São Paulo – There were 12,700 startups in Brazil last year, according to the Brazilian Startups Association (Abstartups). That’s almost three times as much as in 2015. This growth, the sheer size of Brazil’s market, the ability to innovate, and a new regulatory framework for the sector enable Brazil and its entrepreneurs to come up with innovative businesses and solutions, and to rise up to the challenges posed by society and brands.
Established 2007 under the name Acesso Digital, unico got its first cash injections in 2020: BRL 40 million from Igah Ventures and BRL 580 million from General Atlantic and the SoftBank Latin America Fund. unico develops biometric facial recognition and safety systems and digital processes designed to speed up employee admission by Human Resources departments. In addition to being targeted by investment, the company made its own last August: it bought out another startup – Meerkat, out of Rio Grande do Sul.
“Things happened so fast because we at unico have become the infrastructure for businesses to go into the digital world. We provide safety to businesses, consumers and employees when it comes to remote relationships, which are the new way to relate. There’s no going back from this reality, so we have a lot of growing to do as these relationships evolve and require greater safety,” says unico cofounder and Strategy and M&A vice president Paulo Alencastro (pictured above).
Changes in sight
Investment in Brazilian startups is picking up. According to the Venture Capital Committee coordinator at the Brazilian Private Equity and Venture Capital Association (Abvcap), Humberto Matsuda, 2020 was the first year ever that venture capital – i.e., investment in up-and-coming businesses – exceeded investment in private equity funds, which involves established companies.
Up until June 2020, venture capital investment amounted to BRL 5.7 billion, with private equity seeing BRL 4,5 billion, Matsuda claims that this is a “reflection of the fact that Brazil’s startup ecosystem has matured. He argues that the pandemic had little effect on the industry’s behavior. “There has been no significant change in investment trends. The main reason behind the hike was a low interest rate,” says Matsuda.
Last December, Brazil’s Chamber of Deputies approved a new Legal Framework on Startups. Complementary Bill 146/19 was submitted to Senate, where it’s being reviewed under senator Carlos Portinho.
The bill’s rapporteur at the Chamber of Deputies, representative Vinicius Poit, argues that the biggest changes to be ushered in by the new framework include exonerating non-executive investors from any lawsuits involving the startup at hand – a legal liability that scares away would-be investors.
“Someone who’s simply investing in a startup and does not hold an executive position in it will not be held accountable for any debt incurred by the company, whether it be labor or tax related or whatnot. The framework also includes provisions on fostering research, development and innovation. This paves the way for increased availability of resources to innovative enterprises,” says Poit.
- Here’s more on Innovation
The congressman explains that the new regulatory framework will allow innovation to reshape the rules, rather than be hampered by them. “We have made it much easier for government entities to procure innovative solutions, so that problems that have long affected the people can be solved in new ways. We also brought stock options to Brazil, since it’s an internationally known tool for engaging personnel,” says Poit. Stock options allow a corporate entity to sell shares to personnel, usually C-level, at below-market prices.
Opportunities and challenges
According to Poit, there are 11 unicorn companies in Brazil – i.e., those valued at USD 1 billion or upwards –, with an additional 17 possibly cropping up in the years ahead. “And we are fostering this ecosystem more and more, whether it be through improved rules and regulations coming from government, or through major private investments, especially foreign investment, because currencies like the dollar and the euro are worth a lot in our country. There’s a big multiplier factor at play, and returns to investors tend to be massive,” the congressman notes.
Matsuda claims that besides low interest rates, another factor that makes Brazilian enterprises attractive is market size. “Brazil has a population of 200 million and multiple markets whose worth is in the billions. What really matters is our size,” he says.
Poit believes there’s major growth potential in e-commerce and in fintechs – financial market startups. “The pandemic forced people to stay home, and online retail soared as a result. Additionally, our domestic financial market is dominated by a small number of big organizations whose business models are outdated. Therefore, there’s a huge gap to be filled by fintechs providing digital services and credit to millions of Brazilians,” he says.
But there are challenges to be addressed. Alencastro points out that startups in Brazil have a hard time finding professionals capable of working with technology. And in addition to external factors, startups must also commit to growing and bringing in investors.
Matsuda believes that having a “unique staff” is one of the secrets to success: “Experience, intelligence, the ability to work, to lead, to find, bring in and keep staff on board, online marketing and other factors,” he says, are key elements in growing a startup.
“The most important thing is to remain true to one’s purpose and to be on the same page and one’s investors, because authenticity is what sets a startup apart,” says Alencastro. “Our goal as a business is to make unico as big as Facebook or Microsoft, and we are working tirelessly towards that!”, the cofounder asserts.
*Special report by Marcos Carrieri
Translated by Gabriel Pomerancblum
