Brazil’s economy experienced ups and downs over the past decade. Almost immediately after Forbes published an article raving about Brazil’s entrepreneurial potential in 2012, Brazil entered one of the most disastrous economic crises in the region. Just this year, stories of political corruption, monetary deflation, and falling commodity prices have plagued Latin America’s largest country.
Brazil is a country of contradictions. In the first three months of 2018, Brazil produced three new startup unicorns. The first was 99, acquired by Didi Chuxing for a rumored US$1B. Then in quick succession, PagSeguro reached US$2.7B in its January 2018 IPO (the 5th highest IPO ever), and Nubank became the third unicorn of 2018 with a US$150M Series E round in March 2018.
As the largest market in Latin America, with a population of over 210 million people, Brazil is still the most attractive country for investment and growth in the region for many investors. Despite the economic downturn, international investors often look to Brazil first when they want to enter the Latin American market. Many tech giants, such as Google, Uber, Airbnb, and Amazon, have built offices in São Paulo before moving into other Latin American markets. Many entrepreneurs look to invest in Brazil for their long-term growth strategies, as well.
Despite Brazil’s dynamic entrepreneurial ecosystem, the Brazilian government can be unreliable in its support of business development. While former President Dilma Rousseff received praise for her support of entrepreneurship, Brazil is famous for its cumbersome bureaucracy that can inhibit business growth. Brazil ranks 125th out of 190 countries on the World Bank’s 2018 Doing Business report, with processes like starting a business, receiving construction permits, and filing taxes ranking even lower. In fact, Brazil’s corporate tax system is so complicated that Brazil ranks 184th out of 190 countries on the difficulty of tax filings report. Lastly, it can take an average of 101.5 days to start a business in Brazil.
However, much like in the rest of Latin America, Brazilian entrepreneurs are scrappy, determined, and innovative. They’re building global businesses that are already receiving millions of dollars, despite the bureaucracy. Four main cities lead Brazil’s entrepreneurial ecosystem: São Paulo, Rio de Janeiro, Belo Horizonte, and Florianópolis. While São Paulo is by far the largest hub – the city holds more people than the entire country of Chile – Brazil’s other big cities are making their contributions to the Brazilian startup ecosystem as well.
São Paulo: The heart of Brazilian innovation
São Paulo is not only the largest city in Brazil, but it is also the fifth largest city in the world and the most populous city in the Southern hemisphere. With over 22 million inhabitants, São Paulo has traffic that would make even Los Angelinos cringe. Although rents have gone down because of the recession, as recently as 2012, renting an office in São Paulo was often more expensive than in Manhattan. So what makes this city such a hub for business?
São Paulo is the financial center of Brazil; the city alone contributes 50% of the volume to Brazil’s banking sector. It is also the location of the Brazilian Stock Exchange. Even before Google chose São Paulo for its first Latin American office in 2002, the megacity was home to TOTVS, the biggest IT company in Latin America and the first to IPO in 2005. Tech giants like Uber, Airbnb, and MercadoLibre built offices in São Paulo, inspiring the next generation of entrepreneurs.
Startups in São Paulo receive support from a host of public and privately-funded entrepreneurship initiatives located in the city, including the Google Campus accelerator, Innovatech, SEBRAE, and Startup Farm. Most local and international venture capital firms also have an office in São Paulo, including Monashees, Kaszek Ventures, Valor Capital, Redpoint eVentures, and Canary.VC. To find out about all the funding opportunities in Brazil, see my Overview of Venture Capital in Brazil.
Due to the sheer size and importance of São Paulo, many of Brazil’s most-recognized startups call this city home, including three of its unicorns (99, Nubank, and PagSeguro), Movile, VivaReal, DogHero, InstaCarro, QuintoAndar, and CargoX. However, São Paulo’s sky-high property prices have pushed many startups to work out of the coworking spaces that dot the city, such as ImpactHub, CUBOS, ACE, and Google’s Campus.
São Paulo is by far Brazil’s largest, most dynamic, and most innovative city. If you can survive the commute, São Paulo is the place to be for startups in Brazil.
Rio de Janeiro: Center for social entrepreneurship
Rio is Brazil’s second largest city and one of its most popular tourist destinations. It’s easy to see why; Rio has a stunning cityscape, set alongside white sand beaches and towering verdant mountains, with a world-renowned culture of music and dance. While the city has struggled with violence in the past, mostly due to extreme inequality between the wealthiest inhabitants and the slums, Rio is gaining fame as a tech hub that focuses on resolving social issues.
Social inequality in Rio came to light during the 2014 World Cup and 2016 Summer Olympics, which caused controversy and protests within the city. As a result, initiatives like the Igarape Institute and Meu Rio have popped up to create tech solutions to issues like transparency, corruption, political agency, and transportation. Rio de Janeiro is also the founding place of the most-downloaded taxi app in the world – EasyTaxi – and fintech startup, Zoop, which was recently acquired by Movile.
While it may be harder to access capital in Rio than in São Paulo, several VC firms and government programs have made their way to Brazil’s second largest city. SVB Capital,
Valor Capital Group, Start-Up Brazil, Startup Rio, and Accel Partners are all actively supporting startups in Rio de Janeiro. Start-Up Brazil is a US$78M government initiative that invests up to US$100K in local and foreign startups to help them get started. Investments from private companies, including Microsoft (US$100M), Cisco (US$500M), and Siemens have expanded access to workspaces for startups in Rio de Janeiro, as well.
Belo Horizonte: The Up-and-Coming Hub
Belo Horizonte, also known as San Pedro Valley, is located inland from Rio de Janeiro in the state of Minas Gerais. As Brazil’s sixth largest city and the founding place of several startups, Belo Horizonte is a major player in the local startup ecosystem. The Brazilian Startup Association, a lobby group and support community for entrepreneurs with over 4,000 member startups and 38,000 entrepreneurs across the country, was born in Belo Horizonte. This kind of organization characterizes the city as Belo Horizonte is playing a crucial role in building Brazil’s entrepreneurial culture.
The founder of the Brazilian Startup Association, Gustavo Caetano, is now the CEO of Samba Tech, an online video platform that now has two offices in the US. Other notable startups that began in Belo Horizonte include Sympla (acquired by Movile), Smarttbot, and Mercado de Residuos, which won third place in Brazil’s 100 Open Startups Competition last year.
Some of Belo Horizonte’s fame as a tech hub comes from its four universities, including Minas Gerais Federal University, which consistently produces some of Brazil’s top IT talent. As a result, the local government has pushed to turn Belo Horizonte into a startup hub using programs like BH-tec and Minas Digital. The government of Minas Gerais wants entrepreneurs to see Belo Horizonte as an attractive alternative to São Paulo with less traffic, lower rent, and higher standard of living; similar to how Guadalajara compares with Mexico City.
Florianópolis: Sun, Sand, and Startups
Rio de Janeiro is not the only Brazilian beach destination looking to boost innovation. Florianópolis hosts 600 startups and the 100 Open Startups competition recognized ten of them last year. These startups contribute an average of US$350M per year to the city’s GDP.
Compared to Rio or São Paulo, Florianópolis is a much smaller and more peaceful place to launch a startup; Florianópolis only has around 450,000 inhabitants and is the second safest city in Brazil. With 60 beaches and an island within the city limits, Florianópolis might seem more like a beach vacation than a startup hub. However, the city already has two “tech parks,” Alfa and Sapiens Parque, and some experts put the ecosystem on par with Rio’s.
The state of Santa Catarina, where Florianópolis is located, created a technological association called ACATE in the mid-1980s to consolidate support for tech companies growing in the region. As the ecosystem matures, Florianópolis sees more and more tech startups calling the city home, including ContaAzul (recently raised US$30M Series D), Soluz Energia, and Ozon-In.
While Florianópolis is still relatively small, the government and local actors are taking steps to help the beach town follow the way of Rio to become a center of innovation in Brazil.
Brazil’s startup ecosystem is enormous, chaotic, and powerful. This country of 210 million people is the world’s biggest Facebook user, the fifth-biggest economy in the world, and is one of the most complex places in which to start a business. It is hard to predict how Brazil’s startup ecosystem will continue to develop, but it is safe to say that these cities will play a significant role in its tech economy in the next decade. If you want to read more about Brazilian entrepreneurship, see my article on e-commerce in Brazil or my overview of business opportunities in Brazil.