Investments in startups in Brazil continue despite the slow economic recovery

The level of investments in Brazil also changed, especially in 2019, with the arrival of the Japanese conglomerate Softbank to the market.

In Brazil, the investment market in startups continues to expand despite the country’s slow economic recovery. The venture capital sector began with a total of venture capital funds of $ 290 million in 2015, but by the end of this year, it is estimated that it will reach $ 650 million this year, according to data from ABVCAP, a Brazilian association that gathers information on funds of this type.

This comparison contributes to the acceleration of the sector, according to Pedro Sirotsky Melzer of eBricks. Sirotsky comments that this advance is a result of the maturation of the market, on the one hand, and the fall in the underlying interest rates of the economy, on the other. The Selic (Special Liquidation and Custody System) rate was 14.25% per annum in 2015 and is now 6% per annum, with the prospect of further reductions and that this historically low level will remain for some time.

Investors are increasingly interested in Brazilian startups.

According to the executive, when he started in this market at the beginning of the decade, it was not clear if talented professionals would be interested in opening new businesses. Now, following success stories like 99, Nubank and Gympass, the market is already attracting well-qualified executives, he says. Daniel Chalfon, a managing partner at Astella, says lower interest rates lead large investors to seek long-term alternative investments with less chance of early repayment. These conditions tend to increase the potential yield.

The level of investments in Brazil also changed, especially in 2019, with the arrival of the Japanese conglomerate Softbank to the market. In a few months, the company made essential contributions to Loggi ($ 150 million) and Gympass ($ 300 million). Nubank has already received $ 400 million from the US TCV fund, the first one in Brazil.

Recently, Argentine investment fund Kaszek Ventures, founded by former Mercado Libre executives, announced Thursday that it had closed two venture capital funds worth a total of $ 600 million to invest in startups in Latin America. According to a statement, the contributions will have a particular focus on the Brazilian market.

Kaszek Ventures has a preference for Brazil.

Responsible for contributions to 70 companies in the region, including Nubank and Quinto Andar, Kaszek says he traditionally directs two-thirds of its capital to projects in Brazil. In addition to Brazil, Mexico, Colombia, and Argentina complete the countries that have already received contributions from the company in the region.

The fund’s strategy will be to lead the first rounds of initial investment, with disbursements ranging from $ 500,000 to $ 10 million. The value of the contributions varies according to the size and the operational stage of the company, as well as the intended use of the money by the companies. “We can invest in everything related to technology. We are agnostic about the sectors,” said Julia Salles, investment analyst at Kaszek.

“Our mission is to expand innovation in Latin America through a partnership with entrepreneurs and the use of technology to transform all kinds of industries and markets,” said Hernan Kazah, partner and co-founder of Kaszek Ventures, in a statement.

For Vinicius Machado, of the innovation consultancy Startadora, the two new Kaszek funds show that the new Brazilian companies are proving to be immune at the time of the national economy. “The innovation market revolves in another rotation because there are many people who see future trends and opportunities.”

Investment platforms open possibilities to small investors

“Before, when an entrepreneur received an offer of $ 100 million, he sold his company. Now there is the possibility of staying in business for longer and looking for more significant growth, “says Chalfon, who has been in business since 2008. Humberto Matsuda, an advisor to ABVCAP, says that foreign funds have been interested in Brazil because, in recent years, an investment structure has been built to start a business in the country. This structure allowed Brazilian startups to reach an attractive size for international investors.

However, small investors are also attracted to the possibility of investing money in new companies. For them, the road is platforms that allow contributions from $ 100.

Regulated by CVM (Brazilian Securities and Exchange Commission) since 2017, 24 platforms offer the service, which includes the selection of new companies, the availability of their proposals and the support in the relationship after the investment. The amount collected through these services went from $ 3 million in 2017 to $ 12 million last year. In the same way that large investors struggle to earn money, the small saver also seeks alternatives in low-interest scenarios. The idea of the platforms is to allow ordinary people to access applications in startups, even if they have low values for investment in this market. In Organismo Brasil, for example, you can invest $ 100. Wesley Café Calazans, 22, graduated in architecture, has invested in four new companies on the Kria platform, using part of the money he earned as an intern. In each investment were $ 500, which is also the minimum amount required on the platform. Its investments include a fintech (a company that uses technology to innovate in the financial sector), Kria herself and a craft beer bar. He says he was interested in investing in new companies. He saw that many new companies had grown in value, which would allow a good return for those who put money in them at the beginning.

“As you can invest with little, without risking so much, I think it’s great. I always put the minimum value, to diversify, because I know they (the startups) are at risk of bankruptcy, “ Calzans says.

Brian Begnoche, a partner of the EqSeed investment platform, says that most investors are entrepreneurs who have been successful in other companies, financial market professionals and executives who use startup investment to learn about innovation in their industry.

According to experts, startups are risky investments and should occupy only a small fraction of the investment portfolio. This situation is because there is a risk that the investor will lose what he applied if the company fails. There is also the difficulty of transferring the stake in the company to another investor if you need the money. This profit is generally obtained in this market when an investment fund or a large company buy initial shares, which often takes years.

State investments also boost startups.

In addition to investment funds, the State plays a crucial role in the creation of startups, and in this regard, in Brazil, it has lagged in recent years.

Brazil’s low economic growth has made public resources for science, technology, and innovation reduced. This problem has led to the stopping of financing instruments that existed in the past, such as Finep (Financer of Studies and Projects), which allowed undertaking.

“It is a mistake to believe that the State can be left out of technological development and innovation. It’s not like that in the whole world. “The USP professor believes that the development of cutting-edge technologies goes hand in hand with public money. “Leaving the government is little.”

Rodrigo Brito cited Mariana Mazzucato’s book “The Entrepreneurial State,” which breaks the idea that only companies generate development. “Ninety-eight percent of iPhone patents and 79% of Standford’s research investment come from public investment,” he recalled.

The creation of more unicorns in Brazil will require a mixture of support from the State in science and technology, as well as greater confidence on the part of investors in the potential of Brazilian entrepreneurs.