Can Brazil become THE startup hub for Latin America?

Fundacity is preparing to launch a new service that will enable Brazilian investors to co-invest small sums of money in local startups, together with experienced angel investors. This way more people will get access to exciting startup investment opportunities than it’s currently possible and their investment will help provide liquidity to the best Brazilian startups to accelerate their growth.

When preparing this offering we were asking ourselves obvious questions. Is Brazil the right country to do it? Is now the right time? Are there enough of good startups to invest in?

To answer some of these questions, we sat down with André Barrence and Igor Mascarenhas.  André is a president of SEED, a special program created by the government of the Brazilian state of Minas Gerais to transform it into “the most important birthplace and acceleration hub for tech entrepreneurs in Latin America”. Igor is an angel investor and also coordinates activities of startup accelerators that take part in Startup Brasil program.

Fundacity: Andre, Igor, thank you very much for meeting with us. The initiatives like SEED and Startup Brasil are ambitious, but whether you can deliver results will depend a lot on the political will and financial support. How does government support the growth of the startup ecosystem in Brazil?

Andre Barrence: Thanks for having me here. Yes, you are right. Entrepreneurship has always been on the agenda of politicians and there have been many institutions created to support it. What changed recently is that the government is becoming much more involved and supports creation of various new programs that help entrepreneurs in different stages of growth. That means startups can now benefit from acceleration at early stage, like through SEED, and you also have a great program like Startup Brazil, which is for more mature startups and provides them with more opportunities to receive follow-on funding. However, this is just the beginning in terms of creating necessary conditions to grow the whole startup ecosystem. Government support for startups is essential, but what we really need is the involvement of private investors. Private capital in Brazil is currently not very interested in startups. There are few reasons for that. Many potential investors are simply not familiar with the opportunities around, neither with the legal framework related to investing in startups. It’s also a question of changing their mindset. Private investors are well aware of risks, but don’t often realize about the huge potential of such investments. We need to help them develop both this mindset and understanding.

Another side of growing the ecosystem, where government needs to be involved more, is the development of education focused on entrepreneurship. Now everything happens separately. Students learn from other students, startups from startups and investors talk mainly to other investors.

The biggest missing connection is however the one between startups and investors. SEED is very much involved in creating such links, but the government should do more too, taking example from the best practices from abroad. I particularly like how they do it in the US, Israel and New Zealand. In South America, Chile is currently ahead of us, but it won’t be long until they have to settle for the second place, behind Minas Gerais, haha.

Igor Mascarenhas: I agree with Andre. There are many new programs supporting startups on national and regional level and this is great. By the way, among interesting local programs it is worth also mentioning Startup Rio. These programs not only provide financial support to startups, but also help with people development. The prime focus now is on seed stage to grow the ecosystem from the roots up.

So you really believe that Brazil can become a startup hub for South America?

IM: Brazil is a giant market and already a hub for many sectors in South America. The country is changing very fast and attracts more and more foreign investment. I don’t see why we wouldn’t become a tech hub, even in the next two years. There is certainly a potential for that.

AB: It’s not really the question if we can, we simply must and we will. We have all the potential that is necessary: big market, fast developing economy, talented and creative people and, finally, the government support and money.

What we miss is the culture of entrepreneurship and innovation and this is what we must focus our efforts on now. We need to change the culture to succeed.

How do you see the growth of the startup ecosystem in Brazil in the next 5 years?

IM: We are now working hard to build foundations for faster growth of the startup ecosystem. First of all we need to make a change in how entrepreneurship is perceived. We want it to be a viable career option for young people. Five years ago being entrepreneur was something crazy. Today you can see young people who understand what entrepreneurship is about. They are often children of entrepreneurs, so they have more support from their parents, they know more about programs available and what’s right for them. I wouldn’t say it’s widespread yet, but definitely a clear trend. All that means that the future potential entrepreneurs will be more prepared to start their companies

Another big change needs to be made around providing financing to startups. We already have angel investors, seed money and other funds but in reality the level of liquidity offered to startups is still relatively small. We must work to create initiatives introducing and supporting private financing. Finally, we must create an environment where investors will be able to have an exit and thus create the cycle of investment.

AB: The effects of everything we do now will bear fruit in the coming years. We have invested a lot in development of startups and many of them will grow substantially. With that, we will also have a new generation of experienced entrepreneurs, who will have relevant experience to help other startups and who can become role models to cultivate the culture of entrepreneurship.

I think one of the most important things that will happen as a result of having a bigger number of more mature startups in the ecosystem, will be the development of a second stage financing for startups. The startups will have much better funding opportunities because, amongst other things, the perception of entrepreneurship will change. There will be more people involved in startups, so more private investment will be available.

Can Brazilian technology startups help solve some of the problems Brazilian economy is facing today, like in healthcare and education?”

AB: Yes, I think there are many public problems that can be solved by entrepreneurs. Some of the most pressing and complex ones are in education, health and agriculture. In education for example, in addition to giving students computers, we should focus on ways to improve quality of teaching. There is also a lot of innovation that can improve our health services.

Startups of course won’t solve the problems by themselves only, but as they are focused on looking for technological solutions to problems, they can help others innovate.

IM: There are many great examples of startups that are already doing this. For example: EvoBooks is developing a new study model.‏

Appprova‏ has a mobile application platform that enables high school students to practice for their university admission tests. In Brazil private schools have better preparation system than public and this application creates a chance for public school students to prepare better. In health, ‎ProRadis‏ helps in make health sector more dynamic, improving work efficiency. Memed thinks that many problems in Brazilian healthcare are related to badly written prescriptions. You know, bad handwriting that is difficult to understand. So this app connects patients, doctors and pharmacists to create digital prescriptions.

Today we already have various startup related initiatives focusing on solving public problems. For example, in March we organised Rio Favela Startup Weekend.

Is it possible that a Brazilian startup of today becomes a future global company? What is the biggest Brazilian startup success story to date?

AB: Of course they can, they have all the potential. There are success stories already. Not many people know about it, but for example Akwan, a search engine developed in Belo Horizonte, was sold to Google in 2005. There is also Easy Taxi, a mobile app that started only two years ago in Rio and now, backed by Rocket Internet – the biggest e-commerce incubator in the world, is available in almost 30 countries worldwide. They have already raised $32m in funding.

Another Brazilian success story is Samba Tech, now the biggest provider of online video solutions in Latin America.

All of them have succeeded because they had a mix of an interesting business model, committed entrepreneurs and forward-looking investors. There are many more Brazilian startups with these key ingredients in the making.