The Brazilian Internet scene is attracting some heavy-hitting investors.
Brazilian start-up Elike Social Commerce has closed on its Series A funding with an investment from Intel Capital — the global investment and mergers and acquisitions arm of semiconductor giant Intel Corp. — for an undisclosed amount.
Elike is an application that has two components: a B2B “my shopping” platform that allows Brazilian retailers to open stores online accessible by consumers through the B2C app within Facebook. The B2C platform is the social shopping component that allows sharing, liking and buying through the digital marketplace.
Elike, launched in July 2011, already has 10 high-end retail stores on its site, with three more launching next month. It uses a hybrid performance pricing-revenue share model.
Tatiana Albuquerque, Elike’s cofounder, said about 70 percent of the high-end merchandise on the B2B platform is fashion, with the balance in other categories such as home and electronics.
“The site allows users to shop [digitally] with their friends and gives retailers who open stores inside the social book to get closer to the user,” Albuquerque said. She plans to use the funding from Intel to improve the technology behind the platform, add new features and bring aboard creative talent.
Since 1991, Intel Capital has invested more than $10.4 billion in over 1,212 start-ups and companies in 51 countries. Some of its current retail-related investments include Fashion Republic Technologies Ltd., a China-based online fashion platform that allows users to generate fashion content in the community via a vertical search engine; Goldsquare Pvt. Ltd., which operates in Asia the members-only online shopping destination site Fashionandyou.com, and Netretail Holding BV, which operates localized e-commerce sites in five Central and Eastern European countries (Czech Republic, Germany, Poland, Hungary and Slovakia) under Mall.cz. Other Brazilian investments in fashion this year by Intel were the e-commerce, members-only Web site Coquelux and the social networking platform Fashion.me.
Given the amount of time Brazilians are online, the investments in Elike and Fashion.me are helping to facilitate how fashion brands in Brazil interact with consumers.
In A.T. Kearney’s 2012 Retail E-commerce Index, released in June, Brazil ranks second to China as a top emerging market for e-commerce development. The country has 80 million Internet users who spend $10.6 billion online a year, the largest total in Latin America. The consulting firm projects that Brazilians are expected to spend $18.7 billion by 2017, or a 12 percent annual growth rate, as online shopping grows. The e-commerce market is gaining momentum as the Brazilian government is strengthening is digital commerce laws to bolster the security of online payments.
Technology and e-commerce ventures are the more recent sectors eyed by cash-rich venture capitalists and private equity firms.
Seth Zalkin of The Astor Group, an investment banking firm with offices in New York and Rio de Janeiro having an expertise in the consumer brand sector, said his firm saw growing interest in Brazil when it had an office in Miami. That prompted the opening of the Rio de Janeiro office in 2009.
Astor Capital is the investment arm of Astor Group, and had taken an ownership stake in Elike after providing seed funding. As part of its investment, it also advises the firms it has an ownership stake in. In the case of Elike, Zalkin is a board member and brought in Intel Capital, which has had a presence in Brazil for 15 years.
While Zalkin said there is a “huge opportunity due to the growing middle class” for firms looking to invest in Brazilian companies, he noted that there are still many factors that delay getting deals done. Bureaucracy is one, as is logistics. There can also be tax and accounting issues, not to mention that negotiations often take far longer due to cultural differences than for transactions taking place in the U.S. Currently, Astor is advising companies, particularly many health and beauty firms, who desire to enter the Brazilian marketplace but don’t know where to start.
Other firms that have been laying the groundwork to capture opportunities in Brazil include private equity company Carlyle Group. Carlyle was among the first of the top private equity firms to venture into new markets, and in the past four years has set its eyes on investments in consumer retail, logistics, infrastructure and oil and gas.
The firm has invested in five companies so far, including a 51 percent stake in Scalina SA, the largest intimate apparel firm in Brazil. That investment was reduced to 39 percent last year due to a transaction with a third-party investor.
According to Juan Carlos Felix, managing director at Carlyle in São Paulo, the private equity firm studied the consumer retail space for two years before making its first investment in Scalina. He added that his office determined that there’s strong potential for investment and growth in the women’s consumer apparel space.
Felix noted that the growth in the women’s apparel space is due to the stability of the economy for the past 12 years, and with it a huge creation of wealth within the middle class and its resultant purchasing power. Women in particular, he said, drive 55 percent of total consumption in Brazil. Moreover, as more women enter the labor force, the “gap in salaries between men and women in the same position is decreasing when compared with developing industries,” he said.
According to a report in May by the KKR Global Macro & Asset Allocation Team, led by Henry H. McVey, Brazil has a large and growing middle class that now represents more than 50 percent of its nearly 200 million citizens. “In addition to rising incomes, Brazil has compelling demographic prospects for the near term, with 51 percent of its citizens under 30 years old. As this demographic matures and enters financial independence, wealth creation and broad-based spending is expected to follow,” the report concluded.
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