IBM Drills Further Into Brazil’s Tech Start-Up Scene

International Business Machines Corp. is on a mission to expand its partnerships in Brazil in response to the country’s growing information-technology market.

The Armonk, N.Y.-based computer giant is announcing today the formation of its Sao Paulo IBM Innovation Center, part of a network of 43 such centers that will provide training, consulting services and assistance to bring new technologies to market.

The company will also be making a “more concentrated effort to engage with the venture community in Brazil,” said Claudia Fan Munce, the managing director of IBM’s venture capital group, which invests in venture capital funds but not directly in start-up companies.

“When the term ‘BRIC’ was coined, it was really ‘IC,’” she said, referring to the shorthand term for Brazil, Russia, India and China. “In the last few years Brazil has really ramped up.”

Since the dot-com crash, IBM’s venture group has made strategic partnerships with start-ups a core focus. In 2000, it had 21 such partnerships, but now it has 1,400 venture-backed partners, Fan Munce said.

In Brazil, IBM plans to meet regularly with local venture firms to find potential partners among the start-ups they are backing. The company makes about four or five investments in venture capital funds per year, but has not yet invested in any Brazil-based funds, Fan Munce said.

Venture capitalists in the U.S. have long been interested in Brazil, but most of them have never made investments there. Brazil’s economy is considered large and stable and it boasts a stable financial system and capital markets. It also doesn’t have the time zone issues like India or China, and the culture and legal systems are more akin to the U.S. But VCs have remained concerned about high tax rates and strict labor laws compared with the U.S.

A few U.S. firms have made a home in Brazil in recent years. Intel Capital, the venture arm of Intel Corp., formed a $50 million fund in 2006 devoted to technology investments there. A year later, Silicon Valley firm Draper Fisher Jurvetson linked up with local Brazilian investor FIR Capital Partners to start a $40 million fund focused on early-stage technology investments. At the time, a DFJ representative told VentureWire: “We’ve seen Brazil as a beachhead in South America for technology and we’re trying to take advantage of the increased entrepreneurial spirit down there.” DFJ FIR Capital Partners planned to raise a second fund in the first half of 2008 with committed capital of BRR$170 million ($105 million), according to statement on its Web site that hasn’t been updated.

A recent annual survey by Deloitte Touche asked venture capitalists around the world for their opinions on the industry, including which country has the most to gain in overall stature in the next three years. Of the 725 respondents, 44% of whom were based in the U.S., 5% picked Brazil, below China (42%), the U.S. (24%) and India (12%).