July 25, 2012
Interviewed by: David Snow
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Backing Brazilian IT

Why are the words “Brazil” and “tech” rarely used in the same sentence by international investors? In this in-depth interview, Miguel Perrotti, Co-CEO and Founder of São Paulo-based Invest Tech, argues that Brazil benefits from a unique entrepreneurial and engineering background and that its tech scene is turning a corner, which spells investment opportunity.

Topics include Perrotti’s background as a tech entrepreneur in Brazil, the regulatory genesis of Brazil’s “do-it-yourself” IT culture and the big investment themes in technology, including mobility, healthcare and cleantech.

Why are the words “Brazil” and “tech” rarely used in the same sentence by international investors? In this in-depth interview, Miguel Perrotti, Co-CEO and Founder of São Paulo-based Invest Tech, argues that Brazil benefits from a unique entrepreneurial and engineering background and that its tech scene is turning a corner, which spells investment opportunity.

Topics include Perrotti’s background as a tech entrepreneur in Brazil, the regulatory genesis of Brazil’s “do-it-yourself” IT culture and the big investment themes in technology, including mobility, healthcare and cleantech.

Privcap: Has Brazil turned a corner as a destination for IT investment?

Miguel Perrotti, Invest Tech: I think Brazil is very unique, and comparing it to China or India, me, as an American, I would even think more about Israel or any other country before even thinking about Brazil. But what’s interesting about Brazil is that our history proves that we can be very specialized in some industries that no other country has this specialization. And one of them is banking, for instance. Remember that we had a very high inflation during the ’70s, ’80s, and beginning of the ’90s. So our banking system had to be very specialized and that brought a lot of opportunities for IT.

But coming back to your question, what makes Brazil now something completely different from the past is that we finally are playing global. You would say Brazil never played global. During the ’70s, ’80s, and ’90s, we were always thinking about our own market. We have nowadays 200 million consumers. So Brazil, if we pay attention to our consumers, we would go straight to the results that we need.

So for an American point of view, if you would think about why Brazil. Now, it’s profitability, consumers, and specialization. We are unique. So I would say there’s a tremendous opportunity now for Americans or Europeans to come here, and to think, and to strategize together with Brazilian entrepreneurs, some way to play global.

Privcap: What was unique in the development of Brazil’s IT community?

Perrotti: That’s a great question because this is part of my life story. My first company I started in ’85. I would like just to open a parenthesis here to explain you how Brazil was during that period. In 1977, Brazil made a law at the Congress that we had a protected market for IT.

What do you mean by protected market? Only companies that were already in Brazil before ’77 were allowed to stay in Brazil. And those were three: Burroughs that became Unisys later, and IBM. After this, only Brazilian manufacturers and Brazilian specialized people, and Brazil and software developers could do anything for software and hardware.

During the same time, India decided to invest in software. And Brazil started to incentivize people to develop the hardware. Because of that, the Brazilian complete system, because of the inflation, they started to work on our own proprietary system for software, for banking. Same thing for telco infrastructure. Remember that we were still a military government. So taking care of the entire country and having the data and information all together made the IT people very– the smart people from IT brought a lot of solutions for that– security.

But at the meantime, Japan started to invest in hardware. US started to invent new things very fast. And Brazil, we didn’t have such a big demand or a scalability to offer that hardware. So this being done, if you go all ready for the end of the ’90s, remember that Brazil opened their doors to international hardware manufacturers in 1991. Everything was new.

If you go to Brazil during the ’80s, if you would bring an 8 inch diskette in side of your bags, you, as a Brazilian, would go to court. You would go to jail first. And then you have to explain why you were using that diskette.

So for Brazilians IT, during a long time, was something very– there was a myth over this. And we never followed the trend from the outside. The market became bigger and bigger here. And when international players started to come to Brazil, their software didn’t run in our hardware.

Can you imagine having a bank, an international bank, or a Volkswagen or Ford trying to put one of their systems from outside Brazil and nothing would run? Only the mainframe, nothing at the bottom. And downsizing started to– to be after the PC, you started to accomplish in the market. So you have a completely different environment of doing business during the ’90s that it was very hard to be entrepreneur, to be a vendor, and to be a user.

By the beginning of the year 2000, everything changed. And I would say that internet brought to Brazil a tremendous opportunity. I think everything is before and after internet. Because all of a sudden, you didn’t have to import software anymore. You could download software. And that was very risky for the government because all of sudden they couldn’t charge the importation or give the approval for you to import a software.

So after this, everything had to be redone and rethought. And the infrastructure had to be done. So we started to play in global after the year 2000. And if you see, it’s only 12 years that we are playing global.

And even inside of the venture capital, private equity area, today we have approximately 12, 13 years of age also. Today, for instance, at the ABVCAP event, we have 600 people attending the conference. Seven years ago, I was at another ABVCAP meeting in the South of Brazil and there was 34 people. So you can see how the venture capital and private equity changed. How IT changed. And I will say other industries in Brazil changed. So this is not only for IT, it’s for everything.

Privcap: What are some attractive investment themes currently in the Brazilian IT space?

Perrotti: I believe there are three big trends, especially for the size of Brazil and how Brazil could play global. The first one, it’s still the traditional information technology. Because if you see the traditional information technology for the agribusiness, for instance, you can have an SAP, or an Oracle, or a traditional way to work with Cisco inside of a completely different area that are much further on needs than a European or American would need. So this is something very interesting from the point of view of IT. You bring innovation inside of fields that usually are fields that are playing for many, many years.

The other area is mobility. There are huge IT company that’s very hard to open different area, business units. And they open mobility, even though they have nothing to do with mobility. Why is that?

Bring your own device. I can see you have your own device. Before starting this presentation you asked me to turn off my device. So even though you didn’t know that I had a device, but you were quite sure I had it. So when you come to a company, the first thing they do now is, what kind of device you use? And this is going to be you. And I have to adjust to you. It’s different from the past that the company would give one to you. Now, the company adjusts to you. So this brings a completely different way to work and to be part of a team.

The other one is health tech. When I say health tech, remember, most of the countries they are getting older. Like I’m 48 years old and I just had a baby. So how you can survive, let’s say on a country or a place that older people will need different kind of health assistance. And the health assistance now, it’s much different from the past. At the beginning, our families used to have one doctor that was the family doctor. Nowadays, it’s a specialization. There’s no family doctor anymore.

And when you start to see this, like telco, how you can be telepresence. How to do a surgery from outside the same place. Everything is moving on this area. And also, you have to think about efficiency.

The third one I will say is clean tech. And when I say clean tech, I wouldn’t think that Brazil would invent some kind of new energy kind of resource. Not even generate something different from what everybody’s thinking about. But again, efficiency, energy efficiency. I think as more countries, or developing countries I would say, that there would be much– because of their lack of resources, money, and also lack of entrepreneurs and opportunities, there you have to be more efficient. That’s what we’ve done with IT. During the ’70s and ’80s, we had to be efficient in order to survive. And you have to do the same thing with energy. So I would say that energy efficiency, IT, and health tech are big industries that we should play, at least that’s what I believe.

 

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