technical business components and venture financing. We have startup founders building all sorts of mobile tools and web apps in different verticals, including finance, education, and transportation. It’s exciting and we got a huge win in validating the model last year.
When did you know you were going to leave the US and start a company in Brazil? Was there a defining moment when that happened?
I’ve always been excited about the potential for emerging markets. There’s such quality professional talent there and I’ve always considered arbitrage opportunities between the rich world and developing markets. A couple of years ago I got a call from an old friend from college while working in Palo Alto. He was running a VC fund out of Europe and looking to get access to deal flow in Latin America. A few conversations later he convinced me to leave the Valley and I moved down to Brazil. After listening to hundreds of startup pitches by locals, I saw some fundamental flaws in the teams or products that I felt made investing difficult. It was that moment I realized that I should be building the products rather than just investing!
What’s it like down there for entrepreneurs compared to the US?
There are both locals and a sizeable number of foreigners building startups in Brazil. Locals tend to have good business connections to close initial deals for their products, and have the advantage of an intuition about the local market, i.e. what the major pain points for the consumers are. Foreigners tend to have more robust training, both in terms of technical and business skills, yet they lack the locals’ advantages, and in some cases don’t even speak Portuguese. Both struggle with a common set of headwinds: red tape in setting up and running a business, unusually complicated taxation regimes, and a stagnating domestic market. Probably the biggest challenge of all, though, is in accessing talent to hire and bring on board the company as your grow. There’s been a cooling off of general foreign investor interest in Brazil as growth has slowed, but in the end, public markets don’t fully determine the pain points that exist in any economy, and smart venture capitalists know how to account for FDI swings when they make illiquid investments.
I remember the crazy bureaucracy down there…standing in line for my cell phone at a Vivo store in Rio. The line was 45 minutes long. Everyone was complaining and fussing but said that’s what customer service is like in Brazil. How does that affect entrepreneurship on a day-to-day basis? Can you get things done?
You’re totally right. And we’ve all been there. Brazil is a very welcoming culture, and Brazilians and foreigners alike commiserate over the bureaucracy, almost like a point of bonding. Honestly, the red tape is not insurmountable, and is more of a headache in the initial phases of building a startup. It ends up an expense that gets tacked onto your cost of doing business, and you simply strategize around that.
Tell us about what you’re working on and why Brazil is a good place for it.
Among the community of nations, Brazil is in a rare category: it is simply a massive country. It is massive in terms of its geography, resources, and population. Brazil is one unified market with 200M people, and a per capita income that places the country squarely in the middle income category. So it’s a country primed for the consumption of more sophisticated goods and services. But historically Brazil suffered through hyperinflation, so many outstanding professionals are risk-averse. Brazilians are a massive talent pool, and specifically on the software side. Harnessing the technical and business talent in the country for higher risk ventures is really the name of the game to what I’m currently doing.
What advice do you have for an entrepreneur who wants to build a company in Brazil?
Get outstanding legal representation to guide you through the visa and company formation process. The best lawyers not only wield considerable influence in business, but they also are worth their investment many times over in their ability to save you months of time in navigating regulatory issues. Entrepreneurs need to focus on prototypes, the user experience, validation of their revenue model, and capital raising – not drafting legal documents. Also, I strongly recommend doing the primary market research to validate your product instead of simply tropicalizing an existing model from the rich world.