Facebook backer turns his attention to Brazil

By Sarah McBride and Esteban Israel

SAN FRANCISCO/ SAO PAULO (Reuters) - One of Facebook's earliest investors has turned his attention to a distant market with a small but lively start-up scene: Brazil.

Kevin Efrusy, the partner at Accel who spearheaded the firm's initial $12.7 million investment in Facebook back in 2005, has made several new investments in Brazil over the last year or so.

Efrusy, who declined to be interviewed for this article, is perhaps the most ambitious of a growing number of U.S.-based venture capitalists who see opportunity in a country with a large population, a fast-growing middle class, big growth potential and political stability.

Redpoint Ventures and BV Capital created a Sao Paulo-based firm, Redpoint eVentures, earlier this year. Benchmark Capital and General Atlantic have invested in Peixe Urbano, a Groupon-style deals site. Insight Venture Partners has invested in several Brazilian companies, including discount-travel site Hotel Urbano and, alongside Accel, in handcrafted-goods marketplace Elo7.

"Venture capital is an industry that is just being born in Brazil and the trend is that it will go very quickly from millions to billions," said Haroldo Korte, a Sao Paulo-based manager at Atomico, a fund created by Skype co-founder Niklas Zennstrom.

Last month, Sao Paulo was one of the hottest stops for Geeks on a Plane, a series of tours organized by venture capitalist Dave McClure of Mountain View, California-based 500 Startups. The tour brought more than 40 tech junkies, entrepreneurs and investors to Brazil.

There are still plenty of obstacles. The Brazilian economy has been barely growing in recent quarters, and start-ups must contend with high taxes, comparatively limited access to early-stage funding, and the absence of organized programs to foster entrepreneurship. Entrepreneurs with regional aspirations must work in Spanish as well as Brazil's national tongue, Portuguese.

There are cultural barriers as well. Failure carries a bigger stigma in Brazil than in the United States, making entrepreneurs less aggressive, says Ted Rogers, a partner at Arpex Capital in Sao Paulo. The community of engineers, developers and experienced entrepreneurs is also small, if growing.