AN INTRO TO BRAZIL’S DAZZLING VENTURE CAPITAL LANDSCAPE AND UNLIMITED POTENTIAL

By: Sisi Peng, Jose Rodriguez  |  Feb 5, 2020

After meeting with some of the most important players in Brazil’s tech ecosystem, from active venture capital investors to successful tech companies across e-commerce, fintech, and new mobility, our team put together a summary recapping an excellent 2019 for Brazil’s tech ecosystem and venture capital landscape and highlighting the key players that propelled the country’s meteoric rise

2020 started as a great year for Latin America’s venture capital and tech industry – the world’s first tech unicorn of 2020 was born right here in the region in Brazil. On January 3, Brazil’s prop-tech platform Loft announced it’s $175 million Series C led by Vulcan Capital and Andreessen Horowitz, making it the 11th unicorn in Brazil. Loft is also the fastest unicorn to reach the coveted title in Latin America’s history, going from founding to a $1 billion valuation in merely 16 months. 

As the largest country in Latin America, Brazil has great potential for economic development and the most talked about venture capital market in the region. The impressive performance of the Brazilian venture capital ecosystem in recent years has demonstrated the attractiveness and optimism for technology investment in the country.

According to the Latin American Association of Private Equity and Venture Capital (LAVCA), Brazil’s total absorption of venture capital soared to $ 1.3 billion in 2018, accounting for nearly two-thirds of all funds raised in Latin America in the year. This represents an increase of 52% from 2017’s $859 million investment amount and $369% from that of 2016. In parallel, the volume of transactions increased from 113 in 2017 to 259 in 2018. 9 of the 14 biggest investments in Latin America in 2018 were done in Brazil.

According to CrunchBase, the Brazilian market attracted a total of $ 2.34 billion in venture capital in 2019. During the same year, five new unicorns were created in Brazil, the highest number of new unicorns only after the United States and China.

5 Brazilian unicorns in 2019

Overview of Brazil’s local VC landscape

The following VC funds make up Brazil’s most active venture capital investors, mostly focused on seed and early-stage investments across Brazil, with some already dipping their toes across other markets in Spanish-speaking Latin America and the US：

Monashees: a global venture capital firm based in São Paulo that focuses on early-stage investments. Monashees’ portfolio includes several notable projects in Latin America, such as Rappi, 99 and Grin Scooters.

Kaszek Ventures: focuses on companies rooted in the Latin American market, from seed to Series B rounds in companies that have developed differentiating technologies. In addition to funding, Kaszek also provides network access, product development expertise, and team building workshops to help startups grow their business. Their portfolio includes QuintoAndar and Loggi.

Redpoint eVentures: an early-stage venture capital firm based in São Paulo. The company is the result of a joint effort between Redpoint Ventures and e.ventures of Silicon Valley to raise a LatAm-focused fund. Redpoint eVentures is mostly invested in Brazilian tech companies but is also looking at early investment across Spanish-speaking LatAm. The portfolio includes Rappi and Gympass.

Valor Capital Group: focuses on cross-border opportunities between the US and Brazil, with offices in São Paulo, New York, Menlo Park and Rio de Janeiro. They focus on international technology companies interested in the Brazilian market, as well as local start-up technology companies in Brazil. Valor Capital likes to invest early, in companies that are disrupting or innovating across traditional industries or processes, that have been obsolete for a while and where there is a basic infrastructure or behavior in place. For that reason, they’ve invested in companies like Arquivei, a company that digitizes, stores and optimizes fiscal notes – a tedious process that every enterprise needs to do. Other companies in their portfolio include companies such as Loft, Olist and CargoX.

 “We like to invest early in companies that are disrupting traditional industries, ” said Phillip Trauer, Investment Principal at Valor. “Unlike other Brazilian venture capital firms, we also provide strategic advisory services to international companies seeking to enter the Brazilian market, including local market research and strategic M&A.”

Canary: Canary is a seed to Series A fund that invests in technology companies that are at a critical growth stage. Above all, they value the vision of the entrepreneur and the strength of the entrepreneurial team. Due to Canary founders’ background in entrepreneurship, they are well-equipped to help founders with strategy and product. Canary’s portfolio includes Volanty and Loft.

Marcos Toledo, a partner at Canary, said: “Canary is investing throughout Latin America, and the majority of these investments are currently in Brazil. We have no particular preference for a specific industry, but we like to be a startup’s first institutional investment, and we use our network of technology experts to find new founders and projects. We prefer entrepreneurs who have previously failed, and people who are experienced in consulting/finance and want to try something new.”

ONEVC: seed-stage venture capital firm based in Silicon Valley and Brazil. ONEVC invests in early rounds of transformational companies that have the potential to become market leaders. While ONEVC is industry agnostic, they like looking at projects that are fundamental to enable other digital services, for instance fintech. ONEVC’s portfolio includes companies such as Kovi, Loggi and Rappi.

Other active VCs in Brazil：

• DFG Investimentos

• Crescera Investimentos

• SP Ventures

• Instituto Inovação

• Ideasnet

• Confrapar

• Astella Investimentos

• Warehouse Investimentos

• W7 Venture Capital

• Barn Investments

• Domo Investments

It is worth mentioning that, in Brazil, most local venture capital funds are early-stage focused, and ticket size tends to be small. There is frequent collaboration between the funds, often co-invest in startups. In addition to participating in joint investments, Brazilian VCs often leverage each other’s networks and market expertise to grow the overall ecosystem. 

The flourish of Brazil’s local funds has largely benefited from the support of the current government. Local players generally believe that the current government is actively supporting business development. Incentives for venture investors include tax-free capital gains, reduced capital gain tax and related laws for angel, strategic, and institutional investors.

The Brazilian Development Bank (BNDES), a development bank structured as a federal public company associated with the Ministry of Development, Industry, and Trade of Brazil, is also actively involved in venture capital. For instance, BNDES poured $50 million into Crescera Investimentos’ Criatec fund, managed by professional venture capitalists, investing in early start-up projects throughout Brazil. Given BNDES mandate to propel national economic development, the fund was required to invest not only in major cities (São Paulo, Rio de Janeiro), but also in second-and third-tier cities like Belo Horizonte and Minas Gerais. 

Increased interest from international investors in Brazil

Loft’s $175 million round is a good example of the growing interest of global investors in Brazil. Loft was Vulcan Capital’s (founded by Microsoft co-founder Paul Allen) first investment in Latin America, and also Andreesen Horowitz’ first investment in Brazil. A16Z invested in Loft’s Series B and has continued to increase its participation in the prop-tech startup, remaining very optimistic about its business model and the opportunity behind digitizing the housing market. 

In Brazil, the depth of participation from international institutions like Riverwood Capital has been steadily increasing. Its portfolio has four Brazilian start-ups, including 99 Taxi, the taxi-hailing firm that Didi Chuxing acquired for $1 billion in 2018. Last year, Riverwood also led the $20 million Series B round of funding for Omie, a fintech firm in São Paulo.

San Francisco-based Lumia Capital has invested in six Brazilian startups in recent years and plans to continue investing in the region. Notable companies include CargoX, Instacarro, Meliuz, Trocafone, Pitzi and Quiero Education. Lumia Capital focused on identifying huge market pain points and finding companies that are addressing them with innovative business models and great technology.

In Brazil, emerging technologies are transforming dozens of industries and setting off a new cycle of economic growth. Digital transformation of traditional industries, coupled with a large and high-growth market, has attracted the interest of international investors. Nubank is a quintessential example of this phenomenon. Last year, TCV, a Silicon Valley venture capital firm, led a $400m round of financing for Nubank, and other international investors such as Tencent, DST Global, Sequoia Capital, Dragoneer, Ribbit Capital, and Thrive Capital also took part in the round.

When it comes to Brazil’s international investor scene, SoftBank is another important player to mention. Since announcing its $5 billion VC fund in Latin America in March of last year, SoftBank has led hundreds of millions of dollars worth of investments in Latin America and directly contributed to the creation of several Brazilian unicorns. 

Last June, SoftBank led a $150 million investment in Loggi, Brazil’s last-mile logistics platform. In September, SoftBank committed $110 million in MadeiraMadeira, the largest online store for home products in Brazil that offers over 300,000 products so you can build, furnish, renovate, and decorate your home using only your smartphone or computer. Another notable investment is Softbank’s $300 million commitment in Gympass, a fitness discovery platform connecting the world’s network of fitness facilities to companies and its employees.

International investors are effectively reducing the scarcity of local growth capital in Latin America, accelerating the growth momentum, and also taking the opportunities to harvest quality projects in their later stages. Although international investors’ appetite have driven up startup valuations in Brazil, local VCs don’t see it as an issue since they participate in different stages of the lifetime of a startup.  

Overall, 2019 was a historic turning point for the Brazilian venture capital market. The growth of Brazil’s local funds, the influx of external venture capital, Brazilian government’s policies incentive for entrepreneurship and venture capital, as well as the growing maturity of the corporate ecosystem, all raise expectations about the prospects of the Brazilian venture capital market in the year to come.

Brazil will undoubtedly continue to lead the Latin American market in 2020, and this is the best time to join the revolution.