As South America’s largest country, Brazil has the potential to be an economic powerhouse. But over time, political turmoil, largely as a result of corruption, has marred the economic landscape.
Still, despite the political upheaval in recent years, the country’s startup scene has seen some serious acceleration, reflecting a general trend we’re seeing in Latin America as a whole
According to LAVCA, the association for private capital investment in Latin America, venture funding in Brazil exploded in 2018 to $1.3 billion, representing nearly two-thirds of all venture money raised in Latin America as a whole last year. That’s 52 percent more than the $859 million invested in 2017, and a staggering 369 percent increase from the $279 million raised in 2016, as you can see in the chart below.
Meanwhile, deal volume more than doubled to 259 in 2018 compared to 113 in 2017. Further, VC deals in Brazil made up nine of the 14 top deals in all of Latin America by amount, and represented 66.2 percent of all dollars raised last year, according to LAVCA, as evidenced in the below chart, rendered in the colors of Brazil’s flag.
Julie Ruvolo, director of venture capital at LAVCA, believes it’s important to note that while “the new and big rounds are driving the news, VC investment is up across all stages in Brazil and LatAm.”
“All stages broke records in terms of deals and dollars in Brazil last year,” she told Crunchbase News.
Some of 2018’s biggest deals included Brazilian fintech startup Nubank raising $150 million and then $180 million from DST Global, Tencent, and others. Also last year, Sao Paulo-based Movile raised a $500 million round of financing for iFood, led by Naspers, with participation from Innova Capital.
Increasing Outside Interest
In March, we reported that SoftBank Group Corp. (SBG) had unveiled plans for a $5 billion SoftBank Innovation Fund, or what it described as “the largest-ever technology fund focused exclusively on the fast-growing Latin American market.” Brazil is, naturally, expected to benefit. But overall, more global investors are participating in venture rounds raised by Brazilian startups, mirroring the trend we’re seeing in all of Latin America.
Last month, we interviewed Sao Paulo-based QuintoAndar, which was founded in 2013 by Gabriel Braga, CEO, and André Penha, CTO. The company was founded out of Braga’s personal “nightmare” of an experience in renting an apartment in Sao Paulo. Over time, QuintoAndar has raised a total of about $93 million in venture funding from the likes of Kaszek Ventures, Qualcomm Ventures and General Atlantic. Along the way, Braga acknowledged that some U.S.-based investors liked the premise behind the company, but were at first intimidated by the complexities of investing in Brazil, such as the exchange rate risk and a turbulent political, and uncertain economic, environment.
Here are some examples of significant venture fundings out of Brazil that have taken place this year, which is also starting out strong.
Real estate startup Loft raised a $70 million Series B, at a valuation of about $370 million, co-led by Andreessen Horowitz and Fifth Wall Ventures, with participation from QED Investors and others.
Mexico-based scooter startup Grin and Sao Paulo-based Yellow jointly raised $150 million and merged to form Grow Mobility in Latin America, only a few months after Grin acquired Ride Mobility in Brazil.
According to undisclosed sources, as cited by LAVCA, SoftBank will lead a $190 million (and up to $500 million investment in Gympass, a Brazilian B2B gym membership platform with global operations, at a reported valuation of $1.1 billion.
Investors Weigh In
“All stages broke records in terms of deals and dollars in Brazil last year.” – Julie Ruvolo, director of venture capital at LAVCA
Joe de Pinho, a vice president at Riverwood Capital has long been bullish on the region, with his firm having invested in 14 companies in Latin America over the past decade. His firm recently led Sao Paulo-based fintech startup Omie’s $20 million series B. Riverwood has also invested in Brazilian ride-sharing startup 99 and Mandic, a cloud computing company, among others. 99 went on to be acquired by China-based Didi Chuxing for $1 billion early last year in a deal that de Pinho noted “was the first unicorn type exit of a tech company in Brazil.”
Francisco Alvarez-Demalde, co-founding partner at Riverwood, also believes a lot of what is happening can be attributed to the fact that Brazil and Latin America are experiencing an acceleration in terms of technology adoption, with more than 400 million connected users and an increasing number of companies leveraging technology to grow and increase productivity.
“New technologies are being leveraged to supplant and in some cases leap-frog lacking infrastructure,” he said. “In Brazil, Conductor is helping all sorts of companies offer digital payment services to consumers, 99 is filling gaps in urban mobility, Omie is helping SMBs run their financials on the cloud and access financial services, for example. It is exciting to see how technology can transform dozens of industries, and offer a new wave of economic development in the region.”
San Francisco-based Lumia Capital has invested in six Brazilian startups in recent years and plans to keep investing in the region. Portfolio companies include CargoX, Instacarro, Meliuz, Trocafone, Pitzi and Quiero Education.
In 2017, Lumia Capital shared that it was looking to invest in startups that were addressing a local market pain point in a way that might be overlooked by an outside party such as a larger U.S. firm going into the market, which has a “very large emerging middle class.”
Martin Gedalin, founder and partner at Lumia, told me via email last week that “there’s a good deal of excitement in the region at the moment” thanks to a combination of things including some strong public market tech exits, such as PagSeguro and Stone Pagamentos, significant M&A activity such as 99 being acquired (as mentioned above) and a series of “unicorn” funding rounds such as Nubank raising more than $300 million total in 2018. The Sao Paulo-based fintech company was funded by prominent U.S. venture funds such as Founders Fund, “whose presence in the market (along with others’) has further contributed to the positive momentum,” noted Gedalin.
“Many capital allocators that had traditionally shied away from tech are eagerly planning and building out their tech investment strategies,” he added. “Pair this with the large amount of great entrepreneurs building interesting companies, many of whom are coming off of strong previous exits, and we think it will be an exciting next couple of years investing in Brazil.”
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