Brazil Startup Scene

Brazil is certainly the most attractive market in Latin America. It is the 5th most populous country with over 200 millions inhabitants, and the impressive economic growth of the last decade has brought it up to the 7th rank of the world largest economies, tickling France and the UK. Beside, Brazil is not as poor as it used to be. Lula da Silva’s redistribution policies have generated the rise of a giant middle class with higher purchase power and demanding for better services, now reaching about 100 millions individuals.

Beyond these exciting numbers, further insights show tremendous opportunities for tech companies. Approximately half of the population goes on the web, and the internet penetration is still increasing. The Social Media audience is one of the largest and most active in the world, with 78.3 millions people spending 48% more time on Facebook than the average user. The Smartphone penetration is booming from 23% in 2013 to an expected-42% in 2017.

Brazil startup scene is rising. It is a pool of entrepreneurs with over 300,000 companies created each year. It welcomes foreign investors, who will be allowed a permanent residence visa for “only” USD 60,000 in initial investment. Success stories in startup acquisition are among the most seducing ones of Latin America, like Buscapé which sold 91% of its share for $342 millions in 2009 (as a matter of comparison, the highest price reached in a startup acquisition in Chile is by far $40 millions). And it now has its own government supported accelerator: Start-Up Brasil, though smaller and less famous than its chilean counterpart.

Brazil startup scene is rising, yes, but slowly. As Antônio Luiz Seabra, founder at the cosmetic producer Natura, once said, “There is no need to innovate in Brazil”. The current trend is indeed to make acquisitions of copycats left, right and center. As many countries in Latin America, risk takers and visionnaires are very few. Businessmen prefer to bet safely on a valid clone of an american company. The obstacles for a company that dare to innovate too much will be numerous, from client skepticism to potential competitors that don’t hesitate to suit to shut it down. No borderline company like Uber or AirBnB then, unless it merely confirms a global trend but in that case it will merely be a Brazilian copycat.

What is more, Brazil is well known for its strongly bureaucratic system. It takes 84 days on average to create a company (Brazil ranks 10th worst in the world), and yet there could be many reason along the administrative process for officials to refuse creating the company, the first one being not complying with the important paperwork load. Tax are numerous, especially in case of international trade, and the tax law is quite instable.

Brazil is one of the most difficult market to break into, regardless of its size. Even when a startup has made it through the administrative struggle, it still has to find good local representative, and skilled professionals are a rare ressource, especially entrepreneurs and developers. But any startup, once it gets nationwide, almost automatically becomes a big number company.

CONS

• High administrative burdens (84 days on average to create a company)
• Tax laws are complex and unstable. Expect multiple taxes, especially in case of international trade
• Tendency to suit emerging competitors
• Young startup ecosystem struggling within an innovation-averse business culture. Only copycats break even financially.
• Lack of viable and sustainable projects, which has led American investors such as Sequoia to leave Brazil
• Growth at half-mast (1% in 2013)

TOP STARTUPS IN BRAZIL

HOTEL URBANO

Funded in 2011, it is fastest growing Online Travel Agency in Brazil. In 2013, 2.8 millions rooms were booked through the platform.

AENTROPICO

Innovative big data application developer. It is one the only data startup to expand throughout Latin America after receiving the support of the most prestigious startup program on the continent: Start-Up Brasil, but also Start-Up Chile, INNpulsa (Colombia), and NXTP Labs (Argentina).

TOP PEOPLE TO KNOW IN BRAZIL

Alexandrine Brami

CEO, co-founder

Digital Factory Brazil

Co-founder of the Digital Factory Brazil, a company that escorts foreign companies in Brazil, and blogger at My Little Brazil.

Linkedin

Douglas Almeida

Founder, president

Stayfilm

Founder of Stayfilm, a platform that produces video-stories from Social Network content, winner of the Futurecom Startup Competition.

Linkedin

BRAZIL

LINKS & RESOURCES

• The best of Brazilian startups at Futurecom competition
• How to boost an emerging digital economy? Aim at SMEs!
• Submarine cables: the long-term bet of Google in the emerging markets
• The Free Wifi revolution, an opportunity for telcos to stay in the game
• BRICS series #1: how Brazil’s Hotel Urbano dominates the online hospitality industry