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Supporting innovation is a key factor in the development strategies of countries if they want to stay competitive in today’s economy. Although Brazil lags behind in comparison to Europe and the US, the country has become significantly more entrepreneurial over the last decade. This is in part explained by the increase in demand for modern and innovative products, stimulated by a growing middle class, as well as advances in digital technology, which importantly decrease costs of starting new businesses. As a result, new startups are being created everyday and Sao Paulo is emerging as a successful startup ecosystem, despite the current economic downturn.

The aim of this report is to have a better understanding of how startups are being supported in Brazil, from an investment perspective - the ability of raising funds being crucial when building high growth scalable businesses. To do this, we have surveyed more than 100 brazilian investors (VCs, angel investors and accelerators). Here are our main findings:

* We received information from 77 investment groups, representing 65% of 118 contacted firms. From the answers received, 66 were valid. 14 came from investment groups that were not active between January and June 2015. Only 45 investors contacted invested in at least one startup during the first semester of 2015. Please note that 6 VCs invested in 22 startups but have a non disclosure policy regarding the amounts invested therefore we could only include the number of startups supported but not the investment amounts.

** We decided to exclude incubators from this report because there are over 300 incubators in Brazil and not all are focused on startups. We aim to collect comprehensive data on this segment and add this data soon.

Total investment in Brazil - 1st semester of 2015

R$170.843.000

R$170.843.000

In 183 startups by 45 investors groups

  • Investment Report Brazil 2015

    27

    ACCELERATORS

    17 active investors 105 investments R$11.858.000*
  • Investment Report Brazil 2015

    24

    VCs

    18 active investors 62 investments R$157.150.000*
  • Investment Report Brazil 2015

    15

    ANGEL GROUPS

    10 active investors 16 investments R$1.835.000

BRAZIL INVESTMENT LANDSCAPE

Start-ups need appropriate forms of finance for each stage of their development:

In the early stages of a business, seed capital is vital. Usually, it is brought to startups by accelerators and public entities. Direct investment from accelerators (in most cases in return for equity - between 5% and 10%) aims to support entrepreneurs during the duration of the program, so they can entirely focus on bringing their businesses to the next stage and prepare them to receive next rounds of investments, from angel investors and VCs. During the first semester of 2015, brazilian accelerators have supported 113 startups, versus 62 by VC and 16 by Angel Groups. However accelerators only accounted for 6.94% of the total amount invested during this period.

In the expansion phase, angel investors and venture capital funds act as bridges before successful firms can enter the capital markets. In Brazil, angel and venture capital investments have been growing these past few years, partly due to the increasing “quality” of startups delivered by brazilian accelerators, which are among the best in Latin America. However, it is likely that investments at this stage will slow down in the near future, because of the Brazilian recession, which is causing higher uncertainty in the market. Indeed, the recent rise of interest rates has increased the cost of capital, reducing risk appetite for private investors.

HOW ARE THOSE INVESTORS FUNDED?

There are two important elements to be taken into consideration: the funding structure of the investor group itself and the funds invested into startups. The following graph illustrates how those investor groups are funded:

The great majority of those groups are funded with private capital and aim to generate revenue from follow-on investments and startup exits. These investors usually raise their funds from other angel investors, family offices and in some cases corporates.

Generally speaking, public investors and partially government funded funds have another objective, which is to spur the economy, by creating jobs and increasing production efficiency, or social impact. Startup Brazil accelerators are perfect examples of such government funds, as they are affecting the supply of seed capital and the development of angel investment networks and venture capital industry by reinforcing the startup ecosystem.

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* Anjos do Brasil data is missing because presently no consolidated investment data exists for members of this angel network which is the largest of Brazil.

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** The investment amounts above do not include co-investment from Startup Brasil.

  • *

    Startup Brasil
  • R$7.713.000

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The Startup Brazil, National Program for Startups acceleration, is a federal government initiative, created by the Ministry of Science, Technology and Innovation (MCTI) with management of Softex, in partnership with accelerators to support technology-based startups.

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HOT MARKETS

% of accelerators that said that they intend to invest
in this market in the next 12 months

EDUCATION

85%

HEALTH

77%

INTERNET OF THINGS

76%

BIG DATA ANALYTICS

70%

APP MOBILE

67%

CLOUD SERVICES

47%

MOBILE PAYMENTS / WALLETS

45%

BIOTECH

44%

AGRICULTURE

41%

CLEANTECH

39%

WEARABLE

39%

CONCLUSION

Despite Brazil facing serious economic and political difficulties startup investment activity has not come to a halt. In fact investment activity by accelerators has remained steady compared to last year’s data from Fundacity Latam Accelerator Report.

It is interesting to note that only 17.9% of funds that submitted data received public funding. This contrasts sharply with data in the Fundacity European Accelerators which notes that 55.41% of accelerators partly or fully publicly funded in Europe. It is clear that Brazil needs continued public sector support to maintain or increase its investment activity into startups. Without this, Brazil’s startup market may experience its very own recession in the coming semester.

*The survey above was compiled using information reported by the incubators/accelerators
and was not verified or audited by Fundacity or any other third party.

Fundacity

Fundacity is helping connect startups and investors. Startups can apply for acceleration programs and startup competitions from around the world. Investors can evaluate startups and monitor the growth of their investments with an easy to use dashboard.

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