The Brazilian Startup Ecosystem From The Eyes Of Foreign Investors
Founder Institute specialists talk about the advantages of investing in Brazilian Startups
You can also read this article in Portuguese, click here.
“I’m going to show you something that for me is my pride and joy.” Nima Kaz is talking about the well-known purple credit card from the celebrated Brazilian fintech NuBank, which he promptly takes out of his pocket. Nima is Executive Director of the Founder Institute in Curitiba, the world’s largest startup launch program, and Co-Founder & CEO of JUPTER, an ecosystem platform that helps find, fund and launch companies and networks of tomorrow. He has been living in Brazil for 5 years and still doesn’t have a personal bank account. The reason is because he lives like a nomad, renting short term, furnished apartments, preventing him from providing proof of residence, such as a water or electric bill or under his name in order to open a traditional bank account.
What NuBank has been able to do was act as a digital bank and credit card provider for him, acting as a financial institution so good that he didn’t feel the need to use the other international credit cards he owned. “I cut them all up, because NuBank is the greatest financial experience I’ve ever had in my life”. It’s no wonder that the fintech was the third in Brazil to reach the prestigious status of a unicorn startup. Nima believes they’ll reach the decacorn, or even centacorn status very soon, because the financial market in the country is so underserved.
The other person in the conversation, that took place via Zoom Conference exclusively for this article, is Mike Suprovici. He is the Managing Director of the Founder Institute in Silicon Valley and oversees the portfolio of 3500 or so startups. Along with his team, he helps companies grow and graduate from the FI program, through hand on hand combat and one on one advice. He aids with raising during the first or second round of funding and stays with the companies essentially for the rest of their lives.
Why Are Brazilian Startups Attracting So Many Investors
From what Suprovici has seen from his experience in helping companies in Brazil raise money is, they solve real problems — and there are a lot of real problems to be solved. A large sum of the population is unbanked or underbanked, there are issues around transportation and logistics, “massive problems that can be solved by multiple startups”. As a result of that, he believes that there’s a lot of opportunity in the long term in Brazil, which is one of the reasons why so many Venture Capital funds are starting to go to the country and take an interest in the market.
Brazilian startups have been attracting a lot of international investment, and both entrepreneurs credit some of that interest to the good returns to those investments. “Brazil is home to 200 million people, meaning it can sustain massive, multi-billion dollar companies just within the country alone, wheres in other nations that are smaller, there are not enough people or industry to have this kind of impact”, adds Suprovici. The cost of operating business in Brazil is also very low, and there are a lot of opportunities to solve problems that are unique to the country when it comes to intensity — while the solutions, they can be applied globally, offering startups the chance to expand their businesses to other nations.
When it comes to the differences between companies coming out of the U.K. or the U.S and the ones emerging from Brazil, Suprovici mentions that the earlier ones are “nice-to-haves” because they’re making things practical by creating products and services that people want to try out, they’re not unfolding serious issues. Crypto companies coming out of Latin America, however, are solving real problems. In fact, the region has plenty of problems, but looking at it from a different angle, these really are opportunities — and that’s where entrepreneurs thrive. The close proximity to the problems generates empathy to the user of the solution that’s going to be developed.
Fintechs are definitely thriving in the current scenario and inspiring healthy competition. But startups focused on different types of markets have proved to be equally successful in coming up with life-changing solutions in the lives of Brazilians. They have also been attracting multiple rounds of investments, achieving the status of unicorns, some even being able to expand to neighboring countries due to their smart answers to daily issues affecting people’s lives. Here are some of them:
99 was founded in 2012 to facilitate taxi services in Brazil and it became the first unicorn in the country, highlighting urgent transportation problems affecting a large share of the population. Yellow, a company that offers shared transportation solutions such as shared bikes, might be headed for the unicorn status soon. iFood is the largest food delivery company in Brazil. The startup also helps restaurants manage their orders by indicating the meals that must be served first, the days of highest demand, and the best-selling products. Gympass was 2019’s first unicorn. Some describe it as “the Netflix of gyms”, since it allows people to purchase sports classes according to their own demand. It connects clients with gyms, studios and other sports facilities by selling individual passes or packages. It is now present in over 15 countries across the globe.
According to Nima, the most important thing entrepreneurs should have in mind in order to thrive is a deep knowledge of the issue they’re trying to solve. They should know the people facing the problems, the context, the frequency and intensity of the trouble, and the implications of the difficulties their public is facing on their daily lives.
The problems that were solved by the above mentioned companies were ingrained in Brazilian culture but also applicable in different places, making them a huge success in other countries too. In Brazil, it is possible to solve these problems that are local because the frequency and intensity are higher due to the country’s context. And when companies succeed in creating solutions, they are essentially answering global problems. International investors are interested in that because those solutions can be applied virtually anywhere in the world.
Why Brazilians need investment
Investment creates room for innovation and widens the market. While Brazil has the brains, it doesn’t have enough tools. The talent pool in the country is incredibly high. Nima observed that Brazilians, most often than not, excel at their jobs when working in the U.S., Canada or Europe, for example. However, the execution level inside borders is actually really low because it’s not being properly incentivized, so people don’t feel inspired. But when proper investment and mentorship come in empowering people, a lot of companies get to scale much faster at a low cost for investors, taking businesses to a whole other level.
Nowadays, capital and geography are no longer the biggest entry barriers in Brazil. Bureaucracy, however, is an issue that entrepreneurs will always have to deal with, in all parts of the globe. The locals that deeply experience the problems related to administration issues have been trying to deal with them through traditional methods for a while now, and they’re suddenly equipped with all sorts of technology to solve them at scale. Bureaucracy no longer prevents a company from succeeding. In fact, it makes the moment even more exciting for all parties involved in the startup business, creating more market opportunities in Brazil.
Logistics is another issue, but every fintech that’s coming out of the country is challenging it head on. The options for the government is either to replace its administration practices with a new system or become irrelevant in some ways. Despite political and economic turmoil, entrepreneurs will keep coming up with parallel solutions. If legislators don’t cooperate with the startup ecosystem, these companies will find a way to make things happen either way. This is happening on a scale that has never seen before. Nima goes as far as saying that bureaucracy’s clock is running down.
EBANX, for instance, has launched a new tracking feature so people who buy products from Chinese merchants can trace their purchases from the place of departure to the place of arrival. The company developed the system because, although the Brazilian postal service already had a tracking service, this was lacking in terms of customer service and user experience when it came to that particular market — so they found a way to better improve the degree of satisfaction for those buying products from China, and a total of 89% of Brazilian consumers have bought products from Chinese ecommerces at least once. That’s how the power of technology can change people’s lives in significant ways.
That’s why Brazil is one of the leading startup ecosystems in the world when it comes to actual growth rate as well as the potential of the companies that come out of the country. And the growth levels are nothing short of impressive: in every single line of businesses, Founder Institute is seeing them grow by tenfold.
While impressive, the market seems far from peaking, which is what makes Brazil such fertile ground. Companies continue to create a lot of wealth and the effect is similar to the one observed in the early days of Silicon Valley. The emergence of a handful of unicorns is exciting news and comes to show that there’s still a lot of room for expansion. Over time it is going to accelerate, since the trend leans toward exponential growth — and Brazil is still in its linear phase.
Suprovici seems very confident while saying that the growth rate will continue to increase over time, and emphasizes that, as the ecosystem develops, innovation will come along; the market will be wider and there will be more and more opportunities for entrepreneurs. Furthermore, the moment calls for SaaS solutions, especially in microservices and micropayments. Both specialists agree that software is going to swallow everything. At the moment, it’s estimated that 92% of Brazilian businesses use at least one SaaS solution. They offer services focused on solutions and migrated the process of hiring services to the online environment, lowering costs and making clients happier. The tendency is that the potential for clients will increase. “As companies grow larger and larger they’re going to need tools to operate more successfully. And that itself also creates an opportunity to move forward for other new startups, such SaaS. We’ll see companies get more creative”.
And creativity is about taking risks. Let’s think about Uber for a second: back in 2009, Uber was a myth. At around 2011, it was a difficult reality. Then, it suddenly became this obvious reality, an acceptable social convention — Uber is now a business model. Nima says that a lot of myths are about to become a reality in Brazil. ‘That happens every time a new platform is born.’