In his landmark 1928 work “Seven Essays of Interpretation of the Peruvian Reality,” the author and marxist philosopher José Carlos Mariátegui argued that Latin America needed to return to the pre-Colombian era destroyed by the Spanish imperialists in order for the continent to achieve true equality.

Despite this rhetoric Mariátegu did not, however, advocate throwing out all of the Spaniards. Instead he argued that Spaniards and their descendents willing to accept the new world order should stay. After all, many brought with them farming knowledge and techniques that would be useful in building an agrarian-based societal order.

As numerous Latin American countries including Argentina, Brazil, Chile, Colombia, Ecuador and Peru to name a few, battle it out to give birth the region’s first latin-flavoured Silicon Valley, the continent is slowly having to deal with what is for many an inconvenient economic truth: the need for immigration. And through this debate many are arriving at the same conclusion as Mariátegui.

Latin America and migration

It is not that Latin America is unfamiliar with immigration: indeed, the last 500 years of Latin American history might be summarized by the dual themes of migration and exploitation.

The first wave of migration to the region came about through the generations of Spanish and Portuguese who came to populate the continent after the Iberian Crowns’ large-scale annexations. They were eventually followed by African victims of the slave trade.

Throughout the 19th and 20th centuries merchants from the Middle East trickled in, followed by a second wave of Europeans this time escaping wars, dictatorships and poverty.

The present day has also brought with it its share of intra-regional migration produced by events such as Colombia’s civil war, Argentina’s numerous economic catastrophes and Central America’s violence and economic stagnation.

Despite grudging acceptance of yesterday’s migration, today’s migration isn’t always popular, as the nationalist sentiments of yesteryear continue to give legitimacy to the preeminence of the nation-state as a stand-alone and sovereign market. In the age of Internet-based consumer products, however, the predominance of the nation-state is a limiting and potentially destructive factor.

Each of the countries mentioned is faced with the same conundrum: on the one hand the native tech communities are simply not big enough to produce the critical mass required to develop fully-fledged technology industries. Similarly, aside from Brazil, Mexico and maybe Argentina, no country has a large enough population to sustain a thriving tech. market on its own.

Operating in the world of mass volume and small margins, any entrepreneur looking to Latin America as the land of opportunity would be wise to focus on the combined market of 600 million people speaking two primary and not dissimilar languages. With internet penetration in the region almost at 50% and continuing to rise, the terrain is ripe for first movers to replicate the colonizers and plant their flag.

The clear solution to this problem would then be for one country or city to create a magnetic force similar to the Silicon Valley where, according to one study by the Kauffman Institute, 52% of tech startups are founded by at least one foreign-born individual.

Indeed, so important is the foreign-born workforce to the continued ability of the San Francisco Bay Area to produce the next generation of consumer-products that the Valley’s big players are lining up behind Mark Zuckerberg to lobby for immigration reform. It turns out that world-class companies require world-class employees, and any Latin American country hoping to imitate the U.S. need not ignore the sticky issue of global talent acquisition and retention.

Chile leading the way

So far only Chile has aggressively pursued a strategy of enriching its tech eco-system by actively seeking to import entrepreneurs from other markets.

The much celebrated government backed incubator/accelerator Start-Up Chile offers $40k of seed capital to entrepreneurs from anywhere in the world so long as the individual is willing to set-up shop in Chile and stay for at least 6 months. As the Start-Up Chile website proudly states, “we believe and invest in people, looking at their ideas first and their passports second.”

The hope is that through such a period entrepreneurs will be convinced to stay, create jobs and help invigorate the eco-system. After all, without a knock-off effect it would be difficult for the Chilean government to justify handing out the hard-earned tax-payer dollars to foreign citizens.

Early signs are encouraging: so far the project has attracted over 600 entrepreneurs from 35 different countries.

One such entrepreneur is Daniel Ponce, the Bolivian founder of CityHero.Es, a civic-minded start-up that seeks to promote offline engagement between citizens and governments.

Daniel was a member of the Start-Up Chile class of 2012 and relocated from his native city of Cochabamba, Bolivia in order to take part in the program. After finishing at Start-Up Chile he returned to Cochabamba hoping that his start-up’s presence would help spark other socially-minded initiatives in the city.

Eventually, however, the opportunity for another round of funding presented itself and the investors, not to mention network and know-how, were all found back in Santiago. Daniel had no choice but to once again cross the Andes to the land of pisco and (lately) protests.

Though Daniel has once again found himself in Chile, many other graduates from the program find themselves moving on. Indeed, only about 25% of Start-Up Chile entrepreneurs stay after one year of entering the program.

The reasons are many: some see penetrating the Chilean market as too difficult and prefer to operate in their comfort zone. Others have already taken steps to execute on their businesses in their home countries, and therefore log the minimum time required before returning.

Still others are the victims of the program’s success. Whether entrepreneurs stay in Chile or not, the program’s global notoriety among tech entrepreneurs has brought with it investors from all over. Some of those investors prefer that the companies they discover in Start-Up Chile accompany them back to places such as Silicon Valley.

In other words, Chile has for many entrepreneurs become a hub rather than a destination.  Whereas some might view such an outcome as a poor return on investment for the Chilean taxpayers, others see the benefits as stretching beyond the creation of employment.

As Horacio Melo, Executive Director of Start-Up Chile, mentioned to me in an email, all foreign entrepreneurs are asked to make a commitment to give back to the host community. The presence of Start-Up Chile Entrepreneurs in workshops, university seminars, acting as mentors, etc., adds much to the development of Chile’s collective and institutional entrepreneurial memory.

“We can’t forget,” Melo wrote, “that centers of innovation often contain very liquid populations. That same constant renewal of talent is what connects and breathes life into different centers of innovation.”

Though as a result of its efforts Santiago may appear to be pulling ahead in developing a thriving tech eco-system, the race is far from over.

Alternative strategies

Given their country’s size and economic clout Brazilian tech. entrepreneurs by and large continue to operate in a very-inward focused manner without much yet feeling the need to focus on their Spanish-speaking cousins. Though it is getting its own Start-Up Chile style program, the Brazilian version will limit foreign participation at 25%.

Despite its troubles, including many of its tech entrepreneurs seeking refuge across the channel in Uruguay to avoid rampant inflation and constraining capital flight taxes, Argentina continues to maintain the largest pool of tech-oriented talented in Spanish-speaking Latin America. Indeed, the Argentine-based MercadoLibre remains the only South American start-up listed on the NASDAQ.

Ecuador meanwhile is planning to replicate the Korean model of investing hundreds of millions in a new knowledge-based city called Ciudad Yachay that will include a state-of-the-art university and tech-focused industrial park.

Finally, never to be outdone by its frenemy Chile, Peru is seeking to replicate Start-Up Chile’s success with its own $20 million USD funded incubator, though its not clear whether or not the fund will invite entrepreneurs from outside Peru to participate.

And Telefónica, meanwhile, the massive telecom company with a strong regional presence, is placing its bets across the region through its incubator program Wayra, accessible from 8 different countries.

Conclusion

The current of tech migration thus continue to flow northwards but, as the game is still in its early stages anything can happen, especially given the good-will and muscle provided by both the public and private sectors.

Just as Yahoo’s recent high-profile acquisition of Tumblr has provided much encouragement to the New York tech scene, Latin America may only be one high-profile exit away from invigorating the region with the dual stimulants of hope and cash.

And if there is one winner it will ultimately have to be the country or city that does the most to attract talent from elsewhere, for as the United States has shown, without a critical mass the density required to produce a wave of innovation will not materialize, regardless of how educated one’s population might be. Even if the long-term goal is to produce native talent, in the case of developing tech eco-systems the chicken must indeed come before the egg.

Since no country has succeeded in replicating Silicon Valley’s creative output no-one can quite say what the winning formula is. What we can say though is that without a doubt one of the ingredients required is a revised understanding of the value of immigrants to a society. And with the Galapagos Islands standing as a constant reminder, changing currents have led to all kinds of evolutionary outcomes hitherto never contemplated or foreseen.

Images: Santiago Airport (credit: AFP/Getty Images), Chile’s flag (credit: Thinkstock)

Free language learning platform Duolingo has launched its Android app, which was highly expected following the launch of its iOS app last November. With this new addition, the startup hopes to gain further market share among language learners, especially in Latin America.

One of Duolingo’s most interesting aspects is its business model. As part of their learning process, users are given the option to collaborate with each other to produce crowdsourced translations. Duolingo claims that their quality can rival with the work of professional translators, and made no mystery that it was planning to sell them to third parties. This approach is now starting to materialize as a viable monetization route, as the startup has signed its first client, a US publisher keen to translate news articles from English to Spanish.

This innovative approach is the brainchild of Luis von Ahn, who is far from a newcomer when it comes to leveraging the power of the crowd. An associate professor at Carnegie Mellon University, this Guatemalan entrepreneur is one of the creators of the CAPTCHA method of verification. Perhaps more importantly, he found a way to repurpose said CAPTCHAs for book digitization with his company reCAPTCHA, which Google acquired in 2009.

Thanks to von Ahn’s track record, Duolingo raised a whopping $18.3 million in funding from backers such as Ashton Kutcher, Tim Ferriss, Union Square Ventures and NEA, which led its $15 million Series B round last September.

TNW: How has Duolingo’s Android app been received so far?

LvA: It’s going very well. We are the number one Education app in Google Play at a global level; we had 300,000-400,000 downloads in a few days and the ratings are good.

TNW: In this case, do you have any regrets on not launching on Android first?

LvA: No, because there was a good reason for that: it’s a lot easier to develop for iOS. Some say it’s almost as easy to develop for Android now, because they are frameworks you can use, but they actually don’t work that well. If you want an app to work properly on all sorts of devices, you have to develop specifically for that platform, which is why it took us so long. So even if iOS is probably a smaller market for us, I don’t have any regrets about launching on iOS first.

TNW: When you say iOS is smaller for Duolingo, is that because of the markets you’re targeting?

LvA: Yes; we think that biggest market share for learning languages is outside of the US, so even if our iPhone has been doing well so far, we expect Android to end up being bigger for us.

TNW: Outside of the US, is it true that you are especially interested in Latin America, and why?

LvA: That’s correct, we are especially interested in Latin America, for two main reasons. The first one is that I am from Latin America. The second is that there is a very huge market of learning English in Latin America,  which is much easier for us to attack than Asia’s.

TNW: Can you tell us more about the specifics of Duolingo’s push in Latin America?

LvA: We haven’t done any advertising yet, and we will probably never do it. It’s not for ethical reasons, it’s because of our focus. Some of our competitors spend most of their money on advertising and almost no money on improving their product. Our choice is to spend all our money on improving the product, because we believe the better product will win.

So we won’t do large advertising campaigns like Open English is doing, but we have other things. We don’t support many languages, but Spanish was our first non-English language and we then added Brazilian Portuguese. [Duolingo also offers English for Spanish and Portuguese speakers.] This means that we have been talking to several government entities in Latin America and looking into different sorts of partnerships. Schools are especially interested in Duolingo because it is entirely free.

TNW: We previously wrote about Central America’s tech/startup scene or the lack thereof; what’s your take on that?

LvA: Some countries in Latin America are doing much better — mostly Brazil, Chile, as well as Mexico at some level. Guatemala not so much, although it is better than it was. The thing is there’s a lot of talent there, but not so much culture of doing this.

TNW: We also mentioned TEC Guatemala, are you familiar with this initiative [to support startups in Guatemala]?

LvA: Yes, and I am very happy that this exists; but the biggest thing that is needed is a change of culture. Right now in Guatemala there are lots of very smart engineers who go work for banks once they graduate. Having engineers working for banks isn’t a problem in itself, and it would be OK if some did and some didn’t, but it’s a pity when they all do.

TNW: What did you and do you still enjoy about teaching?

LvA: I really enjoy teaching myself, and I’ve always wanted to be a teacher; but now instead of teaching to 30 pupils, I prefer helping teach things and scale learning, like through Duolingo.

TNW: You recently did an AMA on Reddit, in which you explained how Duolingo plans to scale the addition of new languages.

LvA: Right now we have six languages, and we get hundreds of requests per day for additional languages through every single channel where Duolingo is present. At first we wanted to listen to that and add the languages that people were requesting, but we listed the languages that were been mentioned at least a certain number of times, and we realized that there were 70 of them.

It would be impossible to add all of them ourselves, so we decided to move away from that option, and find a way to let users add new languages themselves. This is still a few months away, because it is not easy to do it right, but that’s what we are going to do.

We are thinking of introducing a filter that may be similar to Kickstarter. What that means is that one person wouldn’t be able to start a language course on their own, they would need to get enough people to demonstrate interest first [by supporting their plans].

TNW: This would be yet another continuation of your focus on crowdsourcing?

LvA: Yes, and it will be really compelling to use crowdsourcing at so many levels and to show that it works.

TNW: You have recently signed your first publisher partner. How did you convince them to rely on Duolingo’s crowdsourced translations?

LvA: We simply showed them the results, because they are excellent.

TNW: Are you planning to commission a study on crowdsourced translations?

LvA: We will probably do one, but most of our upcoming studies will be about learning. There’s a lot we can do on the learning side to improve what we do. We think we’re already the best that exist, but we also know we are not the best that can exist.

TNW: Is Duolingo’s learning curriculum based on trial and error?

LvA: Yes. At the beginning we talked to many experts and we read books, because we didn’t know much about teaching languages; but after a while we realized they didn’t have much answers either. If we asked specific questions, the answers weren’t based on actual measurements, only on their general philosophy. So we started doing experiments, because we all the users we have, we can easily do test and find out the best moment to teach plurals, for instance.

TNW: That’s A/B testing for learning?

LvA: Right! Every week, we test at least 10 things on a portion of our users. This means we’re learning about learning at a very large scale. In the past teachers couldn’t do that in their classrooms, but now we are able to constantly learn and improve.

TNW: I am sure you have also learned about your users’ learning schedule. Have you noticed any seasonality?

LvA: Yes, for instance we know now that December is a bad month for learning languages. We have also noticed weekly patterns: people use Duolingo much more during the week than over weekends. Desktop use mostly occurs during the day, and we see a lot more mobile connections at night.

TNW: How did you conceive your gamification system?

LvA: That was also through A/B testing. We have a lot of different gamification aspects, and we test all of them. For instance, we have tested the optimal number of points to give for each answers and how many hearts to give you.

TNW: You commissioned a study to evaluate Duolingo’s effectiveness for learning. Were you surprised by the results?

LvA: Yes, because we knew it was going to be good, but didn’t know it was going to be so good.

One of the findings is that 34 hours of learning a language on Duolingo give the same results as one university semester. I guess it shows that doing things based on science works! I like to say that the language learning space is similar to diets: very few are based on science… but I still think we can do twice as good as we already do.

TNW: Besides being based on science, what differentiates Duolingo from its competitors?

LvA: Our second main asset is that our service is really free – many do claim they’re free but they are not. That’s a huge differentiator because in Latin America, a lot of people who want to learn English in Latin America don’t have much money; those who do have money already learned it in school.

So our first differentiator is that our solution is effective, and the second is that it’s free, which seems to be a good combination! There’s also a third one to add to the list: gamification, because we want users to come back. It differentiates us from our competitors, because for paid services, once you have paid, it doesn’t matter if you learn or not; whereas in our case, the more you use Duolingo, the better.

TNW: So the learning space is like diets, and your competitors think like gyms?

LvA: Yes, exactly! [laughs]

TNW: How big is your current team?

LvA: We have 27 people, out of which are 15 software engineers, four do UX/UI, one is our community manager, most of the rest are language experts. This shows where our focus is: on improving the product.

TNW: How did you convince high-profile investors to bet on a free product?

LvA: We teamed with investors who believe in our cause, and are also convinced that we can make enough money selling translations. I actually put as a condition that Duolingo would have to remain entirely free — I just don’t see need for another Rosetta Stone or Open English.

TNW: Duolingo has a Twitter account called @ShitDuoSays, and you mentioned the CAPTCHArt meme in your TED Talk. Is this your personal take on embracing criticism?

LvA: Our view is that if something is broken and people report it, we should fix it rather than fighting it. It’s important to be open to criticism, and it is actually useful — we have so many sentences that ShitDuoSays helps us spot the odd ones.

On the other hand, it is a bit hard when users ask for so much. For instance we just launched our Android app after months of work, and people immediately ask us: “What about Windows 8, when are you launching an app?”

TNW: And what is the answer?

LvA: The answer is: “We don’t know.” We are also talking with Firefox OS and looking into Symbian, but we don’t know if we’ll do either, because it would almost be a bet on their future growth. Our priority right now is to see how we can add the same features on Android that we have on iOS.

TNW: What is your next milestone for 2013?

LvA: We had 3 million users before our Android launch, and our goal is to reach 10 million by the end of the year.

Headline image via Thinkstock

The second edition of the The Next Web Conference Latin America is fast approaching and we’re looking for teams to take the stage at the Startup Rally competition.

The Startup Rally is always one of the highlights of our conferences. It’s a great opportunity to put your company in front of the eyes of the world… and a panel of judges who could select you to take the prize.

Any startup can apply as long as you have less than €2 million ($2.6m) in external funding. The twenty finalists chosen to take part will get to present on the main stage at our Latin America conference, taking place in São Paulo on 28 and 29 August 2013.

So, if you’d like to launch or announce a new product, service or feature in front of a live audience of 1,000 people and an online audience of more than 20,000, you’ll want to know how to apply, right?

Startups can apply via an online questionnaire before June 14th. In the following rounds you’ll be asked to participate in a video pitch and Skype interview. On July 1st, an expert jury will select 16 startups for the finals of the Rally. The remaining four finalists will be selected out of all the startups that have a demo desk or startup table during the event.

Ready to apply? Read more about the event and the Startup Rally and then head to the application form.

And if you don’t want to apply but still want to attend the conference, tickets are available now and when you register for two or more TNW Latin America Conference tickets now, you get 30% off the total price. See you in São Paulo!

Nulu, a startup that’s taking on the global English as a Second Language (ESL) market, has closed a $1.75 million seed funding round as its Spanish-English online learning program is experiencing rapid growth in Latin America.

Teaching either English or Spanish, Nulu provides daily content such as news articles and stories paired with native audio, then directs learners onto Facebook to help them put their skills to use. Translations are generated at the phrase level, and students can create flashcards with and take quizzes on the material. Nulu operates a free version, and the company is also preparing to roll out premium subscription plans.

Though specific participants in the funding round weren’t disclosed, investors hail from both the US and Latin America.  The money will be used to market the product in Latin America, finish up native Android and iOS apps that should arrive in the next few months, and add-on Portuguese support to reach ESL students in Brazil.

Nulu’s teaching strategy was developed from CEO Eitan Geft’s ten years of ESL experience. Geft said in an interview that, after leaving the US to teach overseas, it became clear that ESL strategies weren’t as effective as they ought to be. He taught in Japan, China and Vietnam before returning to the US to get a Masters and continue teaching there.

Based on his experience, Geft concluded that current ESL solutions are too focused on getting immediate results.

“Language learning is a long-term game. When you don’t live in a society that speaks English, if you’re not a child, you’re not going to learn it in a short time span,” he said.

Geft called intensive courses and computer programs “inherently unsustainable”, noting that students often get stuck at an intermediate level before losing interest or tapering off.

Nulu’s founders estimate that 99.9 percent of the more than 1.5 billion people learning English as a second language aren’t total beginners. As such, the program’s content is geared toward learners that are stuck at the intermediate level and includes real-world practical material instead of artificial dialogues.

“You can teach people of any level, from any kind of content, so it makes a lot of sense to base that learning on the most interesting content for them,” Geft said.

Nulu’s strategy reminds me a lot of the Voice of America Learning English program that was popular among my students when I taught ESL in China. When I mentioned the comparison, Geft remarked: “We’re kind of like VOA, but we’re that on steroids.”

Geft added that Nulu has a similar approach to news organizations, such as VOA and the BBC, that offer English-learning content, but he highlighted focus, technology and user experience as strengths that Nulu has over media providers.

I got up to a conversational level in Spanish in high school, but have barely used it for the past ten years. When I gave Nulu’s Spanish instruction a try, the content brought back to mind my earlier lessons while also providing an easy framework to learn new words and phrases.

To help with the task, Geft brought on Avi Stieglitz as President and Chairman and David Allison as CTO and technical founder.

Nulu launched a private beta to US schools last January. It went live in Latin America last October and has since acquired tens of thousands of active users in each of its core markets.

While the company has started out with support for Spanish-English, its long-term commitment is to help the whole world learn English. For now, the company is focused on Ibero-America, but Geft says that the company’s method is replicable for other languages.

Nulu’s study method closely mirrors the techniques I’ve found effective in my own language study, and it saves users the time of having to search for interesting content with audio and intelligible translations. I’m not actively learning Spanish at the moment, but if and when they add on Chinese-English support, I’ll be one of the first students in line.

Brazilian holding e.Bricks Digital has launched a $100 million venture capital fund, its parent company Grupo RBS announced earlier this month. Its target is to make 12 to 15 new investments per year, with a specific focus on early-stage companies.

e.Bricks Digital was formally launched in October 2012 as a way to structure the digital portfolio of Grupo RBS. As you may know, this media group is one of the largest in Brazil, with an even stronger footprint in the south of the country, where it was created in 1957.

While Grupo RBS’ properties include many traditional media outlets such as several newspapers and radio stations, it has also been investing in growth stage companies operating in the digital and tech sectors.

e.Bricks Digital’s main role so far was to handle said partnerships, but the launch of its dedicated fund means it is now venturing into a new activity: sourcing and managing investments in early-stage startups.

According to e.Bricks Digital’s strategy and portfolio executive director, Andiara Petterle, this new strategy is related to the current state of Brazil’s tech scene:

“The Brazilian digital market is still in the very beginning and the ecosystem has not fully been developed yet. For that reason, there are more early stage companies than there are [in] growth stage. We’ve decided to separate growth and early stage [by] creating a specific fund for early stage companies, with a dedicated team. This fund will profit [from] e.Bricks’ ecosystem with entrepreneurs and digital experts to help [provide] leverage [to] the companies.”

In practical terms, this means that e.Bricks’ structure is now dual. On one hand, its growth-stage department consists of 20 people dedicated to M&A, portfolio management, financial and legal stuff. On the other hand, it allocated a team of three to early-stage investments, under the management of Pedro Sirotsky Melzer.

Before heading e.Bricks’ early stage fund, Sirotzky Melzer was a managing partner at Brazilian VC firm Warehouse Investimentos, which he had joined after two years of working for Apple.

According to e.Bricks Digital’s CEO, Fabio Bruggioni, this parallel structure was the best option. “Our appointed teams are extremely specialized, dedicated and allocated for each operation while respecting the independence of each strategy,” he said.

Consolidating growing companies

e.Bricks’ investments focus on three verticals: digital media & tech, segmented e-commerce and mobile. This scope results Grupo RBS’ background, but also from the evolution of the Brazilian market. “Mobile is key in Brazil considering all the characteristics of Internet access here,” Petterle explains.

The growth-stage companies e.Bricks partners with need to have average revenues of $30-40 million, scalable business models and be in a position to become leaders in their market – if they aren’t already. Here’s the list of companies that made the cut so far:

- Guia da Semana, ObaOba and Hagah, three social local recommendation platforms that share the same management team;

- Mobile marketing and advertising company Grupo .Mobi;

- Online media agency Hi-Midia and its affiliate network Afilio;

- Fast fashion brand and online retailer Lets;

- Digital marketing solution provider Predicta (see our previous post);

- Online retailer for user-customized products Vitrinepix;

- Online wine and gourmet store Wine.com.br.

Betting on early-stage startups

Apart from the revenue requirement, the early-stage startups in which e.Bricks is seeking to invest aren’t very different from its current portfolio:

“We’re looking for early-stage companies in the digital space, having the technology as a core or as an enabler in the business model. The business models have to create evident efficiency gains in the value chain and be extremely scalable. We’re targeting companies within markets of over a billion dollars in size,” Melzer Sirotsky says.

e.Bricks has already announced deals in three early-stage companies, such as content marketing platform Rock Content and cloud-based family safety service Zoemob, which was nominated for TNW Startup Awards in 2012.

While Rock Content is a new brand, it resulted from the merger of Start-Up Chile alum Textcorner with Everwrite, which had won the RBS Prize for Entrepreneurship and Innovation in 2011.

As we reported, e.Bricks also participated in a $500k investment round in video ad network Samba Ads a few months ago, alongside Initial Capital, 500 Startups and American-Israeli firm Rhodium.

Co-investments are indeed one of the structures e.Bricks’ fund will use, although it will also invest alone. Its scope will range between seed capital and B rounds, starting with initial investments of between $250k and $1 million, and including follow-ons of $1 million to $3 millions for top performers.

At the moment, the fund’s $100 million capital comes entirely from its sole LP, e.Bricks, though Melzer Sirotsky expects it to open to other institutions at some point.

In return for its investments, it will seek a minority stake of 15 to 40 percent as well as board seats to ensure it will be able to work very closely with its portfolio companies.

According to Petterle, Wine.com.br’s example illustrates the positive impact of e.Bricks’ hands-on approach and of potential synergies with Grupo RBS. She explains that since investing in the company last year, e.Bricks’ team and network helped Wine.com.br get ready to scale in many ways, such as reconfiguring its distribution network and improving its financial and HR structure. Over the same period, the startup expanded its business vision beyond wine, and reportedly saw its revenues grow five folds.

US plans cooking

While Grupo RBS’ historical base is Southern Brazil, e.Bricks Digital is based in São Paulo, where it has recently inaugurated its new headquarters. According to INFO Online, the 1,200-square meter office space also features an auditorium for networking events between entrepreneurs and investors.

Brazil aside, e.Bricks will encourage portfolio companies whose products could be easily adopted in more developed markets to expand internationally. Both Predicta and Zoemob have already done so; the former has opened offices in Silicon Valley, while the latter gets 90 percent of its clients from outside of Brazil, mostly from the US.

e.Bricks itself also plans to operate in the US by closing partnerships that will help it internationalize its portfolio, either by taking Brazilian companies abroad for global expansion or by bringing foreign business models into Brazil. Petterle and Sirotzky Melzer declined to elaborate on the details, but advised us to stay tuned for “exciting announcements on the horizon.”

Image credit: Bruna Nishihata

Argentina-based firm Quasar Ventures has raised a $5.4 million round of financing led by Silicon Valley VC fund Emergence Capital Partners to develop ten new technology companies in the coming four years.

Several big names from Latin America’s tech scene also took part in the round, including co-founders of Globant, Despegar.com and Patagon, as well as Argentine fund CAP Ventures, Alex Mendez from US fund Storm Ventures and Veronica Serra from Brazil-based Pacific Investments.

This impressive list of investors owes a lot to the track record of Quasar’s founding trio. Back in 1997, Andy Freire and Santiago Bilinkis co-founded the office supply chain Officenet, which Quasar’s CEO Pablo Simon Casarino joined as early employee. After becoming Argentina’s leader and expanding into Brazil, Officenet was acquired in 2004 for $23.2 million by US giant Staples (it changed its name to Staples Argentina in 2011).

This successful exit turned Officenet’s top executives into well-known figures of the entrepreneurship world, in which they remained active both as players and as supporters. In addition to his role at Quasar, Freire is the President of the Argentine chapter of Endeavor, a non-profit network for high-impact entrepreneurs whose co-founder Peter Kellner also participated in Quasar’s financing round.

Latin America’s new company builder

In a recent blog post, Bilinkis defined Quasar Ventures as “a company that builds companies.” Rather than a fund or incubator investing in existing projects, it will dedicate itself to pairing promising business ideas with talented entrepreneurs, while investing seed money to take these startups off the ground.

In other words, it will be a company builder, a model that TechCrunch recently described as being on the rise around the world, mentioning entities such as Betaworks, IdeaLab and Rocket Internet. The latter already boasts a presence in several Latin American countries, but Quasar Ventures’ team isn’t very fond of comparisons between the two entities.

“We don’t have ANYTHING to do with the Samwers. I don’t understand the comparison,” Bilinkis wrote in a tweet reply (translation ours). When we brought this up with Quasar’s CEO, he was more willing to acknowledge the resemblance, but was also very quick in pointing out differences.

While the managers of Rocket Internet companies receive high salaries from day 1 and get very little equity in exchange for their efforts, Quasar took the opposite view, he explained. Rather than treating CEOs as employees, it acknowledges them as entrepreneurs, intentionally using the term of “parallel entrepreneurship” to describe its approach.

This is also reflected in the company structure, with Quasar reportedly planning to end up with a 45% equity stake in each company in which it invested seed money, as long as it successfully helped said company subsequently raise external financing at a valuation of $1 million or higher.

Quasar is confident that its extended network gives it a good access to capital, and the example of Restorando seems to confirm it. As you may remember, this restaurant booking startup raised a 3.2 million round from Atomico, Emergence Capital Partners, Kaszek Ventures and Storm Ventures.

What you may not know is that Restorando was already following the model that Quasar is now implementing. While Argentine entrepreneurs Frank Martin and Franco Silvetti manage its operations, they also received hands-on support and seed capital from Quasar’s founders from the very beginning. “Restorando was created before Quasar; we saw how the model worked, and Quasar is based on that experience,” Simon told us.

Matching ideas with entrepreneurs

Quasar’s business models will come from two sources. On one hand, it will hold brainstorming sessions with internal and external participants to come up with innovative ideas to solve problems that may or may not be specific to Latin America. On the other hand, its team will identify existing business concepts from other markets that could work in the region.
However, Quasar doesn’t plan to blindly clone these models; before settling on an idea, it will decide which Latin American country is the best market for it, and define which tweaks are necessary to tune the original concept to the local context.

If identifying market opportunities is not easy, finding the right entrepreneurs to pursue them may be even harder. Here’s how Quasar define its dream candidate:

“Because human capital is a fundamental pillar, the ideal Quasar entrepreneur must have a cluster of unique personal and professional skills: he/she must be intellectually brilliant, ambitious, creative and an extraordinary leader.”

The questionnaire it established to filter out applications leaves the door open to first-time entrepreneurs whose previous experience may be in the corporate world and who may find Quasar’s model attractive.

In addition, Simon expects Quasar to work with entrepreneurs who have already launched a startup but are still eager to succeed because their first experience turned out to be unsuccessful or didn’t provide significant returns for their founding team.

Interestingly and somewhat unusually for Latin America, Quasar doesn’t see previous failures as a stigma. According to Simon, the fact that some founders have already launched a company and failed at it reduces their risk, since a lack of experience makes first ventures more fragile.

While Quasar isn’t quite ready to disclose its first selection of companies, it is already working with a team that will focus on an e-commerce project for Argentina, and it has two other projects in its reviewing pipeline – one for Mexico and one for Brazil.

Once the list is confirmed, it will be done selecting companies for 2013 – Quasar’s founders only plans to develop 2 or 3 concepts per year, due to the level of involvement this requires from them. While they see this new venture as a proxy for entrepreneurship, they also understand it takes effort, and Bilinkis noted on his blog that he planned to dedicate almost all of his time to Quasar.

Looking for Latin America’s next success stories

Quasar’s declared ambition is to build the Officenet, MercadoLibre and Despegar of tomorrow – something that the team sees as missing from Latin America’s market.

“For some reason, all of these companies were founded in the late 90′s or in 2000. But despite the huge entrepreneurial momentum, the last 10 years haven’t produced almost any companies that can compare with them,” Bilinkis wrote in the above-mentioned post (translation still ours).

One of Quasar’s hopes is that its network, together with its company builder model and know-how, will help its ventures find the exits they deserve. In addition, its contacts outside of Argentina will add a pan-regional vision, with a particular interest in Brazil due to its market’s size and relative maturity.

According to Emergence Capital Partners’ Principal, Argentine national Santiago Subotovsky, Quasar’s focus on Latin America is one of the main reasons why the fund decided to add it to its portfolio, which already includes names such as Box, Salesforce and Yammer.

Talking to Argentine business newspaper El Cronista, he said that Emergence is convinced there are still huge untapped opportunities in Latin America. Will Quasar manage to meet his expectations and generate companies with billion-dollar valuations and beyond? Only time will tell.

Image credit: ESO/M. Kornmesser

Assuming his microphone was off and the camera no longer rolling, the Argentine Finance Minister berated the foreign journalist for asking questions about inflation. “But if I can’t ask you about inflation, who am I supposed to ask?,” the reporter wondered. The minister then muttered the words that would instantly became an internet meme: “I want to get out of here.”

The #YoMeQuieroIr incident and the explosion of online activity that followed says a lot about the current political climate in Argentina.

Though inflation is popularly believed to hover above 20%, the government’s official statistics department insists the rate is only 10%. Any economist who dares publish otherwise faces the threat of government sanction.

The Finance Minister’s response to the question on inflation, “I want to get out of here,” sums up how a lot of Argentines feel about the country’s state of affairs.

And it’s not just inflation that’s getting under the skin of Argentines. Currency controls, spiralling crime, the politicization of the judicial branch and the general malaise with the Cristina Fernandez government has led to protests, partly organized on the Internet, of tens of thousands taking the streets to demand better governance.

It is within this context that a new Internet-based political party has been born: what is unique to this party is that its goal is not necessarily to take power but to change how power is exercised by creating a new ‘front-end user-interface’ for Argentine democracy. As Santiago Siri, Internet entrepreneur and founding member of the movement says, “we want to weave a bridge between the click and the vote.”

“Democracy has stagnated”

Based on the principle that “democracy has stagnated,” the value proposition of El Partido de La Red, in English The Net Party, is to create a hybrid model of representative and direct democracy in which candidates representing the Net Party are elected to the country’s governing bodies but their vote on any given issue is determined by the collective intelligence of the party’s members.

The members in turn use an open-source software platform to discuss, debate, and vote on the issues before congress. The congressmen, therefore, are trojan horses who are binded to stand by and defend what the party’s collective membership decides.

Unlike traditional political parties, however, the goal of the Net Party is not to govern. “We don’t have pretensions to hold power,” notes founding member Flor Polimeni. “We will be happy if any of the political parties want to adopt our system.”

Like true agents of change, the goal of the Net Party is not necessary to ensure its own success but to bring about wide-scale transformation and create a market for an idea where one currently does not exist.

In this sense success is not measured by whether the Net Party takes over congress, but that the principles of online consultation be infused into all political processes, shifting the balance in representative democracy away from representative and towards democracy.

“We want to democratize democracy”

“Technology,” summarizes Santiago Siri, “has the effect of democratizing everything.  We’ve democratized access to culture, to knowledge and information, and now we want to democratize access to power. We want to democratize democracy.”

Despite their ambitions, the Net Party still has a number of obstacles to overcome. As the former Mayor of San Francisco Gavin Newsom noted in his recent book Citizenville, many digital democracy efforts are overrun by special interest groups whose offline organizational capacity allows them to suffocate efforts to engage directly with citizens.

Should the Net Party threaten to win votes it is without a doubt that the cutthroat nature of Argentina’s politics will be turned on the diverse group of political neophytes who may be masters of new media but who will no doubt have to do battle with the masters of old media.

Nevertheless, the Net Party founders remain optimistic and are currently collecting signatures to officialize their status. Though they face much of the usual skepticism that plagues direct democracy-oriented efforts, they remain confident that the flaw is not in the concept but in the design of many pervading systems.

They see direct digital democracy as requiring the same kind of wave of innovation that has transformed many long-shot ideas into unquestionable parts of our daily lives.

After all, the precedent for such a radical change in behaviour abounds.

Online commerce was dismissed before E-Bay and Amazon got it right, and social networking required various iterations before Facebook and Twitter found what appear to be working formulas.

Just as Bitcoin may be a step towards a digital currency even if Bitcoin itself doesn’t become the gold standard (pun intended), so too does direct/digital democracy need a series of catalysts to find the structures and models that can both enable increased democratic participation and deter abuse and potential pitfalls.

After a wave of movements and revolutions across the world that were either fueled or accelerated by social media, the Net Party hopes to “open the bandwidth of democracy” by changing not only the people in charge but the structures they inherit. The ultimate goal is to shift political discussions away from debates about people and towards debates about issues.

Given that our current democratic systems were designed in a different era to solve different problems, the conditions are ripening for democracy to move past what MIT professor Cesár Hidalgo refers to as “one-bit democracy” in which citizens are allowed to contribute one bit of input every four years, to something along the lines of ‘Democracy 2.0′. Such a system needs to be capable of operating on its own with limited input whilst also sustaining and processing large surges of input when required.

Politicians such as the Argentine Finance Minister may just be making the case for the Net Party Founders on their behalf.

After all, it’s hard to convince people that they need politicians to defend themselves from themselves if the political class is regularly failing to provide the type of leadership, planning and policy required to ensure a country’s long term stability.

Having experienced more booms and busts than Van Halen, and with 89% of 18-29 year-olds in Buenos Aires accessing the internet every day, Argentina may just be the place for a new ripple in the wave of of democratic experimentation taking place across the globe.

With the Pirate Party making gains in Iceland and Partido X (The X Party) gaining momentum in Spain, The Net Party may just find itself one of many groups hoping to apply the disruptive potential of technology to breaking up monopolies of power within our governing systems.

At this point it is hard to say whether or not the Net Party will usher in a new era of Argentine democracy or if it will remain an easily overlooked fringe party. Nonetheless, the opportunity for change is real, and as Rahm Emanuel once said, “you never want to let a serious crisis go to waste.”

Disclosure: The author occasionally advises the Net Party.

Image credit: Thinkstock

Our events team is only just recovering from last month’s sold out TNW Conference Europe and already they’re looking forward to the next big project. On August 28th & 29th 2013, we’re returning to São Paulo for the second edition of The Next Web Conference Latin America.

Last year, our Brazil event saw more than 600 attendees travel to São Paulo for keynotes from international speakers including Werner Vogels (Amazon), Ryan Holiday (American Apparel), Romero Rodrigues (BuscaPé), Andrew Keen (Digital Vertigo), In Hsieh (Baby.com.br), Julio Vasconcellos (Peixe Urbano), Andreas Gal (Mozilla), Nicolas Szekazy (MercadoLibre), Veronica Serra (Pacific Investments) and more.

In August this year, more than 800 online professionals from all over Latin America, the US and Europe will witness talks from more than 15 international tech and Internet experts, learn about the future of the Web and do business with Latin America’s decision makers. Indeed, doing business is an important part of the event; last year, more than $7 million in funding was raised either at or directly after the conference.

Then there are the startups – 20 hot Latin American startups will pitch and announce news on stage as part of the TNW Startup Rally, while an extra 45 will be demoing their products and services in the business area.

So, if you want to join us there, you’d better get registered, right? We’re currently giving out 25 vouchers for 2-for-1 ticket deals. Anyone can apply for a voucher until the 22nd of May, after which official ticket sales will open.

See you in São Paulo!

➤ TNW Conference Latin America

Image credit: Thinkstock

Brazil’s leading shoe subscription service Shoes4you has stopped operating, the site’s home page informs. The news first came out in a private mailing the company sent to its subscribers, and was soon confirmed when it announced a liquidation sale, to the great surprise of many.

While it is nothing uncommon for e-commerce websites to go out of business, Shoes4you isn’t exactly your average startup: it was co-founded and led by French serial entrepreneur Olivier Grinda, and was backed by A-list funds Redpoint Ventures, Accel Partners, Flybridge Capital Partners and IG Expansion, in addition to individual investors such as Fabrice Grinda and Buscapé’s CEO Romero Rodrigues.

Not only did the startup look great on paper, but it also shared upbeat projections on its first anniversary a few months ago. At the time, its CEO told the press that the company was on track to complete 2012 with a R$5.5 million ($2.7 million) turnover and 55,000 pairs of shoes sold, and expected these metrics to rise to no less than R$25 million ($12.4 million) and 300,000 pairs in 2013.

So what exactly did go wrong and when? We decided to ask Olivier Grinda, in the hope that the lessons he learned will benefit the whole industry.

When numbers don’t add up

As a copycat of US website ShoeDazzle, Shoes4you followed a supposedly proven business model: sell women’s shoes on a subscription basis to a customer base attracted by the opportunity to purchase designer items at discount prices.

The site’s mechanism was the following: female customers could buy their first pair of shoes from the site for R$79.99 ($40) as long as they accepted to become members. R$99.99 ($50) would then be debited from their bank account each month, in exchange for credits that they could use at any time to choose a pair of shoes that Grinda says would typically retail for R$300 ($150).

It’s worth noting that this retail price is theoretical, since Shoes4you’s shoes were only available via its website; rather than a distributor, it was its own brand, supervising the entire manufacturing process and often commissioning exclusive models from well-known Brazilian fashion designers.

Grinda had done the math: based on its production costs, its conversion rate and its churn, Shoes4you would need to sell 6 pairs to each client to compensate its customer acquisition cost, which averaged R$80 to R$100 ($40 to $50).

It was in September 2012 that Shoes4you started to notice an issue which would eventually seal the company’s fate: around 25% of monthly debits for a given subscriber cohort were declined, returning a generic error code that the team struggled to understand.

Grinda’s hypothesis was that banks mistakenly considered the transactions as fraud due to their uneven pattern – Shoes4you gave its users the option to “skip” a month, resulting in irregular debit schedules. The clients were not responsible for this glitch, and kept their subscriber status on the site.

As the team finally found out at the end of March 2013 after weeks in the dark, the situation was entirely different. Many of these unbillable subscribers had actually called their bank to cancel the standing order, but were still taking advantage of their outdated membership status to order shoes at a discounted rate, rather than paying the marked-up price Shoes4you had introduced for non-members.

According to Grinda, this flaw was made possible by a Brazilian specificity, which is that customers can turn to their banks to cancel subscriptions, rather than dealing directly with providers. For context, some choose to do so for legitimate reasons; as we noted in a previous post about e-commerce in Brazil, local customer service generates a large amount of complaints, and best practices are far from widespread.

However, Shoes4you’s CEO insists that his startup was faced with a different and more pernicious issue: clients who willfully chose to ignore the company’s customer service, which could have handled their cancellation request in a normal manner, because their real intention was to exploit a flaw.

More importantly, the team’s delay in detecting the hack had blown the problem out of proportion, causing the startup to lose its balance. As a matter of fact, the margin it made on these problematical customers was low enough and their number large enough to bring the company’s total average margin below its customer acquisition cost. With that data finally in hand, Shoes4you decided to cut the losses and stop operating.

The bigger picture

While these metrics explain Shoes4you’s difficulties on a micro level, Grinda notes that his decision to close shop was also influenced by macro-economic factors.

At first sight, the company’s choice not to pivot to a more traditional e-commerce model may seem quite surprising. After all, Shoes4you was already accepting purchases from non-members. Over the last few months, it also had diversified its product range beyond shoes; in addition to its own handbags and accessories, it had closed partnerships with third parties to distribute watches and glasses.

Why did it not try to get rid of the subscription model and become a retailer? The main answer is cash flow: Brazilian e-commerce websites receive payments after 90 days, which means that they need to cover all expenses in advance. This may be sustainable for companies that distribute products on behalf of third parties, such as Dafiti and Netshoes, but this wasn’t the case of Shoes4you, since most of the items it was selling were manufactured for its site.

This is why subscriptions seemed to be the perfect workaround for the startup: clients had to pay monthly, but didn’t use their credits right away, which helped Shoes4you limit its cash needs.

Without subscriptions, on the other hand, it would have struggled to cover the costs of operating in Brazil. As we reported in a previous story, it is a country where it is very expensive to operate, due to several factors such as heavy taxes, lack of qualified workforce and logistical issues.

According to Grinda, he and his backers were aware of these costs before launching Shoes4you, but they were only willing to face them with a successful business model. In other words, pivoting was out of question.

Learning lessons

Shoes4you’s failure may seem to go against the tide, in a region where e-commerce sector is growing fast. According to Forrester, online retail sales in Brazil will reach more than $25 billion by 2017, more than doubling expected sales of $12.2 billion in 2012.

Grinda himself was one of the early players who rode this trend: before launching Shoes4you, he co-founded buying club BrandsClub and managed ClickOn‘s expansion into Brazil. Yet, he notes that today’s market is not the same as it was at the time.

“One of the lessons to learn [from Shoes4you's fate] is that you need to adapt to the current reality. When I launched BrandsClub and ClickOn, their models were easier for the client to understand – their value proposition was clear, and they were more generic, since they weren’t focusing on a specific type of clients. When you start venturing into niches, for instance by selling only to women or mothers, it becomes more difficult to operate.”

As Grinda has now learned, these business models require an entirely new approach, which he sums up in one mantra: “Save your pennies.” Currently an investor in 15 startups, he praises the teams who followed this philosophy and took things slow, such as men’s fashion club Bespoke Post, lingerie subscription service Adore Me and Brazilian online printing startup Printi.

In contrast, Shoes4you did things the old way: it hired early, spent money on marketing to speed up its growth, got celebrity endorsements and increased its advertising expenses before seeing a return on its first campaigns.

This is called scaling too soon, and Shoes4you is not its only victim: according to the Startup Genome Report, based on 3,200 startups, this mistake is responsible for 74% of all startup failures.

Interestingly, Grinda made a point of talking publicly about Shoes4you’s shutting down and acknowledging his own share of responsibility. “I was the one who chose this business model, and it was our team who executed it,” he notes.

This may not be exceptional by Silicon Valley’s standards, but it is very uncommon in Brazil, where failure is still a huge taboo. While some were so puzzled that they wondered if Grinda was trying to look for excuses, his transparency effort also won him praises. “Congrats to [Shoes4you's team] for putting themselves out there and saying: It didn’t work! Rare thing…”, ABStartups’ regional director Mario Almeida wrote on Facebook [translation ours].

As Grinda points out, failure is a natural part of startup life, and presenting it in a negative light may wrongly deter people from launching their own venture. As a result, he is careful not to overreact to Shoes4you’s closing down. ”It is sad because we had a dream team, an attractive business plan, and despite all that, here I am, doing a liquidation sale… but it is not such a big deal,” he admits.

His main endeavor is now to give Shoes4you’s investors as much of their money back as possible. The company had not disclosed the amount of its Series A round, but Brazilian entrepreneur and blogger Roberto Fermino has spotted an official document in which the startup’s legal entity declared a capital of nearly R$8 million (around $4 million).

Besides reimbursing investors and subscribers, Grinda’s to-do list includes two additional items: “legally close the company” and “help Shoes4you’s former employees find great jobs.” Once he is done, he will have more time to think about his next venture. Will it be in Brazil or in the US? B2B, B2C or C2C? Many questions are still pending, but one thing is for sure: he will remain an entrepreneur.

Photo credit: mopsografie via photopin (CC)

Today Yahoo announced it is officially supporting the Marco Civil da Internet bill that is expected to be voted through the Brazilian Congress in the coming months.

The bill, which was originally conceptualised by professor Ronaldo Lemos, also founder of the Center for Technology & Society, in May 2007, was first drafted in 2009 and includes the contributions of 1,100 citizens of Brazil. The idea behind the Marco Civil, as it is known in Brazil, is to set out clear rights to be observed for all Brazilian internet users.

It has been dubbed the “Constitution of the Internet” and aims to guarantee civil rights online. The collaborative aspect of the bill means the current version was publically published and citizens were invited to comment and criticize it, aiming for complete transparency.

The bill, if voted through, would mean privacy rights online would be enforced, as well as net neutrality, the idea of open government online and freedom of speech. It would also make access to the Internet a requisite for the exercise of civil rights in Brazil.

The bill would set a precedent in a region where no other country has yet provided laws protecting the right to online access for its citizens

It was originally set to be voted on back in November, however it is believed to be going in front of Congress in the following months.

Back in September 2012, Brazil came under fire when police forces detained and questioned senior Google executive Fabio Jose Silva Coelho in Sao Paulo after the company refused to take down a political clip from YouTube, which it owns. The bill could help clear out possible similar situations in the future.

Yahoo, which has been present in the country since 1999, sees this bill as a progressive step for the country, and one that will reinforce its future in innovation. Brazil is a fast-growing market, with around 45 percent of the population active online, and a quickly accelerating internet mobile sector.

Image credit: Justin Sullivan/Getty Images