What you can expect from the venture capital market in Brazil

The Brazilian market for venture capital emerged quite recently. Nevertheless, Brazil is already the largest venture capital market in Latin America.

The Brazilian market for venture capital emerged quite recently, as the startup platform distrito has analyzed. According to an online publication, first funds appeared around 2008. Since then, the sector has grown constantly in terms of the number of deals and investment volume. In 2011, there were just 76 deals summing up to USD 143 million. In contrast, last year, the market reached an all-time-high of 331 deals with a total volume of almost USD 3 billion.

As a reason for this record year, distrito primarily mentions the several mega rounds. Prominent examples are those of the Brazilian companies Nubank, Creditas and QuintoAndar. The fintech startup Nubank, which offers banking and financial services for consumers, announced in July of 2019 that it alone raised USD 400 million of venture capital (Series F). The funding was led by the growth-stage fund TCV, that has also already invested in Netflix, for instance.

In case of the Brazilian lending platform Creditas and the real estate startup QuintoAndar, the Japanese SoftBank Group led both rounds. As the outcome, Creditas received a USD 231 million investment in June of 2019. QuintoAndar could raise USD 250 million in September of 2019. This investment finally took the company to “unicorn status”, according to its CEO Gabriel Braga.

Brazil is the largest Venture Capital market in Latin America

Corresponding to the Brazilian market growth, venture investment in Latin America has also experienced a significant increase over the last years. According to the latest information about investment figures in the region, published by LAVCA (Latin America Venture Capital Association), venture capital investments increased 9x from 2016 to 2019, reaching a total of USD 4.6 billion across 440 transactions. Furthermore, the statistics show that venture investment has more than doubled every year during this period.

Comparing the different Latin American countries, Brazil today is the largest venture capital market in the region. Half of the total investments in 2019 were invested in Brazilian startups. The increasing number of new funds and venture capital investors in the country is fostering the country’s market development. Recent market players, for instance, are Maya Capital, Caravela Capital, Norte Ventures and HARDS. Furthermore, existing investors like Canary and Redpoint have made new capital available. According to the Leaders League ranking of the venture capital funds in Brazil, both investors are among the eight best ranked funds in 2020.

In second place, the LAVCA survey cites Colombia with a total venture investment of USD 1.09 billion in 2019, followed by Mexico with USD 649 million. Both countries registered a significant growth in the number of Seed/ Incubator deals over 2018, as stated in the final report.

Will the COVID-19 pandemic interrupt the steady growth trajectory?

Market analysts expect that the COVID-19 pandemic will certainly interrupt the steady growth trajectory. “As venture investors encourage their portfolios to shift to survival mode, the era of “growth at all costs” popularized in Silicon Valley and China appears to have ended for the time being”, LAVCA analyzed.

Furthermore, the association believes that opportunities for innovation around healthcare, education, and logistics will be at the forefront as a response to new global realities. “The resilience and resourcefulness of Latin America’s entrepreneurs will be tested in the year ahead as the need for cost-effective solutions to highly complex problems comes into sharper view.”

Accordingly, in Brazil, in the beginning of the pandemic this year, the startup organization Endeavor has observed investors acting with more precaution. Some of the existing funds became more critical about possible transactions. Others postponed or even froze rounds that were already scheduled. The objective was to reserve the capital for supporting companies in their portfolios.

Brazilian venture capital market seems robust amid the current crisis

Despite the hurdles, the market analysis for the first six months of this year reveals that Brazil seems to follow the consolidation trend of the previous years. Between January and June of 2020, there were 167 deals with a transaction volume of USD 669 million. Excluding 2019 as an outlier – this is an increase of 52% in comparison to the same period in 2018. In that year there were only USD 440 million venture investments.

In June of 2020 alone, USD 156 million were invested, especially in the Series B stages. Important examples were the venture investments in four startups. One of them is Tembici, a mobility startup that raised USD 47 million. Cortex, that is specialized in data management which captured USD 22.3 million. The third is the fintech Remessa Online that announced a USD 20 million fundraising. And, last but not least, Biz Capital that provides credit to SMEs and raised USD 12 million.

Some experts say the real impact of the crisis will begin to be felt in the second half of the year”, distrito wrote in a recent blog article. But the experts are confident that, even so, “there is a consensus that good businesses and startups develop even more efficiently during crises, and thus make their valuations even more interesting for VC funds.”

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