Tax changes in Brazil lead to double-digit angel investment growth

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angel investment brazil startups unicorns 99 nubank pagseguro

Angel investment is up in Brazil

Brazil is not the easiest place to be an entrepreneur. The excessive amount of regulation and taxes can sometimes overburden a business – particularly a small one. Recently, though, Latin America’s largest economy has reduced taxes on small businesses, which has led to an explosion of investments in startups, particularly through angel investment. According to a study by Anjos do Brasil, a network to stimulate new business in Brazil, this type of investment rose by 16 percent last year, amounting to an all-time record BRL 984 million.

The average annual volume per investor also increased, reaching BRL 129,000 (or USD 32,428). While that number remains much lower than in the U.S., where each angel investor invests an average of USD 82,000, it has surpassed Europe, where the average is USD 25,000.

But reduced taxation is not the only driving force behind the growth in angel investment, as Cassio Spina, the president of Anjos do Brasil, explains. The very nature of angel investment helps to explain its upward trend despite the crisis. According to Mr. Spina, this is a type of investment which looks toward the long-term, and is therefore less subject to short-term fluctuations that the economy might throw up.

The success stories of 99, Nubank, and PagSeguro also create a positive environment. Their example shows that risky investments can pay off and be very lucrative for those willing to take risks. Innovation, Mr. Spina says, doesn’t have to depend on the economic landscape. Investing in startups is often more attractive than traditional options and this attracts more people into this type of endeavor.


angel investment brazil startups unicorns 99 nubank pagseguro


Remaining hurdles for angel investment

Mr. Spina believes that there is room for further growth but Brazilian investors still need to be further educated about the advantages of angel investments. In comparison with other markets, Brazil is still behind, “the figures show this clearly”, he says. In his opinion, the growth in 2017 proves the market’s potential.

But to become truly competitive on an international scale, Brazil needs some help from the authorities. International examples show that when stimulus policies were put in place, investment has greatly increased, according to Mr. Spina. “The case of the United Kingdom is emblematic. It is the leading country in Europe in the area of investment in startups”, he says. What would work in Brazil, in his opinion, would be exemption of taxes from capital gains. “A study we made showed that when you give incentives to angel investments, there is an overall increase in tax collection.

It is very likely that news will continue being good, Mr. Spina believes. As angel investments are unaffected by short-term incidents, the scenario should keep improving in the next few years. But without any stimulus, he alerts, it is possible that this year we will have a smaller growth than last year.


angel investment brazil startups unicorns 99 nubank pagseguro


Brazil, unicorn-bound?

One of the measurements of how successful a startup environment is is the number of billion-dollar companies it produces. Over the first years of Silicon Valley’s development into the world’s hub for innovation, startups valued at ten digits were so rare that they were called unicorns. Little by little, their number grew and, according to TechCrunch, there are now 224 in the world – three of them from Brazil.

All three became unicorns this year, in an absolutely surprising streak. In January, China’s Didi Chuxing took over ridesharing app 99. In the same month, PagSeguro, an online and mobile payment-based e-commerce service, raised BRL 2.6 billion in its initial public offering in the New York stock exchange. Finally, in March, Nubank, a fintech that acts as a digital bank and credit card operator, announced its unicorn status after a fifth round of investments.

Three such events in this short of a time span is no coincidence.

Brazilian startup companies have become much more mature over time. The local market is also less and less centralized in the five tech hubs in Brazil (São Paulo, Rio de Janeiro, Belo Horizonte, Florianópolis, and Recife). A recent survey promoted by the Brazilian Startup Association and Accenture, a consulting firm, shoes that there are at least 130 startup “communities” (sort of innovation centers) spread across the country.

Tackling inefficiency

Disruption doesn’t necessarily have to bring groundbreaking innovation, especially in a market like Brazil. Many successful startups – including the country’s three unicorns – were created to fill voids. 99 helps the mobility problem. Nubank and PagSeguro, on the other hand, operate in a country where the banking system is highly concentrated, marred by elevated fees, and where one-third of the adults don’t have a bank account.

As Flavio Zaclis, founder of Barn Investimentos, told Valor: “Abroad, there is a quest for a rising company that will change everything. But Brazil is highly inefficient and, therefore, there is a huge market for startups tackling structural issues.” Not surprisingly, fintechs have gotten 20 percent of investments in Brazilian startups.

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About the author

Diogo Rodriguez

Rodriguez is a social scientist and journalist based in São Paulo.