Venture Firm Seeks the Atypical, and Finds It in Brazil MARÍLIA, Brazil - Atomico went off the beaten path for its first investment in Brazil, and not just in terms of geography. Last year, Haroldo Korte, a partner at the venture capital firm, drove 300 miles from São Paulo deep into the southern rural interior to meet with Paulo Biancalana, a self-made entrepreneur with no university education who had turned a local auto accessories dealer into a fast-growing Internet business. Working out of a ramshackle building, he had become the country's top seller on a leading e-commerce site, MercadoLibre, and started Connectparts - which together gave him annual sales of $10 million. Atomico had to woo Mr. Biancalana, who was initially suspicious of outside investors. After roughly six months and a half-dozen meetings, Atomico invested $7.5 million in the start-up, which is now being courted by other venture capital firms. "All the conditions were against him," said Mr. Korte. So I said that we have somebody and something special here. As competition heats up for Internet companies, Atomico - started in 2006 by a co-founder of Skype, Niklas Zennstrom - is looking for atypical investments. The London-based firm tends to focus on non-American start-ups, emphasizing its past as entrepreneurs who succeeded beyond the venture capital stronghold of Silicon Valley. Roughly three-quarters of Atomico's companies are based outside the United States, including 6Wunderkinder, an application developer in Berlin, and the Finnish game maker Rovio, the maker of Angry Birds. Atomico looks for profitable, bare-bones start-ups that haven't attracted venture capital attention. In Brazil, the firm's two investments have been in the companies" initial financing rounds. Mr. Biancalana, 40, wasn't even looking for outside money. "We were doing very well," he said. What caught my attention was not the investment but their experience as entrepreneurs and international contacts. Mr. Zennstrom first saw the potential of opportunities in South America more than a decade ago. In 2001, Kazaa, a music file-sharing company that he helped start, had an unusually large amount of traffic from Argentina. Shortly thereafter, Brazil became one of Skype's largest markets. When the online auction giant eBay acquired Skype in 2005, Meg Whitman, then eBay's chief executive, suggested Mr. Zennstrom meet the founders of the region's largest e-commerce site, MercadoLibre. The relationship continues today, and MercadoLibre's founders, Marcos Galperin and Hernan Kazah, have recommended several entrepreneurs to Atomico. Mr. Kazah, who recently started Kaszek Ventures with Nicolas Szekasy, introduced Atomico to the first three companies in which it invested in the region: the Argentine companies Cinemaki and Restorando and the Uruguayan dining site PedidosYa. Kaszek and Atomico both invested in them. In 2010, Atomico opened an office in São Paulo and hired Mr. Korte and Carlos Pires, who was previously in charge of Skype Brazil. An Atomico partner, Geoffrey Prentice, Skype's first employee, also relocated there. "We spent a lot of time in China but saw a lot of Western investors already there," said Mr. Zennstrom. Rather than being late to the party, we went with Brazil. As deal-making activity picks up, Atomico is going against Silicon Valley stalwarts with deep pockets and a longer investment record. Atomico raised only $165 million for its second global fund, far less than its goal of $266 million. And in the last year, it has lost out on start-ups such as Elo7, the online handicrafts site backed by Monashees Capital, based in São Paolo, and Accel Partners, the American venture capital firm. Mr. Prentice acknowledged that notable deals here had gotten "very competitive and really expensive," which has prompted Atomico to pass. "The degree of competition has increased in the past year," says Cláudio Vilar Furtado, a professor at Fundação Getulio Vargas who specializes in private equity and venture capital. But at this stage in the nascent market, it's not worrisome since "the extension of supply creates its own demand." To temper the potential risks, Atomico is focused on what it sees as the leaders in growing industries whose potential has not been tapped. Last December, the firm made a $3 million investment in BebêStore, a baby products company based in São Paulo, betting on the strong demand for such products online. As one of the first players to develop an online presence, Atomico believed BebêStore had the first-mover advantage. But it had also been reluctant to plow significant money into the business. The co-founder had previously watched his father's construction business suffer because of currency fluctuations, and his past ventures had had mixed success. "I did not want investors at all," said Leonardo Simão, who started Bebê-Store in 2009, with his wife, Juliana Della Nina Simão. "I wanted to have control" to maintain a comfortable growth rate. Recently, Atomico has encouraged Mr. Simão to expand aggressively because of increased competition, including from Baby.com. The firm pushed the start-up to increase its inventory, even if it meant laying out more money in the short term. Atomico estimates the company, which reported $5.6 million in 2011 revenue, could more than double its sales this year. Mr. Simão "had been told so many times to be conservative and do not lose money. He wanted to go for it but nobody had given him the confidence that he could," said Mr. Prentice of Atomico. That's an important thing we bring to the table.