Why Niklas Zennstrom thinks Brazil’s startups are hot

Sao Paulo, Brazil — Niklas Zennstrom, the founder of Skype and Kazaa and the founding partner of investment firm Atomico, has been spending a significant amount of time in Brazil looking for and meeting with Brazilian entrepreneurs. He first noticed how big the Brazilian market was when Brazil emerged as one of the larger markets — between the third and fifth largest — for Skype back at the end of 2003, Zennstrom said in an interview following a panel that he participated in Monday night organized by the Institute for Education and Research in Sao Paulo.

Following that realization, Zennstrom said that when he started Atomico in 2006, one of the theses he had was that he wanted Atomico to be an international firm, which could help its portfolio companies move into international markets. “We thought Brazil would be one of the key markets that we would help them [our portfolio companies] expand into. But after we were in the market, we realized there were quite a few good entrepreneurs there and we started to get inbound opportunities to invest in companies in Brazil.” Atomico’s Carlos Pires, former Skype general manager, heads up the Brazilian market for Atomico.

Zennstrom noted that now the Brazilian Web market is growing very rapidly, Internet penetration has doubled over the past four years, consumers seem very keen on trying out new services, the economy is pretty stable, and it’s a very entrepreneurial country. “It’s a good time to invest here and find companies,” he said.

If there’s one thing that Zennstrom isn’t exactly keen on, it’s clones. He said:

A lot of the playbook that you’ve seen for the last ten years here [in Brazil] has been to see what is happening in the U.S. and do a local version of it. Which typically works really well. But there is no reason why there isn’t thinking here that’s bigger than that. And I think you will see that.

Here are a few bullet points from Zennstrom’s thoughts from the panel discussion:

On pitches: If you need a 25 page PowerPoint presentation to explain your idea, it’s probably too complicated.

On the eBay and Skype deal: What eBay did was they were looking for new companies to grow and when they acquired us they thought there would be some synergies, but it turned out that there weren’t that many synergies. So from an integration point of view it didn’t work out. But it turned out financially to be a good investment because when eBay sold the company they made a profit.

The lean startup: It’s a better time to start a business today, because when we started our businesses [Skype and Kazaa] we had to go out and get servers and infrastructure and it was so much more costly. Today if you do an online service you don’t need to spend money on infrastructure, you can use cloud services, and social media or viral media for spreading services.

Advice to a Web entrepreneur: If you’re not an engineer, you should probably become best friends with some smart engineers and make them co-founders.

On international markets and clones: Online companies need to go international much more quickly than they did before because otherwise you will get cloned if you have a good business model. Sometimes that’s OK, because sometimes if you get big you can acquire them. But the copy cats are getting much more sophisticated and may actually outperform you.

On spending on talent: Programmers are the most valuable people in the company, and they should always be the stars. Don’t be cheap when it comes to getting the right programmers. Really good programmers can really make miracles, and not-so-good programmers will create problems for you.

How good are Brazil’s programmers? Brazil is one of the biggest contributors to the open-source software community and typically open-source software developers are good. There is a lot of talent here, you just have to convince them to come and work for you and make them co-founders.

Missteps: I always knew I spent too little time on recruitment. The team is the most important thing.

Go international: I’d like to encourage entrepreneurs here [in Brazil] to think about not only the Brazilian market, but also think about building a company that can be successful internationally. The Internet is borderless. I would also encourage innovators to think of new business models instead of taking a playbook from someone else and making a copy of something else. It’s much more fun to be an originator of ideas and it’s a much bigger opportunity.