Brazil's Tech Industry Maturity

Delivered February 19th, 2020. Contributors: Mayank B., Olatunji O., Petu and

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Brazil VC Investment: YOY Growth

After an extensive search through industry-related websites, PE & VC databases, third party research reports, and industry statistic portals, details about the YoY growth for VC investment in the Brazilian tech industry do not appear to be available in the public domain. However, the research team was able to garner valuable insights around the PE and VC investments in the Brazilian technology sector, overall VC investment growth in Brazil, and some notable VC deals in the Brazilian technology sector. These useful findings have been detailed below.
Helpful FindingsAs per data from LAVCA, the Association for Private Capital Investment in Latin America, the total VC investment into the Brazilian startups reached $1.3 billion in 2018, as compared to $859 million invested in 2017, and $279 million raised in 2016. 
The above represented a 52% spurt in 2018 from the 2017 VC investment levels and a 369% increase from the 2016 VC investments in Brazil.
The 2018 VC investments in Brazil represented nearly 66% of the entire VC funds raised in Latin America as a whole in 2018 and made up 9 of the 14 top deals in all of Latin America. 
The total amount of PE & VC funds (combined) received by the Brazilian technology industry aggregated to R$1,591.3 million in 2014, R$556.1 million in 2015, R$680.7 million in 2016, R$647.3 million in 2017, and R$1,103.6 million in 2018. However, no bifurcation between the PE and VC funds was available for the sector.
The total PE & VC funds received by the Brazilian technology industry represented 12%, 3%, 6%, 4%, and 8% of the total PE & VC investments made in Brazil in 2014, 2015, 2016, 2017, and 2018 respectively. 
The total number of PE & VC companies that participated in the Brazilian technology industry funding was 13, 41, 30, 49, and 49 in 2014, 2015, 2016, 2017, and 2018 respectively. 
The average ticket size of the PE & VC funding received by the Brazilian technology sector stood at R$122.4 million, R$13.6 million, R$22.7 million, R$13.2 million, and R$22.5 million in 2014, 2015, 2016, 2017, and 2018 respectively. 
Some notable high-value VC deals in the Brazilian tech industry included $400 million VC investment by Naspers and Innova Capital in Brazilian food order app, iFood, in November 2018, $300 million VC investment by VisionFund in Brazilian online platform for gym membership, Gympass, in June 2018, and $200 million VC investment by Softbank in Brazilian credit fintech, Creditas, in July 2018.
Research StrategyThe research team began with searching for the required information in third party industry reports from KPMG, Deloitte, Bloomberg, Reuters, and Mckinsey among others. However, all the information found catered around the overall VC investments made in Brazil and Latin America and did not provide any information specific to the technology sector. The team then scoured through the various PE & VC databases such as Crunchbase as well as LATAM specific databases and associations such as LAVCA, Brazilian Private Equity and Venture Capital Association (ABVCAP), Apex Brazil, and In Brazil among others. The team came across a report from ABVCAP that provided the combined levels of PE and VC funding in the Brazilian technology sector over the years but did not bifurcate the two amounts, and hence, the exact level of VC funding for the sector could not be determined from the same.

The research team also tried to triangulate the information by using the overall VC investment made in Brazil over the years and the percentage of the VC investment that was made in the technology sector. This would have allowed the team to arrive at the dollar amount of investments in the Brazilian tech industry and thereby compute the YoY growth. While the team was able to locate the VC investments made in Brazil over the past 3-5 years, the percentage number available was again for the PE and VC funds combined. There was no data available to bifurcate the two. We could also not assume the same to be equally split between PE and VC because Brazil overall received way more PE funding as compared to VC funding, as per the ABVCAP report. Hence, the information could not be triangulated. 

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Brazilian Tech Startups Exits

The research team has roughly triangulated that only 1.66% of tech startups in Brazil have either gone public or have been acquired in the last two years. Additional findings of exits in the Brazilian tech startup scene as well as the research team's calculations have been detailed below.
Brazilian Tech Startups ExitsAbout 1.66% of Brazilian tech startups have been acquired or gone public in the last two years.
In 2018, there were only 18 mergers and acquisitions (M&A) deals in the Brazilian tech startup ecosystem. However, that number jumped to 60 M&A deals during 2019. 
XP Investimentos raised an IPO on the U.S. Stock Exchange in 2019 and raised approximately $1.81 billion.
Stone Pagamentos, a Brazilian fintech company, went public on the NASDAQ in 2018 and raised about $1.1 billion for an initial market cap of approximately $8.7 billion.
At the tail-end of 2019, Brazilian fintech company, acquired another fintech company, JoyPay. The financial details of the transaction were undisclosed. 
Research StrategyWhile data on the percentage of Brazilian tech startups have gone public or have been acquired in the last two years was not available in the public domain, the research team was able to leverage multiple data points and information on the Brazilian tech startup scene to triangulate an estimate. We triangulated the figure using the number of mergers and acquisitions in 2018 and 2019, the number of tech startups in the country, as well as use the number of companies that have gone public (which we deduced by counting the number of companies that were mentioned in press releases and news reports). Our calculations have been detailed below. 
CalculationsTech mergers and acquisitions (M&A) in Brazil
Number of tech mergers and acquisitions (M&A) in 2018: 18 
Number of tech M&A in 2019: 60 
Total tech M&A in 2018 and 2019: 78
Tech IPOS in Brazil
According to various reports (here, here, here, and here) the tech companies that have gone public, that is raised an initial public offer (IPO), are Pagseguro, Stone Pagamentos, Arco Educação, Afya, and XP Investimentos; making a total of five IPOs in the last two years. 
Number of Tech Startups in Brazil
According to Tracxn, there are "over 5K tech startups" in Brazil. The research team took a conservative guess of 5,001 as the number of tech startups in the country. 
Therefore, based on the data above, the percentage of Brazilian tech startups have gone public or have been acquired in the last 2 years is: 

Number of companies that have gone public or been acquired: 78 + 5 = 83
Total number of tech startups in Brazil: 5,001 
Percentage: (83/5,001) * 100 = 1.66%

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Tech Industry Overview: Brazil

The infrastructure for growing, developing, and sustaining tech companies in Brazil include government measures such as tax incentives and subsidized credit for tech innovation, as well as a network of public and private providers of technology extension services for SMEs or small and medium-sized enterprises. These and other infrastructures are detailed below.

Government IncentivesBrazil has put in place certain government initiatives such as the Brazilian Association of Private Equity & Venture Capital (ABVCAP) that is geared towards helping grow, develop, and sustain tech companies in Brazil’s technology ecosystem.
The country has also established measures such as tax incentives and subsidized credit for tech innovations along with research and development focused on tech companies.
The Brazilian government has also put in place an elaborate expansion plan of the Internet of Things (IoT) throughout the country via partnerships and higher education programs.
Brazil also has an innovation law that establishes the rules of engagement for researchers from public institutions in research projects with tech companies, as well as for the commercialization of intellectual property derived from such partnerships.
They also have provisions within their law that allows for the possibility of public funds being given to tech companies in the form of a grant for carrying out research and development.
The Brazilian government has also put in place relevant attempts to increase funding to foster innovation with the funds being defrayed by taxes or contributions levied on certain sectors to support innovation projects.
 Incubators / AcceleratorsBrazil has an established variety of institutes that provide technological and laboratory support for prototyping and pilot plants, as well as consultancy work to enable technology transfer to Brazilian companies.
Brazil also has a crucial network of public and private providers of technology extension services for SMEs.
Facebook also launched its first-ever innovation center called Estação Hack (Hack Station) in São Paulo, Brazil.
 Estação Hack helps foster entrepreneurship in the local ecosystem by providing free programming and entrepreneurship-related training to young students, professionals, and small- and medium-sized businesses.
A six-month program for selected startups in Brazil is also offered by Facebook to receive mentorship and to have access to the Facebook infrastructure.
Brazil also has a traveling program known as Startup Farm that reaches different areas of Brazil while inspiring new thinkers and ideas with an acceleration concept that is tailored to fit Brazil's entrance on the tech entrepreneurial scene.
They also have programs whereby entrepreneurs work their startup project through an intense development process with a team of experienced mentors in the digital scene to help them to structure, model and test their startups.
Education, Training, and Workforce InitiativesBrazil has an innovation system that is well-developed and a favorable scientific infrastructure that has several universities that are well-placed in the world rankings. It also focuses on the implementation of the growing role in knowledge production in tech companies.
The country also has in place regulatory measures that ease university-enterprise relationships.
Brazil also has new institutional actors that have recently emerged as important players in the Brazilian debate on innovation and technology and that has even resulted in the creation of an Entrepreneurial Mobilization for Innovation (MEI).
The main aim of the MEI has been to make innovation a center of corporate strategies and increase the effectiveness of innovation policies in Brazil. This kind of initiative recognizes that innovation is essential for competitiveness and for the country’s growth and development.
Foreign InvestmentBrazil provides tax benefits to foreign investment, such as tax exemption and facilities for obtaining investor visas in the technology sector.
They also offer incentives of 30% for technology research visas.
Recently, Chinese technology giants have also invested heavily in Brazil-based startups. For example, China’s ride-hailing giant Didi Chuxing acquired Brazil’s 99 Taxis in 2018 for approximately US$1 billion to expand the company into Mexico.
China’s mobile giant Tencent invested US$180 million in Nubank, a Brazilian fintech startup with five million customers, in October 2018. There’s also Chinnovation, a service that helps match Chinese investors with Brazilian companies that are ripe for investment.

Research Strategy:In the attempt to identify how the infrastructure for growing, developing, and sustaining tech companies in Brazil looks like, we searched for news articles, press releases, and media publications on related topics. After going through numerous news articles published in leading media outlets including but not limited to Forbes, Establish Brazil, Financial Times, Latam Tech, Business Insider, Fortune among others, we were able to identify the infrastructure to include government measures such as tax incentives and subsidized credit for tech innovation, as well as a network of public and private providers of technology extension services for SMEs.