Failure is Good…

…or, more accurately, failure is okay.
I read a great post today called 10 Lessons from a Failed Startup.

It reminded me that one of the large differences between Brazilian and US venture capital is that, in the US, failure is accepted as part of the startup ecosystem. From an investor point of view, in a given mid-stage VC portfolio, it is understood that at least 1/3 of the companies will fail outright, another 1/3 will go sideways (0% gain) and the last third will provide the returns required. In early-stage funds, the number of companies expected to fail is higher — I would say 6 will fail outright, 2 will go sideways and 2 (one hopes) will provide outsized returns.

More important is how failed entrepreneurs are treated in different countries. In the US, an entrepreneur who has failed is not stigmatized and, depending on the situation, may even be more “backable” by VCs based on the experience he has had. Entrepreneurs in Brazil have communicated to me that starting a company that fails can be ruinous to a reputation and that angel investors in a failed startup feel a high level of shock and negativity.

Also, the regulatory burdens of starting a company in Brazil are very high, as are the burdens of shutting down one down: starting a company in Brazil can take 12 months and shutting down a company can take longer (no, I am not exaggerating). Given that, is it any wonder that, traditionally, joining a large bank or a government agency is the preferred option for young Brazilians?

The good news is that this is changing. As I wrote previously — entrepreneurialism is on the rise in Brazil, as is the respect they are accorded. Second, MANY other countries face the same cultural stigma against failed entrepreneurs/startups, i.e., Brazil is the rule, not the exception. I was at a conference in February where a young, talented tech transfer executive from Germany told me that the single biggest issue holding back the growth of a VC/startup ecosystem in Germany is the stigmatization of failure.

Lastly, when you count the chips stacked against the Brazilian entrepreneur: inflation (mostly under control), cost of capital, taxes, labor laws, lack of capital, culture, etc., the more respect you must have for them. I have met entrepreneurs in Brazil that I would put up against the best in the US, anytime, anyday. The average Brazilian entrepreneur has had to be resourceful in ways the average US hacker in a Stanford dorm room can’t begin to imagine.

As Brazil lifts (hopefully) the regulatory burdens on entrepreneurs and the VC ecosystem and culture evolves, the world will see how well Brazilian entrepreneurs perform.