In review: venture capital in Brazil

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Overview

The venture capital sector has been progressing rapidly in Brazil. Increasing numbers of venture capital players have been attracted by the unique set of growth opportunities that Brazil presents to them, which is primarily supported by a strong internal consumer market, a solid economic and regulatory framework, one of the most diversified ecosystems with some of the keenest start-ups when it comes to scaling internationally, and a large number of start-ups that require far more capital than is available in the domestic market.

With respect to the scale of venture capital activity in Brazil, over the course of 2021, 22 Brazilian companies raised at least US$100 million and local start-ups attracted more than US$8.2 billion, of which US$2.7 billion was invested in the fourth quarter.² By comparison, in 2020 total venture capital investments in Brazilian start-ups amounted to approximately US$3.5 billion.³ The covid-19 pandemic led to a significant drop in deal activity in the first half of 2020 but activity began to pick up in the third quarter, leading to the significant number of investments and capital raised in 2021.

As for 2022, economic retraction has been challenging for the venture capital sector. Tech companies have been facing significant drops in their valuations and the increase of interest rates worldwide have been deterring investors from bold investments, such as venture capital. However, despite this, expectations are still high for venture capital: in the first five months of 2022, a total of 12 billion reais has been raised in a total of 282 investment rounds. In the same period in 2021, 15 billion reais was raised in 349 investment rounds.⁴

At the end of February 2020, when the covid-19 pandemic arrived in the country, the venture capital sector optimism of early 2020 was replaced by the prospect of a year with scarcer and more selective investments. However, many venture capital players believe that 2020 and 2021 consolidated venture capital practice in Brazil, with Brazilian investors demonstrating their business acumen and well-known resilience. In addition, 10 Brazilian start-ups became unicorns in 2021 (there are now more than 20 Brazilian unicorns)⁵ and over the course of the year, the Brazilian venture capital ecosystem saw strong momentum around liquidity events, including venture capital-backed exits and listings, as well as M&A activity.

The Brazilian venture capital industry has recently seen a diversification of the prominent general partners (GPs) responsible for fundraising, notably the large local GPs, such as Canary, Monashees Capital, Astella Investimentos and Valor Capital Group, as well as the global GPs, including Softbank, Kaszek Ventures, Tiger Global Management, Global Founders Capital and Riverwood Capital. An essential role is also played by other investors in the venture capital ecosystem, especially accelerators, individual investors (commonly known as ‘angels’) and corporate venture capital funds. Corporations have been much more interested in corporate venture practice in Brazil since 2021.

Relevant investments in Brazilian start-ups were made in a variety of sectors, but without doubt the leader has been the fintech and insurtech sectors, with the Central Bank of Brazil playing an important role with its competition incentive policies. More recently the healthtech, edtech, retailtech, construtech and proptech, and logtech sectors have also been recognised as key sectors for start-ups, drawing the attention of investors.⁶