Foreigners: Getting Started – how to open a company in Brazil

After a long while away from the blog I’m back.

I guess it was Mark Suster who made a comment on how you should trust VCs who pick up their wives calls as this is a good proxy to how they will deal with you once you are on the portfolio but that is no excuse.

I apologize to all of those that missed me but I got married and went on my honeymoon. When I got back… well.. You can imagine.

But I’ll pick-up where I left off.

An interesting entrepreneur asked me how do foreigners start companies in Brazil.  As I’ve seen an “invasion” of foreign entrepreneurs (likely to be my next topic) lately, I guess this is a relevant point.

Talked to my lawyers and here is the thing. If you are a foreigner with a residence visa, it is a little different from if you do not have such a visa.

If you do have a Residence visa, you will need to get an RNE (foreigners registration number) with the Federal Police.  (Be aware that this process may take a really long time… I’ve heard of year+).

Once you are done with it, you have to get a CPF (Brazilian Tax Payer Number) from Receita Federal (IRS). This is simple and rather quick. Try using a Poupa Tempo if you are in Sao Paulo

If you do not have a residence visa, you will need to hire a lawyer ( i can point you to some) and give him power of attorney to represent you in Brazil.

Now we really start the process of setting up the company:

1-You have to draft the shareholders agreement (Contrato social) and register it at Junta Comercial (commercial board).  Beware that companies in Brazil cant belong too ne single person, so you will need a partner, even if he has only 0.000001% of the company.

To register you will need to have copies of your ID’s , CPFs and proof of residence.  This takes about 2 weeks.

It is often that the shareholders agreement gets rejected due to some bureaucratic detail

2- Go online to Receita Federal (IRS) ( where you can start the process in order to get a CNPJ (corporate tax payer number). You will have to send a notarized copy of the registered shareholders agreement.  They should take about 2-3 weeks to get back to you with the number.

3- Once you have the number you can open bank accounts and fulfill most of your other operational needs. You can even start running the business.

But you are not done. If you are opening a commercial company, you have to go online to Receita Estudal (State IRS) in order to register with them.   Expect 3 weeks.

4. Whether you are opening a commercial company or not, you will also need to register with the city hall. Expect 3 weeks but this can be cone in parallel with the state registration.

5. Depending on the type of company you are opening other registrations may apply as ANVISA (FDA) for restaurants, drugstores, hospitals and so on. But as that is on a case by case basis, I’d rather not go into details.

Neither these steps are expensive (about R$150 each) but they often are very frustrating and long for someone that doesn’t understand all the details ( there is no how-to-open-your-company-in-Brazil-for-Dummies manual).

An easier and speedier option is to buy a shelf company (a company that has never been operational and was only created to be sold) from a respectable lawyer.  I can point you in the right direction if you need. They normally go for R$3000 to R$5000.

I hope I didn’t mix up any of the bureaucratic steps. If I did, please correct me.

I hope that helps!

PS: Pieter, an amazing Dutch entrepreneur,  leading added 2 observations (they were true at least in 2009/2010)
– You need to have set up the company and transferred the investment before you can obtain an investor visa (you’ll need to appoint someone else to manage it while you wait for your visa)
– No need to wait with the request for your CPF until you get the visa, get it rightaway, much easier



Rio is Alive and Kickin`

As I have family in Rio I come here often. As everyone that arrives in the city, I’ve always been amazed by it.  Normally, what struck me was the beauty of the city. Sometimes it was the violence but there was always a non-striking undertone of Decadence.

Since Rio stopped being the nation’s capital (1960), it is said that its importance in the National GDP has shrunk by 60%. It declined from  18,5% of the national GDP, 1950 to 12,3% in 1985. Today, it is at 11,3%.  As a there was a big migration from the city of Rio, to instate, you can imagine the feel of the city.

When I flew in yesterday, it was this very same undertone that I was expecting when I flew in yesterday. Yet, I was very pleasantly surprise to find a very different ambiance.  The hotel was packed, restaurants were full and the city was lively.

Today, I understood some of the reasons. I found a very exciting entrepreneurial community being developed around Pretrobras massive presence.  At UFRJ I visited and intreresting incubator that is focusing on the oil industry. Morevover, I got a glimps of Petrobras new research facilities

and the new technological park. Both being developed within university facilities…. a giant step for the almost communist Brazilian Academia. This blend of public educational investment and private focus on outcomes might prove to be a winning combination.

I also met with a very impressive incubator at PUC-Rio where it seems like a lot is happening as they are creating a support community for the entrepreneurs.

But, probably, my most impressive visit was to the Rio Investiment Promotion Agency where I learned a bit more about their ambitious plan to transform the Rio Harbour in to a center for the tech community, with VCs, Big Co’s, entrepreneurs and the rest of the community.

The idea is to use the warehouses in a similar manner to what we do at the Warehouse, hence the discussion.

Besides the project as a whole, which is something that would really help to foster entrepreneurship, I was amazed by the quality of the people that the Mayor brought on board. There were a McKinsey Partner, the Founder of IdeiasNet, a Principal from Naspers. All of them, committed to help build the community in Rio.

 I truly hope these guys are able to overcome the bureaucracy and the private sector embraces their effort to start really  firing Rio’s economy back up.

Guys, please count on us for whatever we are able to help.

Founders cant become a problem for the company

There has been an enormous amount of chatter over founder liquidity lately.

Here, our view is quite simple: A founder can’t become a liability for his company.

Obviously we want our founders to have skin in the game and to be fully committed to the company they are pitching us. At the startup of the company, this is key to give investors confidence.  As the value of this company is minimal, we want to know that it is not a free option for the entrepreneur and, therefore, like to see all his assets into the company.

We ensure that the founder is not in distress because we don’t want him worrying about other things but we also don’t want him to have a too comfortable of a life before the company makes money. (MBAs and Consultants, don’t pitch me talking about your forgone salary. Your opportunity cost will be all equity and, yes,  you will have to live a cheaper life for a while) You will be under a Minimal Viable Salary policy.

As the company matures,  the founder should rip some of the benefits of the value he has created, therefore, we change the comp scheme from MVS to something more market based in order to give you a little bit of a breathing room and take out the pressure for a quick sale.

For that same reason, we understand that $50M might not be enough for a VC but great for a Founder. Therefore, we are willing to let you take a large part of you chips of the table, not all… but a large part. In doing so, we balance so that the amount of equity you retain on the company is still meaningful for your personal finances but not so large that it will make you risk averse and not swing for the fences with the company.

This is all very tricky math as different people have different needs, but that is the basic logic behind it.

Feedback! Keep it short!

Based on great feedback, I’ll try to curb my excitement and keep my posts shorter!

I thank all those that are giving me feedback and ask the ones that are not yet, to please do so.

If this is going to be a blog for you guys to read, I want it to be fun and pleasurable.

PLEASE send me FEEDBACK and COMMENTS and I’ll react! I love when people engage with what I write and It makes for a better Idea exchange place for the community.

You and your VC – The dating game

Often entrepreneurs walk into the office, pitch and expect a check.  What they fail to realize is that developing the relationship with your VC is as close to a serious dating relationship as it gets. I know, VCs sometimes act as the prettiest girl in the room but still, they are desirable.

The beginning:  As with dating, odds of getting some serious attention go way up if some mutual friend makes the introduction. If this matchmaker also does the pre-selling, than it is much more likely that you will want to take them back to you house/office  😉

Of course you can go to single bars (meetups) and web dating sites (direct site contact) but this is less effective and demand a long time and effort in order to develop intimacy.

Either way, being passionate, upbeat and a good salesmen will earn you points but it is your idea (looks) that will make the first impression.

BUT More often than not, people will never pass this stage and will be qualified as “one night stands” . This happens either because they are jerks ( not that common) or simply because the chemistry wasn’t there.

Next Step :The whole dating thing is about getting to know each other. We want to know that besides your striking idea, you can also evolve and charm me in other ways.

Some entrepreneurs come in, pitch and when we call them back sometime later, in order to check something, they haven’t advanced at all.  Most exciting entrepreneurs I met, always had something new happening… always had advanced on something and would be willing to talk about it. It was also super effective when they would call me just to say hi (update me on a major advancement). This kept me thinking of them and excited about advancement.

At this stage, I also want to know that although you are and optimist and gorgeous, you also know your shortcomings and have plans on how to deal with it. Denial or stubbornness, will not get you points.

If we decide that we better meet your family (due diligence), please beware that I’ll go deep. I’ll talk to you mother, father and your co-workers.  Although I don’t really want to find anything that lets me down, I’d rather have it come out before we get too serious.

The parallel discussion about the relationship ground rules (term-sheet) is key. You have to be comfortable with the rules that will shape our relationship. These rules should be equitable and both sides should understand them.

While getting used to the other and the rules of the relationship is difficult, this discussions should be done in a way that keeps the relationship unharmed. These negotiations are not to be combative as you are both trying to build a longer term relationship

When you do finally decide to get married,  it is going to be a great moment for both sides. You will both celebrate and make it public. You will start then a honeymoon. Enjoy it!

Passed the honeymoon, demands will start and you will have good days and bad days together. Maintaining respect and working together to solve the problems is the only way the two of you will be happy.  As some companies will get funded by many VCs, this ends up being a polygamy and, therefore, much more complex.

Probably the hardest decision you will have to make together is when to have a baby (exit). And as with a relationship, you 2 will have very different perspectives. While the VC needs to guarantee X times their investment, the entrepreneur needs an absolute value to satisfy himself.  As with a kid, talking about this ahead of time, makes the relationship easier.

At last, once you’ve done it once, it is much easier to do a second time around.

Is the money you are getting a Smart one?

This this the key question that any entrepreneur should ask himself when he gets a VC/Angel term-sheet.  And doing it ahead of time might actually land him a term-sheet earlier.

Fact is, any VC financing you get will be an expensive one. A VC has to have an IRR of 30%+, therefore its money is more expensive. That said, don’t miss-understand me and think that entrepreneurs should not seek venture financing.  What I want to say is that the entrepreneur needs to have perfectly clear to himself how the investor will add value in order to make the expensive cash well worth it.

At the Warehouse, we have perfectly clear what is our value proposition.  I’ll go over our value prop to help entrepreneurs understand how an investor can add value and to do a little bit of advertising 😉

1 – We can absorb your company’s back office – This has 2 key benefits to the entrepreneur.

Gives you more time to actually run your business rather than manage the bureaucracy.  If you are a salesman, go sell, if you a programer, go program and let us to the boring admin work for you.

And gives you confidence that you are receiving top quality support.  Did you ever check your accountants books? Are you absolutely confident that when your company makes it big you wont have labor or fiscal liabilities holding it back?

This might be less of an issue in US where the burocreacy is much simpler and the suport services better quality but having been entrepenuers in Brazil, we at Warehouse are completely convinced that this adds a lot to the entrepreneurs.

2- We help create a governance – This helps you to keep an objective perspective on the business and stick to the plan. When an entrepreneur is in a startup, passions, frustrations and emotions often blur his/her vision and make him/her detour unnecessarily.

We will help you set a structure that is appropriate to help you think through the issues and problem-solve with you what is the best course of action. To do that, we will set up a board with smart, knowledgeable people that can accelerate your growth. We will also create committies do discuss specific themes such as:

Compensation and People: Who are the key people in the company? What are the positions that need to be filled? Who is the ideal candidate? How do we motivate them? What should your stock option pool be? Who gets what? These are all questions that we can help you decide. We can also help you find the right people to bring onto the team.

Budget: Lets think ahead and plan the revenues and expenses that will get us to our goals. What are the specific targets we have to hit and when in order to secure our progress?

Funding: How much money will you need? how will we raise that money? who are the investors we want to bring on board?

We are not know-it-alls, but having multiple investments allows us to gather a lot of experience quickly and put it to use to accelerate the growth of our portfolio companies.

3-We Leverage our Network

We network with our investors, we network with possible entrepreneurs, we network with specialists during the due diligence’s, we network with other investors, we network with possible buyers of our portfolio companies, we network with our portfolio clients and more.  This immense amount of networking multiplied by the number of companies we invest in makes our contact list grow exponentially.

Knowing how to tap into this extensive network to support the portfolio companies is a key value add for any VC.  We can help you get clients, partners and specialists.  However, don’t expect your VC to immediately open up ALL his/her network. VCs are zealous of their networks and don’t want to over use it and risk wear out.

So, at the same time we use the network, we try to give back to it. When you need to use the network, don’t be surprised if you are asked to give something back to it.

4- We have Domain Knowledge – Having a VC that understands your market will add an enormous value to your company and prevent lots of pain.

An investor that knows your market will have the network to make the appropriate introductions but he will also be able to support you in structuring your offer and also think how to format your company for a possible buyer.

Lets say you are a mobile TV platform company. You can go many ways.  You can provide the service yourself, you can provide the platform for others to provide the service, you can focus on providing one to one advertising over the platform.

You can, therefore, charge for service, for installation, for add, for click through, include in the monthly subscription of the cell phone, or in the monthly subscription of the cable TV company.

These choices will also make your likely buyer to be : a VAS provider, a network company like Nokia or Google, a network operator or a Cable company.

Having someone that knows the industry to discuss such key points with you and help you decide is priceless.

At the Warehouse, we are specially knowledgeable in the media, consumer internet and green tech.

5-We Bring an Strategic View – Having someone that is not as immersed in the business as you and helps you think it through is incredibly powerful. At the Warehouse, we have 3 former consultants guys… I know I know I know.. Despite of all downsides of McKinsey guys, we can help you step back from the day to day of your company and take a higher level view.  This is not an everyday thing but done every so often, helps you ensure that you are moving in the right direction and that you take market changes into consideration in order to adapt.

For all those reasons, VCs are much happier to discuss with entrepreneurs how they will help take the business from $7M valuation to $50M than to discuss whether it is a 30%,40% or 50% ownership.

If the company doesn’t make it big, the ownership difference won’t save us.

VCs do their valuation on a base case. Therefore, it is unlikely that valuations will change significantly among the different VCs. On the other hand, the future value of the company might change significantly depending on who you partner with.

The other day, a very interesting entrepreneur visited us. He came with a pitch of $1.2M for 30% of the company and it made perfect sense to any other VC.   But when he came to us, he create a second business plan showing that we could help him make to company worth at least 200% more, based on our industry connections.

I clearly wouldn’t take the same approach as he was telling me how much I was worth to him, but I think it is important for the entrepreneurs to do this calculation.

Obviously if  I were an entrepreneur, would much rather have 20% of a Billion dollar company than 100% of a $10M outfit. Not necessarily the VC that takes a bigger share of you company is the worst deal, if the value-add is there.





To NDA or not to NDA?

9,99 of  every 10 entrepreneurs that pitch me ask me for an NDA…. the other day even my brother asked me for one… that made me think, specially since I’m super careful about it.  Entrepreneurs that have met me have probably been asked if a part of their information, or even their names,  could be shared with either a partner or a co-investor.

I clearly understand their desire to keep they ideas safe but cant really bring myself to agree with the request. As per my previous post, Brazilian entrepreneurs have to learn to share their ideas. Part of it will demand that they develop a trusting relationship with their advisors.

But more than that, they have to understand that it is not my business to do a startup… my business is to invest in one and help it grow. Therefore, I will never take their idea and try to set a company up myself.   If they are concerned that I will share their ideas with portifolio companies, that is slightly more reasonable, but i wouldnt risk my reputation and career over it.  If their idea is so AWESOME, I will probably want them to develop it and invest in them.

Also surprising to me is that the thing that they are most secretive about is not their business model, product or delivery method. They are more concerned about their financials. Don’t they realize that this is likely to be the least valuable part? First, it is probably way out of whack. Second, even if it is right, I will know that you will make a lot of money but that is no good to me if I  don’t know how .

Entrepreneurs, please understand our side:

1 We do look at many companies in the same space and virtually anything that you present to us, we will probably also see from someone else in the same space.

2 we are very concerned that non invested, disgruntled entrepreneurs will claim breach of agreement at anything an invested company does.

3 you can always destroy our reputation with or without an NDA if a VC breaches your confidentiality

4 if you don’t trust us, you probably shouldn’t pitch us