Rio 2013 Blog: Venture Capital, Private Equity, and Startups in Brazil
Brazil receives the lion’s share of Latin American investments, though challenges remain for startup companies receiving these funds.
Last year, Latin America hit a five-year record in venture capital and private equity investments, giving a boost to technology companies. In 2012, private equity and venture capital firms committed $7.9 billion to the region, a 21 percent jump from the previous year, said the Latin America Private Equity and Venture Capital Association earlier this month. Brazil leads the region in these investments, though startup companies receiving these types of funds often face challenges getting off the ground and staying afloat.
Brazil accounted for 147 venture capital and private equity deals worth $5.7 billion, or 72 percent of the total amount invested in Latin America. At least 50 firms made close to 80 investments in Brazilian startups last year alone, says a recent MIT venture capital study. With Brazil’s middle class now representing more than half the population, consumer product and retail sectors have become the most popular for investors, drawing 40 percent of investments in the region last year.
However, as that market grows crowded, technology-based service companies present an attractive option and cater to the country’s rising internet user population. There are almost 88 million people using the web in Brazil, and over the next three years, 3G web access is expected to grow 103 percent. Investors are catching on: IT deals more than doubled between 2011 and 2012.
To maintain the surge in startups, Brazil needs more investors to “serve as liquid fuel for the ecosystem,” the MIT study's authors told Venture Beat. In addition, new investment rounds are necessary to keep many of Brazil’s startups from going under, reports VEJA. New startups also face obstacles that can discourage investment. It can take months to start a company, while the "Brazil Cost"—which includes issues like high taxes and bureaucracy—also hinders new businesses. Kevin Efrusy, a partner at Accel, one of Silicon Valley’s largest venture capital funds, said that there’s reason to be optimistic in spite of these challenges. This adjustment period, he said, “gives the market time to digest what startups are doing. When success stories finally emerge, the money will come.”