August 1, 2012
Interviewed by: David Snow
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Why Mid-Tier Cities Are Attractive

Jon Toscano, President of Trivèlla Investmentos, a private equity firm focused on opportunities in mid-sized Brazilian cities, says not to overlook the innovation and human capital in “tech towns” outside Brazil’s biggest cities.

Toscano discusses the similarities between venture ecosystems in university towns like São Carlos and those in the U.S., how local entrepreneurs hate “helicopter investors,” why many entrepreneurs prefer the better quality of life in smaller cities, and how improved air-travel options from companies like Azul have impacted building businesses in mid-tier cities.

Jon Toscano, President of Trivèlla Investmentos, a private equity firm focused on opportunities in mid-sized Brazilian cities, says not to overlook the innovation and human capital in “tech towns” outside Brazil’s biggest cities.

Toscano discusses the similarities between venture ecosystems in university towns like São Carlos and those in the U.S., how local entrepreneurs hate “helicopter investors,” why many entrepreneurs prefer the better quality of life in smaller cities, and how improved air-travel options from companies like Azul have impacted building businesses in mid-tier cities.

Privcap: Is there a culture of research and commercialization within Brazilian universities and university towns like Sao Carlos?

Jon Toscano, Trivella Investments: Yes. They want to do, and they have, in these cities, they have role models. So it’s like the Silicon Valley. So the CEO of a successful tech company is driving around in a nice car. He’s very successful, and his company is doing very well, or her company. It creates the followers who want to reach that level, but at the end, some of them surpass that level.

So this investment– Opta for example, in Sao Carlos was the most well-known technology company in Sao Carlos We invested there. The company is growing fast. So more people want to create a company. More people want to translate their Ph.D. knowledge into companies.

And more people who have done that are looking for private equity investors who can help them. That’s key– private equity investors who can help them. They hate helicopter investors who go to Sao Carlos to sign a deal and come back. They want people who can help because part of their company is very sound and very globalized, and very competitive. But part is like in the Middle Ages.

So someone has to do the homework of helping them adjust the company so that the technology is great, the product’s great, back office and management is great, and the governance is great. So I think that kind of support is one of the reasons why we have local offices because we can hire local talent. And we can give on-site support to these companies.

Privcap: What is unique about the tech ecosystems of Brazil’s mid-sized cities?

Toscano: I think that there are two things that are very important. One of them is that these tech towns outside of Sao Paulo with universities are generating over a quarter of Brazil’s technology. And most of the companies coming into Brazil, they are going there. So, for example, Sao Paulo’s clogged so they are going to these places where the salaries are 30% less.

And you have a lot of capable workforce that is not willing to move to Sao Paulo because they like the local lifestyle and they like the overall quality. And the second thing is that I think that it only became obvious to most of the people that this region had the economic power it has when Azul, which was founded by David Neeleman, as you know, created their hub in Campinas.

So for the first time, the people in these cities didn’t have to drive to Sao Paulo to get a flight. And what you saw was that the Campinas airport became one of the six fastest-growing airports in the world. And Azul, in a few years, captured 10% of the Brazilian market for airfare. So the economic strength of the region, and with all this accessibility with the new airport now, the Campinas airport, was given concession.

And according to government planning, it will be one of the largest, probably the largest, airport in Brazil in 2020. So these midsize cities are really the economic powerhouse of the next few years. We are moving fast to be in most of them. And there’s only 22 of these cities we map that are interesting, that have the right ecosystem. So it’s a big challenge, but not an impossible challenge. And we try to be local to these successful entrepreneurs.

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