YOU CAN NOW DESCRIBE ANDRÉ MONTEIRO AND BRUNO MEDEIROS as two of the most successful young entrepreneurs in Brazil today. Both younger than 30, they created Compra3, an online shopping site/group buying service that combines social networking and money saving. (Their model has been compared to U.S.-based Groupon but differs in some ways, like not requiring waiting for a certain number of buyers before a deal kicks in, for example.)
But getting Brazilian investors to fund an unproven concept was one of the frustrations along the way.
Monteiro and Medeiros faced the typical difficulties of startups in attracting investors to back their ideas, but now they manage a company that expects to earn US$1.3 million in 2011 and plans to enter the highly competitive North American market next year.
After working for a few years developing web solutions for other companies, in 2007 these two friends from Curitiba, software hub and capital city of the southern state of Paraná, decided to look for investors to open their own company, a sort of consultancy for web services. “But the investors were used to looking only at mature ideas,” Monteiro says. “They had no concept of what a startup business was like.”
With their business plan in their backpacks, Monteiro and Medeiros started knocking on the doors of investment fund offices, “but the most common answer was that the market was not ready for such a thing.” Getting help from the government was not an option: There was not a single financing line focused on young tech entrepreneurs.
Compra3 was thus created. The site’s social chain links more than 600,000 registered members, who can buy goods from other websites and recommend friends to buy too. The more items sold and more friends convinced, the more money the buyers get back from the site. Compra3 has struck deals with the biggest web retailers in Brazil, like Lojas Americanas, WalMart, Ponto frio, and Submarino. The company says users have access to more than 1 million products.In mid-2009, they convinced one important ally to bet the amount of money necessary to make their idea a reality. Michael Nicklas, Silicon Valley angel investor and a former Univision CEO, infused an amount of money that was not made public but was enough to turn concept into launch. (According to some reports, initial investors provided US$1.2 million.)
Nowadays Medeiros and Monteiro are invited to entrepreneurship events all over the world, to share their experience and provide perspective on what the Brazilian startup scene looks like. Sourcing Brazil caught up with André to hear more about the thrills and agonies of building a web business.
Investors Wary of The New
Monteiro told Sourcing Brazil that one of the biggest obstacles they faced was due to the newness of the Compra3 concept at the time.
“It was thought of as a real innovation in terms of business and technology, so the potential investors demanded hard proof that it could work,” Monteiro says. “The idea had to be proven by itself, developed for more than two years, tested with prototypes, followed by a lot of research and market tests until we came up with the final product.”
“At the beginning, the investment market for this segment we were operating in basically did not exist. We had to set up a fund of our own that started to aggregate money from small investors. It was after we could show that big retailing chains and e-consumers as a whole had accepted the concept that we got bigger amounts from an international investor.”
Attracting an American angel investor experienced in the Internet and new technologies provided “a non-financial value that was very important,” Monteiro says.
Compra3 was chosen by Microsoft to participate in Bizspark One, a program aimed at boosting startups with potential international scale. “This amplified our network internationally, and made it possible for us to be in contact with web investors and professionals from the United States,” Monteiro says. “Besides that, we became very close to a small group of informal counselors who contributed in a decisive way to our business strategies. Entrepreneurs and executives with a strong experience in the Brazilian and American Internet market are part of this group.”
It took a few years from investment to Internet success. “Intense tests of prototypes” was followed, Monteiro says, by “a lot of effort to make important Brazilian players in Internet retailing recognize Compra3 as an interesting platform for their consumers.”
“Only after three years did we hit the break-even.”