Ecosystem Deep Dives #18: Brazil - LATAM's locomotive
Due to the combination of its large population and the latter's insatiable hunger for digital services, Brazil's start-up ecosystem is on the rise.
Ecosystem Deep Dives is a weekly series in which I analyze and compare different start-up ecosystems from around the world. If you enjoy and gain value from my work, feel free to share and subscribe!

Sorry for my absence last week; had a logistical issue. But I’m back and I’m better!
Demographic powerhouse
Brazil, the only Portuguese-speaking country in LATAM, is the 5th largest country in the world and regroups 1/3rd of the continent’s population. On top of its sheer size, the Brazilian population stands out in terms of its internet usage. Indeed, Brazil has the interesting specificity of having more mobile phones than people, and making up a large part of GAFAM & Co’s user base.
“Brazil has been a consumer internet heavyweight for global messaging apps (Brazil is WhatsApp’s #2 market after India) and social media usage (Brazil has the fifth largest population of social media users worldwide and the largest outside the U.S. and Asia).” - Sequoia Capital
The size of the Brazilian domestic market also enables local start-ups to reach IPO-level scale without needing to internationalize (although that doesn’t mean they don’t). This “easier” path to scale isn’t the same for Colombian or Chilean start-ups for example, who are obliged to start planning international operations from the get-go. A common trend amongst non-Brazilian LATAM start-ups is actually to raise significant fundraising rounds based on the promise of capturing the vast Brazilian market. Recent Series B funding raised by Colombian start-ups Platzi and Chiper exemplify this type of move.
The country and the ecosystem do have their own set of challenges, such as a very low representation of black and female founders, pervasive economic inequality and a deforestation crisis.
Where the opportunity lies
As with almost all emerging markets, the opportunity for Brazilian start-ups lies in the gap between the number of people with access to the internet and the number of people with access to digital services. Furthermore, the population’s frustration with outdated education, banking and health services makes the desire for digital adoption strong. The pandemic, and the “digital leapfrog” effect it had on many people has amplified that phenomenon.
In this great presentation, João Pedro Brasileiro, CEO @InnovationLatam gives five concrete examples of why and how digital offerings are disrupting traditional sectors in Brazil:
Education: Edtech start-ups manage to make education more enjoyable through gamiphication, but also making access to high-quality knowledge independent from on one’s geographical location.
Retail: Brazil’s growing middle-class, and Brazilians’ love for shopping, makes the e-commerce opportunity self-evident.
Health: Decrepit and often exclusive health insurance offerings give rise to an opportunity for simpler, digital and comprehensive health coverage plans.
Agriculture: A historical agricultural powerhouse, Brazilian agritech start-ups are modernizing crop management, logistics and the overall productivity of the sector.
Banking: As the pre-condition to use all aforementioned innovations, fintech start-ups offering cheap, reliable and digital banking services are finally providing an option for tens of millions of unbanked Brazilian to enjoy financial services.
Local champions
Consistent with the rest of LATAM, Brazil’s venture capital funding and the subsequent number of unicorns has exploded in the past couple years.
“In all, there were 760 funding rounds in 2021 in Brazil and $10 billion in investments – a 194% increase compared to 2020 when $3.4 billion was infused. The average round size also rose, jumping from $5.5 million in 2020 to $13.7 million in 2021, a rise of 150%.” - Labs
On top of active local investors such as Kaszek, Monashees and Bossanova, almost all major international VC’s including SoftBank, Tiger Global, Tencent, Sequoia, Accel, Ribbit Capital and QED Investors have invested in Brazilian start-ups.
In 2021, Brazil minted ten new unicorns through the likes of C6 Bank, Unico, Olist, Mercado Bitcoin, Facily, Freight.com, Cloudwalk, Merama, MadeiraMadeira and Hotmart. Furthermore, a growing number of successful Brazilian start-ups are starting to see listing on the national stock market, B3, as a valid alternative to the traditional American IPO.
“Many earlier startups that rose to scale in Brazil went public via listing in the American market, given the perceived prestige and strength of the New York Stock Exchange, the Dow Jones and others. However, as Brazil’s reputation as a country driven by startup growth expands worldwide, many Brazilian companies are making the choice to “stay home” – and take their companies public in Brazil. Digital advertising company Electromidia, online furniture and home retailer Westwing, and renewable energy firm Oleoplan are just a few of the many exciting companies set to IPO in Brazil this year.” - Techonomy
Taking a look at some of the country’s unicorns also provides an interesting breakdown of the sectors Brazilian start-ups thrive in:
Nubank: A digital bank that offers digital credit cards, transfers, and payments. By offering a fully-digital bank, a no-fee credit card, and a real brand identity, Nubank has quite literally revolutionized the Brazilian banking industry. In one of this year’s major events, it IPO’d on the NYSE on December 9, 2021 (ticker: NU)
Arco: An educational software company that offers technology, services, and content from kindergarten to high school. The demand for the platform skyrocketed during the pandemic. It is publicly listed on the NASDAQ (ticker: ARCE)
99: The “Brazilian Uber”, acquired by Chinese giant DiDi in 2018, is a typical example of a copycat start-up that successfully adapted to its local environment. It is considered to be the country’s first unicorn.
Stone: A payments acquirer, licensed by VISA and Mastercard to accredit merchants, process and authorize credit card transactions. Stone stands out as a necessary B2B solution to acclimate for the growing Brazilian e-commerce sector.
Gympass: A fitness discovery platform connecting the world's network of fitness facilities to companies and its employees. Start-ups enabling companies to offer wellness benefits to their employees will find vast opportunities as the number of successful tech companies in the region continues to grow.
QuitoAndar: A platform that simplifies the rental of residential real estate for landlords and renters. Very scalable platform when taking into consideration the growth of the middle class in emerging markets.
As you can see, Brazilian unicorns exist in a variety of sector, which prove the ubiquity of start-ups’ impact on a country and the ocean of opportunity Brazilian start-ups have yet to explore.
Ecosystem layout & Government support.
86% of Brazilian unicorns are based in São Paolo, the country’s undisputed start-up hub. Although other cities such as Rio de Janeiro, Belo Horizonte, Porto Alegre and Curitiba also boast vigorous start-up activity, São Paolo remains the ecosystem’s focal point.
“Buzzing São Paulo, home to some 45 million people and with a landmass larger than the UK, already hosts the South-American headquarters of tech powerhouses like Google, Uber and Airbnb.” - Start-up Genome 2021
As a federal presidential republic composed of 26 states, a lot of start-up legislative/public support is left at the hands of municipalities themselves. However, the federal government did recently pass a landmark act referred to a the “Marco das Start-Ups” or “The Framework”. Here is a hyper-simplified version of the new provisions pushed through by this act:
Facilitates the establishment of experimental regulatory sandboxes.
Enables different investment models (equity and non-equity).
Incentivize public sector to purchase from start-ups.
Companies can now only have 1 director (companies were required to have 2+ before).
Professionalizes/codifies angel investing.
The Banco Central do Brasil, the country’s central bank, has also recently ushered in a new era of “open banking/open finance”, which, to simplify, requires banks to open their customers’ data to third-parties in order to spur competition within the financial services sector.
In Brazil, the central bank has materialized this through the launch of Pix, which “enables funds to be transferred between accounts in under ten seconds, making it a practical, instant and secure payment option that can be used from an online wallet, checking account, savings account or prepaid payment account.” Think of it as a government-led Venmo. Other initiatives such as the EU’s PSD2 or Singapore’s SGFinDex are part of the same movement.
The growth in Pix’s usage has exceeded its inceptors’ predictions: almost 110 million Brazilians have already used the system at least once even though it has been live for a little over a year. The goal of Pix is to add fuel to the fire of Brazil’s banking industry, pushing banks to innovate and include the almost 30% of Brazilians that still don’t have a bank account.
Another important breakthrough has been the implementation of the Open Insurance regulatory sandbox (overseen by SUSEP) which, to synthesize, aims to give back users custody of their personal data in order to find the best insurance deals on the market, through the concept of open API’s (see video below). This is a real-life example of the implications of people “owning” their data, and will have massive implications on the competitiveness of incumbent insurance firms.
Lastly, the Comissão de Valores Imobiliários (CVM), which can be likened to Brazil’s SEC, has recently regulated equity-crowdfunding (a key component to freeing up more early-stage capital) and has even gone as far as providing a regulatory sandbox to enable secondary market trading.
Although this is the Swiss context, the concept of open API’s is what you need to understand
Remaining challenges in Brazil’s ecosystem
While undeniably promising, the Brazilian start-up ecosystem still has one major weakness: diversity.
Indeed, while about 55% of Brazilians are black, only 25% of Brazilian start-ups were founded by black people. This is due to a multitude of factors including the socio-economic oppression and inequality black people have historically suffered in Brazil, but may also be exacerbated by the fact that 71% of teams focused on start-up investments in Brazil are made up only white professionals. Striving for more racial diversity at all levels of the pipeline, on the founder and investor side, is crucial.
As is the case with virtually every start-up ecosystem I’ve covered so far, Brazil also suffers from a severe gender equality gap. According to the Brazilian report, “only 9.8% of innovation-based companies were at least partly founded by women, and just 4.7% had women as their sole founders”.
Finally, it is important to see how/if the explosion of the Brazilian start-up ecosystem will positively affect all segments of the society. Similar to South Africa, Brazil is a country with historically wide economic inequality, exemplified by popular images where high-rise luxury apartments and favelas live side by side. I think most start-ups in the region have an inherent (positive) poverty reduction effect on society by using tech to serve marginalized people in the fields of banking, education and healthcare. However, I do also think “impact-focused” start-ups are necessary, especially those that tackle climate-related issues, have longer ROI cycles, and might require more “patient” capital. Initiatives such as Positive Venture’s recent $10 million fund aimed at Brazilian impact start-ups are encouraging.
Conclusion
By virtue of its large, connected and digitally-hungry population, it is no wonder Brazil now boasts more than 20 unicorns and is experiencing record numbers of venture capital. One element we didn’t touch upon in this article is climate-tech, which is very relevant in Brazil due not only to the richness of its biodiversity but also due to the country’s strength in renewable energy (hydropower makes up more than 65% of the country’s energy supply). Looking forward, more diversity, both racial and gender should be strived for to ensure that start-ups solve problems for all segments of society. On a personal note, I found the Brazilian government’s emphasis on open banking/insurance very forward thinking, and I think we will see a lot of big Brazilian incumbents either acquire start-ups, adapt their models, or die out in the coming years.
Question of the week: What tangible role do you think start-ups play in poverty reduction/social mobility? If so, how and through what means?
Ecosystem Deep Dives is a weekly series in which I analyze and compare different start-up ecosystems from around the world. If you enjoy and gain value from my work, feel free to share and subscribe!