São Paulo, Brazil, might not have the glossy tech recognition that Silicon Valley does, but it's increasingly drawing the attention of American investors. 

Below the equator, entrepreneurship is booming more than ever. São Paulo ranks
No. 12 among the startup ecosystems in the world, according to a recent report from research firm Compass. The city is home to about 2,700 active startups and is the only Latin American hub to make the list. 

Though Brazil's venture capital scene is relatively new, São Paulo saw the third-highest number of investments of any location worldwide in 2014. Notable Silicon Valley firms including Redpoint Ventures and 500 Startups have set up branches there to invest in Brazilian startups. 

As internet penetration in Brazil rises, tech companies -- ranging from education to finance to health care -- are sprouting.   

"São Paulo is by far the most developed hub in Brazil," says Anderson Thees, a founding partner and investor at Redpoint eventures. Since 2012, the firm has invested in 22 startups in Brazil, focusing primarily on business-to-business and software-as-a-service (SaaS) ventures.

Currently, the South American country is facing a massive economic downturn (last week, President Dilma Rousseff introduced a $17 billion austerity package). The silver lining? The crisis presents more opportunities for entrepreneurs. Socio-economic pain points, such as limited access to education and sluggish transportation systems, pave the way for new ventures to make good.

Easy Taxi, an app-based car service that launched in Rio de Janeiro in 2011 before moving to São Paulo, has benefited handsomely from its new location. Founder and Co-CEO Dennis Wang, who was born and raised in São Paulo, sees disguised blessings in Brazil's economic crisis. 

"It helps in a way, because talent becomes cheaper," he tells me. Wang insists that Easy Taxi is "bigger" than Uber in every Latin American market that it operates in, with the exception of Mexico. The company has a presence in 30 countries worldwide, including parts of Africa and the Middle East. It's completed a total of 50 million bookings, with 20 million total downloads.

Here's a deeper look into why São Paulo is becoming such a popular scene for tech entrepreneurs:

1. A strong venture capital presence.

While private equity has long been available to startups in São Paulo, more U.S. venture capital firms are establishing a presence there, too.  

"Our currency lost a lot of value compared to the U.S. dollar," says Flavio Pripas, a serial entrepreneur and director of CUBO, a co-working space in São Paulo. "Companies in Brazil are very cheap for American investors." That includes firms such as Redpoint eventures, Tiger Capital, and 500 Startups.

Wang notes that Easy Taxi has raised as much as $77 million in venture funding, though exclusively from foreign partners like U.S. hedge funds, Asian firms, and European family offices. In the company's early stages, that capital just wasn't as available as it is for new startups. 

Although the number of investments is increasing in São Paulo, major players are quick to point out there are very few exits. Pripas hopes the new CUBO co-working space will change that.

While Redpoint's Thees agrees that the number of exits is far from ideal, he adds that many smaller exits -- in the "$100 million" range -- do not get widely publicized.  

2. An abundance of business resources. 

São Paulo has plenty of resources for young businesses and entrepreneurs, from startup accelerators like Acceleratech, Startup Farm, and Startup Weekend (which was how Easy Taxi got its start), to co-working spaces like Distrito and Plug N' Work.

As the largest city in Brazil, São Paulo counts about 20 million residents, and startups are naturally scattered across neighborhoods. "There are a lot of co-working spaces in São Paulo, but it's not super concentrated," Wang tells me.  

The lack of density can make it difficult for early-stage ventures to make key connections, or to learn from their peers. 

CUBO, Pripas's co-working space, spans 5,000 square meters and can house about 50 startups. The goal, he says, is to bring a critical mass of companies together while providing the opportunity to network with local players and investors. 

3. Cultural diversity makes for strong teams.

Brazil is among the most racially diverse countries in the world, with around 47 percent white citizens and 43 percent mixed-race, according to the Central Intelligence Agency's World Factbook. São Paulo is no exception, as it has one of the largest immigrant populations of any city in Brazil. 

Easy Taxi has benefited immensely from the diversity. Numerous foreign hires (i.e., Chinese, Polish, and Venezuelan immigrants) help the company to grow beyond its borders. Easy Taxi's marketing team alone counts seven different nationalities. 

"Since we have a presence in 30 countries, it is really important for us to have people from all around the world," adds Wang. In Asia, for instance, Easy Taxi's team advertises in color, whereas in Brazil, the scheme is much more flat.

Unlike the U.S., it's worth noting that government red tape -- and corruption -- can be a barrier to entry for startups. Wang says it took his company nearly three months to officially register with the government. 

Although attitudes toward risk-taking are shifting, the government has traditionally looked down on entrepreneurship. "If a company doesn't work out, the owner of the company is personally liable," says Wang.

Today, around a quarter of the Brazilian population aged 18-64 plan on pursuing entrepreneurship, although nearly 40 percent say they're afraid to fail, according to recent data from the Global Entrepreneurship Monitor.

Still, from startups like Descomplica -- which aims to make education accessible to all Brazilians online -- to GuiaBolso, an automated personal finance solution, the Brazilian business community is now tackling social issues head on. 

Published on: Sep 21, 2015