By Vinod Sreeharsha
New York Times Dealbook

October 24, 2011 – When the investment firm Monashees Capital first called Juliano Ipolito, the co-founder of an online handicrafts marketplace, he assumed that he would have to visit the firm in São Paulo.

Brazilian investment firms have traditionally had distant relationships with the companies they finance and are held in low regard by entrepreneurs.

Instead, three Monashees partners, including the co-founders Eric Acher and Fabio Igel, jumped into a car and drove in blistering heat almost 60 miles to Campinas. They spent several hours with Mr. Ipolito and his wife, Monica Ipolito, co-founder of their start-up, Elo7, getting to know them and explaining their role in developing early-stage Internet companies.

Initially, the Ipolitos “did not want to do a deal,” Mr. Igel said, because “they did not need the money and they were happy.”

But the visits to Campinas continued and the relationship grew. Recently, more than seven months after that first call, Elo7 secured Series A financing from Monashees and the American venture capital firm Accel Partners.

The deal illustrates the emergence of an Internet start-up community in Brazil. Homegrown Monashees identified the entrepreneurs, developed the relationship and early on brought in a major Silicon Valley player as a partner to make a rare early-stage investment. That change in the investor-entrepreneur relationship here comes as United States venture capital firms are starting to take notice of Brazil.

During Brazil’s rise, several economic sectors have attained global prominence, but the Internet has been a notable exception. Nasdaq does not have a single Brazilian Internet company listed, and the country’s own exchange has very few.

This is not for a lack of talent. In 2000, Brazilian professors in Minas Gerais created Akwan Information Technologies, which was acquired by Google in 2005 and became the Internet giant’s research and development center in Latin America.

But today’s entrepreneurs are starting to believe their options are wider, so they are building companies for the long haul that can rival multinationals instead of getting consumed by them. This is changing in part because of firms like Monashees.

According to Claudio Vilar Furtado, an authority on Brazilian venture capital and private equity, and professor at Fundação Getulio Vargas, Monashees is among a small group of firms introducing “a new paradigm for the type of relationship that nurtures entrepreneurs in a very positive and value-increasing way.”

Other investment firms include Astella Investimentos, Ideiasnet and FIR Capital. All are filling the void of private sector financing for start-ups.

According to the New York-based Latin America Venture Capital Association, five of 32 venture capital and private equity deals in Brazil in the first half of 2011 were early stage, seed or incubator investments. In 2010, that ratio was 12 of 28.

Monashees today holds $70 million, up from $30 million in July 2010. Investments range from $500,000 to $5 million for the initial round. The most it has invested in a single company via multiple rounds is $7 million. One of the partners, Mr. Acher, says that the firm typically takes 30 percent ownership in a start-up, with a range of 20 to 40 percent.

In 2010, Mr. Acher said that the firm was likely to make just two to three investments per year, because of the time it took to develop relationships. But this year, Monashees has already made at least nine new investments in nine different Brazil-based start-ups. One these new companies, GetNinjas, an online marketplace for services that was founded by two Brazilians, Eduardo L’Hotellier and Diego Dias, began recently.

The unexpected surge in investment opportunities in Brazil for Monashees is partly because entrepreneurship is becoming more accepted as a viable career.

For example, Mr. L’Hotellier, who previously worked at McKinsey & Company and Bain Capital, had his pick of corporate jobs, but he chose entrepreneurship.

A second reason is that failure is becoming less of a stigma. Mr. Dias, for instance, tried to start a company in the past but says that, “I was with the wrong partners.”

Yet, after meeting Mr. L’Hotellier, he was willing to try again. Young Brazilians are also encouraged by their compatriots returning from the United States, like Julio Vasconcellos, a graduate of the University of Pennsylvania and Stanford Business School, who co-founded the country’s first daily deal site, Peixe Urbano, in Rio de Janeiro in 2010, backed by Monashees and Benchmark. Its initial angel investor was

Chamath Palihapitiya, who says he has participated in every financing round since.

And even as Brazilians are returning, Monashees has invested for the first time in Americans who, in a role reversal, have come to Brazil seeking greener pastures.

Baby.com.br, an e-commerce site for baby products that started this month, was founded by two Americans, Kimball Thomas and Davis Smith. And they chose a Brazilian V.C. firm over a Silicon Valley one.

Mr. Thomas said that from their initial meetings with Monashees, “it became clear that if we work with these guys, they are with us daily.”

“We knew that we had a highly interested partner that was on the ground with the type of relationships and contacts we needed,” he said. “Otherwise we are just a couple of guys showing up with suitcases of money,” with an idea but unsure how to execute it.

Other investors in the Baby.com.br financing round that Monashees led are Ron Conway’s SV Angel and Mr. Palihapitiya, who has invested in three companies with Monashees.

After the investment round, which raised $3 million, Tiger Global Management contacted Monashees, expressing interest in the company and subsequently adding $1.5 million in April.

“Tiger would not have been interested in us had we not raised money from Monashees,” Mr. Smith said.

Monashees faces numerous challenges, in particular producing its first exit.

“We need to get to liquidity events, and it is going to take some time,” Mr. Acher said. “We still have to prove ourselves.”

And increased competition means that Monashees is losing out on deals for the first time, although that’s an expected result of the sector’s evolution.

Whether Monashees and the start-up scene here will succeed will also depend on their American partners and whether they can adapt.

Accel, which has made two investments with Monashees, also played a crucial role in winning over the Ipolitos, including introducing a Flickr co-founder, Stewart Butterfield, who shared his doubts about taking financing in the photo-sharing site’s early days.

“How we behave will determine how much they trust us in the future,” Kevin Efrusy, an Accel partner, said of this new group of Brazilian entrepreneurs. “If we behave well, we will be able to partner with entrepreneurs there for generations.”

But, he said, “if we behave badly, by optimizing short-term gains and trying to take advantage of people, we will wreck the ecosystem.”