This 2019 was a dream year for Brazilian startups. The Japanese corporate Softbank has supported mainly the startups of this country, which has meant a significant increase in investment for these companies.
These advances do not mean that Brazil is a paradise for startups. These companies still have to deal with the lack of financing, and many of them will have to pivot to survive in the market. This article is a brief overview of Brazil.
November, investment month for Brazilian startups
In November alone, startups raised $ 334 million in investment, according to the District innovation platform. That represents almost double the 180 million raised in October, although concentrated in fewer companies.
Among the most outstanding investments of November, was Neon Pagamentos, who received $ 97 M in investment from Banco Votorantim and the General Atlantic fund.
Neon Pagamentos funds will be injected to accelerate the growth of the company and increase the density of the brand in the capitals beyond Rio de Janeiro and Sao Paulo. They will also serve to expand product offerings, including the development of credit and investment alternatives for customers. Finally, the money will be used for technology, advertising campaigns, and contracting.
The VTEX e-commerce platform has already raised a contribution of $ 140 million. The investment was led by the Latin American Fund created by the Japanese conglomerate SoftBank. Gávea Investimentos and Constellation Asset Management completed the contribution.
According to the statement, VTEX will use its resources for research and development (R&D) and accelerate the company’s global expansion, which stands as a platform that accelerates the digital transformation of complex operations through e-commerce in the cloud.
Thanks to Neon Payments and VTEX, the financial services and retail sectors moved the most substantial amount of venture capital resources in November.
Investments in Brazil will continue in 2020
After making ten contributions to the new Brazilian companies throughout 2019, the Japanese group SoftBank will continue to invest in the country during 2020, but at a slower pace. According to André Maciel, leader of the company’s Brazilian operation, the conglomerate’s Latin fund will make fewer investments next year but will bring more extensive checks to those who decide to support.
According to the executive, the Latin SoftBank Fund has already made 19 investments, but only 14 of them were disclosed in the market. “We have contributed between $ 1.4 billion and $ 2.4 billion so far,” Maciel said at an event held yesterday by the company in Sao Paulo. It is only a fraction of the $ 5 billion that the company has allocated to its Latin fund, presented in March.
According to the executive, there are resources for new investments in startups that are already part of the fund’s portfolio. “It is the best type of investment because it generally means that companies already have a proven model and only need more capital,” he said.
According to Maciel, SoftBank has analyzed more than 300 companies in the Latin market. Of these, 15 reached a more in-depth analysis, but could not close an agreement with the Japanese group. During the event, Maciel admitted that “we have already made our most obvious contributions, but we have not yet done our biggest checks.”
“We still don’t know what the portfolio will be like because we have five years to invest. We expect the mortality of some companies, which is natural, but we will keep pace with investments,” he said. According to him, the company generally enters with up to a third of the rounds in which it participates, making checks between $ 7 million and $ 350 million for new businesses.
The biggest round in which SoftBank participated was the $ 1 billion in the Colombian startup Rappi, held in April this year. Also, the group has invested in the Brazilian companies Loggi, Creditas, QuintoAndar, Gympass, Buser, Olist, Vtex, MadeiraMadeira, Volanty, and Banco Inter, as well as in Mexico Clip and Konfío and the Argentine fintech Ualá.
According to the executive, a challenge that the company needs to overcome is the lack of experienced developers and programmers in Brazil. “We were able to find novice professionals, but those who support the construction of a company’s technological architecture are missing,” said Maciel. Also, attending the event, the CEO of Gympass, Brazil, Leandro Caldeira, agreed: “We created our artificial intelligence center in New York because of this.”
New investment funds are created in Brazil.
Canary, a startup investment fund in the initial stage, has a second fund. The Canarian Fund II has financing of $ 75 million to participate in the initial and Series A rounds of Brazilian startups.
The initial stage investment fund has invested in 57 startups: 51 of them in Canary Fund I and six in Canary Fund II. The objective is to approach the 50 startups invested in the second fund, which began to be collected in July of this year.
Combining its two funds, Canary has $ 120 million under management. Co-founder Marcos Toledo said in a statement that the first fund is “working beyond initial expectations.”
Some of the companies invested are Buser, Docket, EmCasa, Facily, Gupy, IDWall, Loft, Mimic, Sallve, Spin Pay, Trybe, and Volanty.
Canary also has five outings (startups that have already held a liquidity event for the fund, such as a sale): 1M2, Creditoo, Decorati, Gamersclub, and Spry.
Created in 2017, Canary has as its differential the contact with investor-entrepreneurs. Among its creators are Julio Vasconcelos, from Peixe Urbano; Florian Hagenbuch and Mate Pencz of Printi and Loft; and Marcos Toledo and Patrick de Picciotto, from M Square Investimentos.
Canary companies have captured more than $ 400 million in subsequent rounds and generated more than 1,400 jobs.
Less than 10% of startups in Brazil receive financing from the industrial sector.
In industry 4.0, the collaboration between factories and startups is essential. Both can benefit from a business relationship. While startups have added technology and agile work methodologies, the giants have a scale and a large consumer market. However, in practice, this collaboration still does not happen, as revealed by the “Startup Map + Industry” study conducted by the accelerator Spin and the innovation consultant A2C. In this study, analysts found that only 8% of Brazilian startups receive industry investments.
After consulting 295 startups and 55 industries in the country, the study showed that 66% of young companies are financed with the own resources of entrepreneurs, while 13% receive funds from angel investors. The majority of new companies (94%) also pointed to Brazil as the source of financial resources. “The industry does not have the habit of investing in innovation horizontally and partnering with new companies. This traditionalism is very bad because the industry does not reinvent itself, and young companies do not receive any investment, “said Beny Fard, CEO of Spin.
With a lack of investment and guidance, only 11% of the startups evaluated are in operation. That is, they abandoned the prototype phase and already offer their services and products. “Many startups don’t advance because they skate or don’t have money. The industry often does not trust suppliers with little time in the market, to make matters worse, “Fard warned.
However, the industry’s low investment in young and innovative companies is gradually declining, Spin CEO reflected. ABDI (Brazilian Agency for Industrial Development), for example, is one of the institutions that promise to connect these links. In the first edition of the National Connection Startup Industry program, created in 2017, ten young companies and ten factories were connected, generating R $ 1 million in business.
“Another 17 startups were able to sell their solutions to industries based on relationships established during the program. As we obtained excellent results with the project, we decided to expand it this year,” said Igor Calvet, president of ABDI.
The leading agency of the Brazilian industry CNI (National Confederation of Industry) declared that SENAI (National Service of Industrial Learning) has the principle of innovation to finance the development of innovative solutions for the Brazilian industry. “The program has already been supported by 1,000 projects, more than 800 companies served, and more than $ 500 million invested in innovative projects.”
Three out of four Brazilian startups will pivot.
“Pivoting” is the term used in the entrepreneurial ecosystem when a startup, for some reason, needs to change its business model, approach, or even the service or product it offers. It is the “intermediate change.” And what a Visa study revealed last week is that it is not uncommon: 77% of new businesses have already turned.
The number, published in the traditional Fintechs Map, provided an overview of the Brazilian entrepreneurial ecosystem from data and information collected during registration for its acceleration program. It is worth mentioning that the number of “pivots” is more restricted to the profile sought by Visa: mature startups focused on finance.
However, it is a striking and striking show.
“It is widespread to change paths in this innovative environment,” says Beatriz Montiani, innovation manager at Visa do Brasil and responsible for the acceleration program. “And here in Brazil, after all, there are more factors that influence. Many ideas, for example, end up without investments since the contributions, although growing, remain very concentrated.
A startup that recently pivoted was Hisnëk. The company began its journey in 2014 with a business model to sell healthy snacks by subscribing to the final consumer. Today, Carolina Dassie’s business has taken a completely different face: Hisnëk has placed a meal under a much larger umbrella.
“At the beginning of this year, we began to listen to corporate human resources and to understand that there was a bigger problem than good nutrition. There is a tripod to take care of in companies, which is mental health, physical health, and nutrition,” explained the businessman. “Then we extend our attention to these areas. We want to help the company have healthy employees. “
Therefore, Hisnëk today has artificial intelligence that helps HR in the prevention and early detection of employees with health problems, especially mental ones. “The employee even feels comfortable asking for a gym, nutritionist. But not to ask for therapy, “he says.” We make this bridge and help both sides of the equation. “
Today, snacks are a possibility among several services offered by the startup. After all, nutrition, diet, and exercise help improve mental health.
Transforming ecosystem
For Carolina Dassie, the “pivot” was more than positive. Even with customers at the time of the subscription of healthy snacks, he approached the companies and realized that changing his product could gain even more market. And those who were already their customers would remain loyal, consuming new products and increasing profits.
She, however, points out that it is necessary to feel if the start moment allows the “pivot.”
“Each case is a case. But I think that to know if he can swing, nothing better than talking with his client and understanding the moment of his company, “says the businessman.” Here in Hisnëk, for example, we got a very strong traction. Today, I don’t know if I could pivot. But to be sure of that, I would talk to customers. “
Also, several programs for startups and organizations try to support pivoting.
In Sebrae-SP, there is support for the startup to find its error as soon as possible. It fails tech, a conversation between entrepreneurs that helps in the process. “Pivoting must be fast, controlled. It can’t cost a lot of money, it can’t take long, it can’t leave the beginning behind, “says Fábio Zoppi, state manager of Startup SP
Already in the Visa acceleration program itself, the duration will increase to help the entrepreneur in the process of understanding what his startup is. “We are extending the program from 4 months to 6 months. We will have intermediate steps so that the entrepreneur is sure of his business,” says Beatriz Montiani of Visa.