ArpexCapital

The economic crisis in Europe has dominated the headlines in the last week. 

In my opinion, Europe faces one of two scenarios.  In the first scenario, banks in France and elsewhere that hold bad debt (read: debt from the "PIIGS" — Portugal, Ireland, Italy, Greece and Spain) face collapse but are saved by their governments, who will essentially take ownership of the banks. 

If that happens, the economic crisis in Europe will be morph into a steady but serious decline, leading to a period of five to ten years of economic malaise.  During that time, countries will struggle to reconcile the economic reality that they cannot afford the welfare programs upon which their citizens have become dependent.

In the other scenario, government action is not sufficient to save major banks and the economic crisis becomes a "crash".  Credit vanishes and European economies decline severely, which leads to various nasty but historically predictable outcomes such as political unrest, the rise of far right and far left political parties, etc.

As for the US, we are about to slide into another recession (a "double-dip" recession — the first dip was 2008-2009).  Unemployment will grow to well above 10% and we will struggle for another three or four years, as we complete the "great de-leveraging" (reducing our debt) that began in 2008. 

We will face our own political reckonings.  For example, no President can be re-elected in such an economic environment and Obama is unlikely to be in office come January 2013.

Given this situation, the importance of Brazil and China will only increase.  Why are Americans and Europeans pouring into Brazil, learning Portuguese and claiming a new-found love of the country?  In addition to being a fantastic place, Brazil is one of the few places on earth that has solid economic growth.

For my friends and family in the US and Europe: hold on and see through this tough time — it will end, as it always does. 

For my friends and family in Brazil: let's be thankful for our presence in a great country that holds a special place at this moment in history.

Following up on yesterday's post on valuations in Brazil: the problem of valuing early stage companies is not new and one of the solutions that appeared years ago was the convertible note.  The convertible note basically delays the need for valuing the company until the next round of financing, when presumably the company will be more mature and thus more accurately valued.   Some VCs swear by convertible notes, others dislike them but they are one solution to a situation where the entrepreneur and investor are too far apart on valuation.

It's easy to find more information about convertible notes online: one of the great things about the venture ecosystem is the amount of quality information available on the blogs of VCs. I highly recommend Fred Wilson's AVC (spend time in the comment section, as well) and Brad Feld's Feld Thoughts.  Brad also posts on an excellent site called Ask the VC.

Fred and Brad have weighed in on the convertible note issue multiple times and I recommend checking out what they say.

Three years ago, when I told people that I was doing venture capital in Brazil, they would usually ask “Why?”

Two years ago, when I said the same thing, they would say, “Interesting.”

I am Anthony Hurtado an American intern at ArpexCapital. Prior to joining ArpexCapital I lived in São Paulo, Brazil where I briefly studied at PUC-SP while interning at Raymond James & Associates.   Currently, I am a student at Georgetown University.  I will periodically contribute to this blog.

In the US and European ecosystem, a “mobile” revolution, driven by smartphones, is underway. It is unclear, however, whether the same mobile revolution will occur in Brazil: 82% of the Brazilian population uses pre-paid chips in place of mobile plans and Brazil is the second most expensive place for someone to use a cellphone, due to layers of taxes and fragmented industry fees.   If you were to look at the decision by Pontomobi, Brazil´s largest mobile marketing company, to bypass Mexico and Argentina and instead expand into Europe due to their more advanced tech infrastructure, you would probably conclude that Brazil’s current boom won’t include mobile.

Nevertheless, I have found many reasons to believe in an imminent Brazilian mobile revolution. The chief reason is the Brazilians themselves.  In the land where a new iPhone costs anywhere from 2.5-12X more than in the US, sales are up!  The new Class C in the last eight years has increased general consumption nearly seven times over.  Mobile phones and other tech products make up a significant portion of this new consumption.  App-heavy, Android-based phones are the country’s fastest growing cellphones. Despite having sky-high tariffs on smartphones, smartphone sales are up 85%! In the overtaxed mobile environment, 15% of Brazilians already have a smartphone.  By 2014 that number is expected to be 45%.

Moreover, while there is an endless amount of legislation and regulation of cellphone minutes, ubiquitous promotions by telecom carriers greatly minimize the actual costs incurred by many Brazilians.  These promotions already include the mobile Internet space as seen in, e.g., TIM’s latest promotion of a month’s free Internet when you buy a TIM pre-paid phone.

The question is not whether Brazil will experience the mobile movement but which Brazilian companies will do the best job of harnessing it.  With this in mind, Pontomobi´s Europe play now makes sense.  It is not that the company is abandoning Brazilian mobile marketing, rather they´re preparing for its next stage, which is currently being realized elsewhere.  Their move to the developed markets demonstrates that the Brazilians who progress Brazil´s mobile sector to its next stage may not be in Brazil right now. They will return to Brazil and the mobile revolution, when it hits Brazil, and will combine many European and American (and Asian) lessons with indigenous business and technological standards.   

It’s coming: the worldwide mobile revolution will soon hit Brazil, The Country of Tomorrow Today.