The challenge for Brazilian startups

Brasil Observer - Dec 06 2016

(Leia em Português)


The economic scenario is less favourable and there is uncertainty about the continuity of government support, but innovative and collaborative ventures are still promising in Brazil


By Wagner de Alcântara Aragão

The news of an agreement signed between the governments of Portugal and Brazil, which foresees partnerships and cooperation in the development of startups, makes this type of enterprise maintain a promising perspective of employment and income generation in this moment of intense crisis in Brazil. If in the first half of the current decade, taking advantage of the extraordinary economic and state development, the startup ecosystem experienced a boom, but now the challenge is to overcome the difficulties, not to be contaminated by the (justifiable) pessimism prevalent in the country.

In the evaluation of Start-Up Brazil – a federal government program launched in November 2012 – major global corporations, especially in the area of ​​information technology (such as Apple, Microsoft, Google, Facebook), keep their attention focused on startup initiatives throughout the planet. “[These initiatives] are capable of bringing with them a fresh mentality, with invigorating ideas and they are able to embrace the constant changes of the market”, says an official text from the program.

Start-Up Brazil is headed by the Ministry of Science, Technology and Innovation, and since the launch four years ago, makes public calls “to qualify and enable accelerators and for the selection of technology-based nascent companies.” Currently in the fourth class, Start-Up Brazil has been providing support since the beginning of the program to 183 national and international startups. It has a network of 18 accelerators in eight Brazilian states “and more than 50 public and private partners”.



According to the Ministry of Science, Technology and Innovation, there are 40 enterprises supported. They are initiatives in the areas of health, information technology and telecommunications, finance, agribusiness, logistics and transportation, entertainment, media and communication and education. “Start-Up Brazil creates the conditions to leverage big ideas. We will continue to make the program a priority, supporting it and improving it always,” said the Information Technology Policy secretary, Maximiliano Martinhão.

Also in the official text, the manager of the program, Vítor Andrade, highlights the importance of startups for economic recovery. “Startups, through innovative products and services with a highly skilled workforce, have great potential to contribute to the economic and social development of the country. Class 4 startups have evolved a lot over the 12 months of acceleration.”

According to the Ministry of Science, Technology and Innovation, Class 4 (biennium 2015-2016) of Start-Up Brazil received 639 proposals, 84% of which were national and 16% were international. “The public investment was of R$ 7.7 million. On the other hand, the accelerators invested R$ 1.5 million and another R$ 7.5 million was raised on the market.”



Officially, there is still no detailed statement by the Ministry, but the expectation is that Start-Up Brazil will be reformulated. In April, during the Dilma Rousseff administration, the Ministry of Science, Technology and Innovation made some changes – the new phase came to be called Start-Up Brazil 2.0.

At that time, the then secretary Manoel Fonseca announced investments of R$ 40 million, of which R$ 20 million for acceleration of 100 companies based on technology, another R$ 10 million in support of hardware startups and R$ 10 million incentive to the birth of innovative ideas. “We had a lot of discussion for the new model, which incorporates the figure of technical mentoring. We bring contributions from teachers and doctors to our startups. The idea is to make the integration between academia and companies”, emphasized the then secretary.

The current secretary Maximiliano Martinhão told IT Forum 365 in an interview at the opening of the IT Forum Expo (held on November 8 and 9 in São Paulo) that Start-Up Brazil will be “relaunched in the coming days.” The secretary did not give more details, neither on the planned changes, nor on when the re-launch would occur. “The most important thing is to generate economic development. Talk about specific regulation is collateral,” he said.



In the same IT Forum, researchers and entrepreneurs of startups have stated that some obstacles need to be overcome by Brazil so that this ecosystem can launch with more consistency. “Our investors do not accept taking risks in Brazil. Risk that is good they want to minimize as much as possible. On the one hand, you have the dream of an American investor who invests without fear. On the other hand, we have few entrepreneurs who can accelerate at the same speed as the Americans,” said professor and expert in collaborative economics, Marcelo Nakagawa, to the IT Forum 365 portal.

Despite some hindrances, optimism for the startup ecosystem prevails. “Companies are looking openly at creating new business models. Several large companies around the world are creating open innovation initiatives. Today there is no company that is in the competitive market that is not looking for models of innovations,” said Nakagawa.



The adversities and potentialities of the startup ecosystem in Brazil were also determined by a survey carried out last year by Start-Up Brazil. For the survey, 525 Brazilian entrepreneurs were consulted on their assessment of the possibility of establishing a “Brazilian Silicon Valley”, that is, a reference pole generator and developer of innovative and creative enterprises. For them, access to investments is difficult as well as receiving support from investors. “More than half of the companies heard, 53%, never received any input,” the survey notes.

The study also pointed out that Brazilian startups are not only seeking financial and business support. “For them, the ideal fund is the one that also takes risks (for 14% of the respondents), believes in the entrepreneur (8%) and participates in the company’s daily life, while respecting the independence of the entrepreneur (8%)”. The survey continues: “The vast majority of them, 90%, believe that such funds must have experienced professionals and know the business in which they are investing. At the same time, 85% believe that it is very important that these funds already have a track record of success.”

Of the companies consulted, 78% have annual sales of less than R$ 1 million. Most of the participants in the study are from the technology area (44%) “and have already formally presented their company to some investors (61%).” “The profile of the respondents consists basically of early-stage startups which already operate in the market and are looking for investments to leverage business growth. This means that the insights we get from research come from a well-educated public entering the ecosystem now and comparing investment possibilities,” the study found.


Association has daring goal for the segment

Make Brazil “one of the five largest powers in the world of innovation and technological entrepreneurship, so that Brazilian startups can represent 5% of the national GDP by 2035”. This is the goal of the Brazilian Association of Startups (ABStartups), an entity created in 2011 and whose growth in these five years illustrates how this type of enterprise expanded in the country in the first half of the decade.

ABStartups is a not-for-profit organization representing Brazilian startups. Currently they have about 4,000 startups in their database and more than 38,000 entrepreneurs from all Brazilian states, who participate in projects and events focused on increasing competitiveness globally.

For the association, three pillars are fundamental to enable the startup segment in Brazil to continue to grow: information (consistent database), promotion (through articulation of projects, creation of programs to access markets, events) and representation (defence of interests of the segment, discussion of public policies). “We have been able to change the startup market. What started with an idea has become a great association, with regional managers and more than 200 associates,” underlines the entity.


The UK is interested in Brazilian startups

The United Kingdom has been showing interest in supporting Brazilian startups. Last year, the British Embassy’s economic adviser in Brazil, Catherine Barber, stated that the country was willing to invest in the internationalization of up to 15 such projects through a program called UK Chapter, which would be integrated with the Brazilian Inovation Program, of the Ministry of Development, Industry and Foreign Trade. InovAtiva Brazil, according to official information, has already qualified at least 20 Brazilian startups in Silicon Valley.

At the time of the announcement of the councillor – made during the 15th Anpei Conference on Technological Innovation in Cabo de Santo Agostinho – the expected budget for support was 150,000 pounds, as reported by Agência Brasil at the time. Catherine Barber stressed the “creativity of Brazilian companies and entrepreneurs”. “The idea is to serve as a platform for these startups to become global companies. We believe there is also potential to be present in the Latin American and Mercosur markets,” she said at the event.