Unicorn Startups rising in Brazil

The latest Brazilian Unicorn arose in September 2020, when the startup VTEX received an investment of US$ 225 million. The new unicorn is a technology company in the e-commerce market, which presents a collaborative commerce platform. Brazil is now within the 10 countries with most unicorn companies.

Alongside with the new company, Brazil has another 11 unicorns, which achieved this title since 2018, according to a study of Distrito, a Brazilian innovation platform. The first Brazilian unicorn was “99”, a company that offers a platform to connect drivers and passengers. Since then, eleven other startups received billion-dollar investments.

The term unicorn was defined by Aileen Lee in 2013, when most of the unicorns were in the United States. In that year, only 3 new unicorns appeared. In 2019, however, 127 new companies became unicorns, companies of other countries started to get billion-dollar valuations, and today 27 countries have unicorn companies of their own.

The number of Brazilian unicorns still does not get close to the 41 recognized unicorns founded by Israelis, but it shows the country’s growth in such field. Among the 12 Brazilian unicorns that achieved this title in the past 2 years, there are fintech, mobility platforms, real estate, education, entertainment and e-commerce companies, as well as gyms and food delivery apps (list of Brazilian Unicorns by field):

• fintechs: Nubank, Stone and Ebanx;
• mobility platforms: 99 and Loggi;
• education: Arco;
• real estate: Quinto Andar and Loft;
• e-commerce: Vtex;
• entertainment: Wildlife;
• gym platform: Gympass; and
• food delivery app: iFood.

In addition to the 12 Brazilian unicorns, experts estimate that 5 other national companies are in the right path and getting closer to become unicorns. Those companies’ activities are in the fields of financial management, credit financing, payment systems, logistics, digital marketing and personal finance. A few potential future unicorns in Brazil: Conta Azul, fintech that offers financial management for small and medium businesses; Creditas, startup that gives credit with real estate or automotive guarantee; Neon, startup of payments, accounts and investments; Cargo X, a marketplace that matches companies in need for cargo transportation with available carriers.

The startup sector is significantly growing in Brazil. An important sign of that growth can be noticed by the new regulations that turned this sector less bureaucratic and by the number of transactions in the M&A sector. Based on the information provided by Transactional Track Record (TTR), in 2020 M&A transactions involving venture capital in Brazil achieved a new record, since 237 transactions took place between January and September, involving an amount of approximately R$ 10.6 billion (US$ 1.9 billion) – based on the exchange rate released by the Brazilian Central Bank on October 14, 2020 (US$ 1.00 = R$ 5.56).

The COVID-19 pandemic has also played an important role in this field, since the disease and the quarantine measures adopted by all countries and the Brazilian government forced many companies and startups to intensify their efforts to become more digital and innovate in their areas, which represented a huge growth for most companies, especially those in the tech field.

Moreover, the Brazilian tech startup environment allied with the new Federal Administration agenda, that also focus on material initiatives to foster investments in the information technology, as well as the innovation and digital businesses, results in a positive scenario for local and foreign investors. Among other initiatives it is worth mentioning the following:

• Brazilian General Data Protection Law (LGPD): driven by the recent increase of data incidents and the enactment of the European General Data Protection Regulation, the Brazilian Congress passed a comprehensive data protection law (Law No. 13,709/2018), which entered into force in September 18^th, 2020, with detailed rules for collecting, using, processing and storing personal data in Brazil. From now on, any data processing may only be made in accordance with the principles set forth in the LGPD, and under specific scenarios established therein. This approval connects Brazilian companies to the best practices concerning data protection in the world and the compliance with all its requirements may strengthen the startups’ potential of raising investments from all over the world.
• The Economic Freedom Act: this law was approved on September 20, 2019 and introduced several corporate and contractual changes in order to reduce governmental bureaucracy that hampered investment in Brazil and promote less interference from government and the judicial system in private party’s relations, with the purpose of stimulating the entrepreneurial activity in Brazil. The innovations brought up by this law initially came from the Provisional Measure of the Economic Freedom, signed on April 30, 2019.
• The “Startups’ Legal Landmark”: pending approval by the National Congress, its main purpose is to change the regulation in force through the adoption of new rules aiming at reducing bureaucracy for innovation and enhancing sustainable growth for emerging companies in Brazil, the Federal Government launched a public consultation on normative proposals related to the legal framework of startups, which simplify corporate, tax, labor and public bidding rules for startups.

All these recent changes in the Brazilian scenario are very positive for the startups field and facilitate the entrance of foreign players and investors in the national market, allowing more companies to receive larger investments and grow exponentially within a short period of time. We will likely see an increased number of startup companies in Brazil achieving unicorn status in the upcoming years.