For several years now, I have been keeping a close eye on Brazil and its entrepreneurial scene. From a business perspective, Brazil has been booming for several years, with massive increases in foreign investment and an increasing amount of attention from US- and Europe-based companies. Even though its economic performance may be somewhat less stellar than that of its BRIC-neighbors, it is clear that a potential market of 192 million inhabitants, abundant natural resources and a GDP-rate about double of the EU-average equal a very attractive value proposition for potential investors.

Following a conversation with Diego Remus, CEO of Startupi, one of Brazil’s leading startup blogs, I was surprised to learn that the Brazilian entrepreneurial scene does not seem to be seeing a lot of that investment – foreign business angels and venture capital firms seem reluctant to invest in Brazilian startups. According to a recent blog post, “In September 2009 Naspers Group, already present in Brazil, acquired nearly all of Grupo Buscapé. It had been a while since we’d seen an acquisition as notable as that one here. The whole world waited expectantly for more buys, which didn’t happen for a while but things are picking up again.”

It is clear Brazil can be a very difficult market for entrepreneurs: interest rates and spreads are (artificially) high, the regulatory landscape is a mess and it takes an average of 152 days to start a business (global average: 47.8), one of the longest in the world. Still, there are tremendous potential opportunities awaiting those brave enough to swim against the current and take a hard look at what Brazil has to offer. So, if you are a business angel or venture capital fund, here are ten reasons why you should at least consider Brazil as your next investment destination.

1. Lack of informal investment

Every new venture requires capital, and the 3Fs (Friends, Fools & Family) as well as business angels form an important source of funding for newly created startups. According to the GEM (Global Entrepreneurship Monitor) 2009 Report, “Russia and Brazil at 0.1% have the lowest informal investment amounts of any GEM nation.” As an immediate result, many Brazilian startups are struggling to find cash – or may not even be created in the first place. Compare that to Europe and the US, where capital is plenty but opportunities are few – sound interesting ?

2. High Cost Of Capital

With interest rates not that long ago around 3-5% per month or around 20% for big companies, capital is extremely pricey – and that’s providing you can even get it. Many investors this side of the Atlantic would be happy to provide capital at a guaranteed annual interest rate of around 10% – depending on the risk – about half of the going rate in Brazil. Financing startups in Brazil with European capital could mean very attractive returns for private investors looking to support budding entrepreneurs.

3. Economic growth/GDP

Brazil’s GDP is predicted to grow to around 5.5 percent in 2010, with the IMF recently calling for an increase. If that does not sound all that impressive compared to the growth rates we are seeing for China, consider that the Brazilian government has recently had to take measures to cool demand and prevent the economy from overheating.  They seem to be in it for the long haul, trading off excessive growth for a more concerted multi-year growth pattern. Compare this to Western Europe, with a paltry 0.7% predicted for 2010.

4. Level Of Innovation

Chris Anderson’s book “Free. The Future Of A Radical Price” contains a chapter entitled “Free World. China and Brazil are the frontiers of free – what can we learn from them ?”. In the book, Chris relays the story of how Brazilian artists and music labels are turning  traditional recording industry business models upside down by providing music for free, but making money on related items such as concerts, merchandising and other revenue streams. This is only one example of how Brazil and other emerging markets are actually ahead of the pack when it comes to innovation. In mobile advertising, urban transportation, green tech, biofuels and social media, we are likely to see Brazil and other emerging markets emerge as leaders on the world stage.
“Technology SMEs are an engine of economic growth and I stress the importance of incubators. We are betting these will have a transformative effect on the country.” (Eduardo Costa, Chief Of Innovation, FINEP)

5. Room To Grow

The combined results of years of protectionism and a fast-growing and sizable domestic market mean Brazilian entrepreneurs are extremely inward-facing. Only around 15% of all early-stage entrepreneurs have at least a few customers outside of Brazil – meaning most of them could almost certainly use a hand to help them market outside of their home base. Partnerships that can combine Brazilian entrepreneurship and international marketing savvy are likely to provide some interesting perspectives.

6. Tech Savvyness

Already way back in 2009, Brazil topped the list in terms of Twitter users. Depending on the source, they are first or second (behind the US), but what is clear is that Brazil’s 72 million Internet users (approximately 37% of total population) are increasingly technology-savvy. Total number of mobile users in Brazil is likely to gross over 200 million by 2014, a CAGR of 4.1 %. In February 2010 alone, Brazil added almost 1.2 million mobile users – around 15 % of Switzerland total user base.

7. Risk Diversification

With continued economic troubles plaguing the Eurozone, taking a diversified approach to investing and spreading risk can no longer be considered a luxury. According to PIMCO-CEO Mohamed El-Erian, ““Growth and wealth will shift to emerging economies such as Brazil, China and India, driven by rising employment and income. Europe will struggle as it tries to ward off deflation, and questions are “multiplying” about the euro and the makeup of the euro zone”.

8. Upcoming Elections

Perhaps strange to include in an investor list, but Brazil’s economic history is not without violent swings, and the question of who is in power certainly has relevance for those looking to invest for the long term. The international community generally agrees that, regardless of who comes out as the winner of the upcoming presidential election, the pro-growth agenda is likely to be continued for some time to come – and red tape is likely to be increasingly cut down.

9. Entrepreneurial Spirit

According to International Entrepreneurship, “Brazil is a leader in entrepreneurship, with an estimated one in eight adults being “entrepreneurs. Foreign entrepreneurship is a bit of a rarity in Brazil.” This is not to say that Brazilian entrepreneurs are not open; most welcome any opportunity to talk with European or US-based entrepreneurs, and actively share and exchange ideas. As the Brazilian economy improves and vast parts of the middle class are lifted out of poverty, opportunity-based and necessity-based entrepreneurship are increasingly equal.

10. 2014/2016

Rio hosting both the 2014 World Cup and 2016 Olympics is a symbolic gesture the international community is increasingly taking Brazil seriously as a player on the world scene. The impressive investment that is required in order to host both events, as well as countless other development initiatives driven by the government in order to develop the country and ensure continued economic prosperity for its population are likely to provide opportunities for startups and entrepreneurs alike.