Brazil might be hoping to see its first unicorn (an unlisted start-up valued at $1 billion or more). The country, still mired in a recession, lags behind other large emerging economies. But the rise of accelerators there offers some promise.
In a report earlier this week a Brazilian newspaper reckoned app developer Movile might become the first Brazilian unicorn. Its app containing content for children reached six million downloads in March. The company was founded by Fabricio Bloisi (pictured above) in 2000 and started as a content distributor for cellphones.
Latin America has few big start-ups. Some of the biggest - Decolar and MercadoLivre are from Argentina (although the former is now based in São Paulo, Brazil). In contrast China has Xiaomi and India Flipkart (see this ranking). Brazil however, has been slow to catch on.
This is strange as São Paulo was last year ranked as the top start-up city among emerging economies by a start-up ranking site (see this earlier post). The country has the largest number of start-ups in the region according to a OECD study released this month (Brazil’s start-up association, ABStartups, puts the number at 4,200).
The country’s significant market size, with over 200 million people, should encourage more fast-growing start-ups. But firms are weighed down by red tape, a heavy tax burden, cumbersome labour regulations and inefficient infrastructure.
Cutting some of this could help (a government programme to cut bureaucracy has been slow to show progress - see this post).
More encouraging is the steady rise of business accelerators that take on promising start-ups.
There are now about 40 in Brazil (half of which are situated in and around São Paulo), according to a survey released in July by the Getulio Vargas Foundation. Over 800 firms have already passed through accelerators’ support programmes, which on average run for just over six months.
Accelerators have invested 51 million reals ($16m) in such firms, usually injecting between 45,000 and 225,000 reals ($14,000 to $71,000) in each firm.
A 2014 study revealed that 25% of Brazilian start-ups fail in the first year, but that accelerators and incubators improve a start-up’s ability to survive by over three times.
Along with incubators (a recent study showed that they are increasingly helping firms to create more jobs) accelerators can play a key role in building start-ups in Brazil.
The country's Start-Up Brasil, created by the country's Science ministry and run by Softex, Brazil's software association, is also encouraging.
The programme, launched in 2012, has already run four calls. It works with accelerators, which then help firms that are selected to grow. Participating firms must be at least four years old. Three quarters of spaces are reserved for local entrepreneurs.
The first call included 45 start-ups of which 38 were Brazilian. The firms were able to get 9.6 million reals in funding from the market, passing the 7.7 million reals in public funds invested in the firms.
From January to August 2014 the revenue of these start-ups increased by a combined 139%, with an increase of 63% in the number of collaborators with the respective enterprises.
As of December last year there were 183 start-ups in the programme, with a network of 18 accelerators and more than 50 public and private partnerships. In addition a number of events have been realised including demo day in San Francisco and several international missions including to London Technology Week in June last year.
New call delayed
In April the programme announced that a new call would open soon to select 100 technology firms. But Brazil’s politics – the impeachment of former president Dilma – has left the latest edition on hold for six months. With Brazil’s current economic crisis start-ups will be hoping the call opens soon.
Brazil is also drafting regulations for equity crowdfunding. Brazil's securities exchange commission earlier this month extended a request for input from the public until December 6. Provided that the rules are not too onerous they could provide investors with much needed certainly and boost lending to tech start-ups there.
Yet if they get the necessary support start-ups can play a key role in making Brazil a more competitive economy.
Timm is a South African who writes on small business. He lived in São Paulo during 2014 and 2015. Click here to sign up for the monthly Small Business Insight newsletter.
Stephen Timm is a