Financial Times: Brazilian start-ups defy economic gloom with record fundraisings

Country accounted for most of Latin America’s $1bn in VC investments last year

Publicado originalmente em: Financial Times https://on.ft.com/2tWUqEi

Federico Vega recalls the one day he was tempted to give up on his Brazilian technology start-up, CargoX, a sort of Uber for trucks. While seeking seed money in São Paulo, a local investor angrily told the Argentine entrepreneur to forget the idea. Brazil’s truck industry, the investor said, was one of the most complex sectors in one of the world’s most complex countries, suffering from crime, bureaucracy and informality. It was no place for a newcomer, let alone a foreigner.

“That was the only day I almost quit,” says Mr Vega.

“I thought I would not raise any money.”  But things have changed. Even as Brazil’s economy struggles to emerge from recession, and political uncertainty grows ahead of elections in October, CargoX and other Brazilian start-ups are raising record amounts of funds.

Venture capital investments in Latin America exceeded $1bn for the first time last year, the lion’s share in Brazil and double the amount committed a year earlier, according to the Latin American Private Equity & Venture Capital Association, or Lavca. Foreign investors participated in 61 per cent of investment rounds, according to a report by CB Insights.

Brazil this year produced two so-called unicorns, privately held companies valued at more than $1bn, in the shape of Nubank, the country’s largest fintech business, and 99, a cab-hailing app acquired by Chinese counterpart Didi Chuxing.

“Institutional investors that traditionally wouldn’t look at venture capital, or for which technology wasn’t an area of focus, are all really interested in venture capital and tech deals now,” said Cate Ambrose, president and executive director of Lavca.

Known for its high costs and bureaucracy, Brazil’s economy is dominated by traditional companies in areas from banking to transport and healthcare, making it an attractive target for agile technology start-ups, investors say.

“The [venture capital] ecosystem is still nascent compared to the US and other international markets — therefore there is a large opportunity for start-ups,” said Hillel Moerman, head of Goldman Sachs Private Capital Investing Group, a CargoX investor.

CargoX, launched just two years ago, boasts a driver network comprised of 30 per cent of the country’s 1m owner-operator truckers. The company has raised $35m while a new fundraising round would raise “much more”, said Mr Vega.

“Brazil is a huge country, the sixth or seventh largest economy in the world, but it’s in the early stages of developing young technology companies,” said Cliff Sobel, senior partner of Valor Capital Group, another CargoX investor.

Nubank’s $150m Series E round in March this year, led by Russia’s DST Global, brought the total raised by the five-year-old online lender to $330m. Nubank now claims to be the biggest fintech by customers outside of Asia, with 4m credit-card holders and 1.5m current account holders. Accounts are opened online and there are no fees — a revolution for Brazil’s red-tape ridden banking sector.

“That explains why Nubank has been able to grow faster than any other digital bank in US and Europe, even though the macro-economy has been far worse,” Mr Velez said.

Fintech in general has been a popular investment in Brazil, with other businesses including Creditas, a secured loans start-up, and PagSeguro, a payments company that held an initial public offering in New York, raising money.

“We have seen a lot of interest in fintech companies like PagSeguro,” said Roderick Greenlees, global head of investment banking at Itaú BBA.

Demographics are also behind the growth of technology-driven start-ups in Brazil, according to Thomaz Srougi, founder of Dr Consulta, as Brazil’s large and ageing population fuels demand for healthcare. His chain of low-cost medical clinics has expanded in three years from one to 51 branches and claims already to have the country’s largest clinical data set drawn from 1m patients.

“Through technology, we have been able to make healthcare more accessible and cheaper,” said Mr Srougi. His consultations cost $25 compared with at least $90 at other private sector clinics in a country whose public health system is free but notoriously inefficient.

To be sure, Brazilian start-ups remain minnows compared with their established competitors. Brazil’s largest private sector bank, Itaú Unibanco, for instance, had more than 30m credit card holders as of March 31. Brazil’s traditional banks are also known for their sophisticated financial technology and are busily developing rival mobile banking services.

And while investors in fast-growing companies are not typically too focused on macroeconomic considerations, one investor said Brazil’s volatile currency was a deterrent for some.

Yet Tom Stafford, of Nubank investor DST Global, said he expected Brazil to grow as a technology hub over the next five or 10 years.

“Brazil has a large market, a pretty tech savvy population with attractive demographics and decent engineering and computing talent. You have all the right ingredients for an ecosystem to develop,” Mr Stafford said.

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