Brazil: Private Equity/Venture Capital’s new Cinderella?

Happy New Year from Rio de Janeiro, Brazil!

While I am celebrating holidays with family, I thought it would be a good time to write my first blog for the Private Equity/ Venture Capital Club.  While Brazil is well known for our colorful Carnival celebrations, football prowess, rhythmic tunes of bossa nova and samba, along with beautiful beaches, many people don’t realize it has become a fertile ground for Private Equity and Venture Capital opportunities.

A few days ago Brazil overtook the United Kingdom as the world’s sixth largest economy. Brazil has solidified itself as an attractive option for investment with a stable financial system, large domestic economy with a population of 200 million people, abundant natural resources and an efficient banking system. The country is no longer South America’s sleeping giant; it has undoubtedly awakened after decades of economic stagnation.

International investors began to pay more attention to Brazil in 2007 after a consortium led by Arcos Dorados B.V. purchased McDonald’s Latin American operations for US$700 million. This marked a new beginning in Private Equity and Venture Capital for Brazil. According to the Brazilian Private Equity & Venture Capital Association, Brazil will be the most attractive emerging country for private equity investors in the next 12 months. Investors are turning their attention to Brazil as they believe assets in China and India have become overpriced.

Albeit still a relatively small source of financing compared to the United States’, Private Equity and Venture Capital will undoubtedly play an ever increasing role in Brazil’s economy, funneling investments through a myriad of companies. The country has been primarily a commodities exporter and more diversification is required with further investment in technology that provides real value in the product/services development process.  Private Equity and Venture Capital can be alternative sources of financing and a way to leverage private participation in the development costs which are essential for the economic development of a country.

Brazil needs to continue to reform its outdated tax and labor laws and crackdown on endemic corruption in order to continue to attract new investment. The country’s  long-term economic growth prospects will be determined in part to advancements in technology and innovation, and Private Equity and Venture Capital can play an important role in this process.  For the time being Brazil appears to be the new Cinderella for Venture Capital and Private Equity firms, but how long this love story lasts still remains to be seen…