
Profitable innovations aren’t exclusive to Silicon Valley. According to The Global Startup Ecosystem Report 2018, São Paulo is the 8th most well-developed ecosystem in the world. Heading the rank are the Silicon Valley (1st), New York City (2nd) and London (3rd).
Other regions in Brazil have also been the stage of interesting developments in the tech field, drawing investment from accelerators and other foreign investors. It’s the case of Florianópolis, Belo Horizonte, Recife and Rio de Janeiro. According to ABStartups, there are currently 10.200 active startups in the country – a number that is 20% higher when compared to 2017.
2018 was an incredible year for Brazil regarding tech companies. In a span of less than 90 days, three startups have achieved the status of unicorns. They were 99Taxi, an urban transport application, PagSeguro, a payment platform application, and Nubank, a credit card application.
This rising innovation ecosystem proves not to be just a fad, as some numbers have been pointing out the thriving moment. In an interview given to Crunchbase, LAVCA – Latin American Venture Capital Association – reported that Venture Capital funding in Latin American startups reached $1.14 billion in 2017 – more than twice of 2016 $500 million amount. Meanwhile, the projection for 2018, as the numbers haven’t been finished yet, is to get to the incredible milestone of $1.5 billion.
In this regard, Brazil is the top market for those investments – grabbing an impressive 73% of VC dollars in 2017 and in the first half of 2018.
All of this context may explain why Japan’s SoftBank Group has recently announced the launching of a $5 billion fund to invest in technology companies across Latin America – in countries like Brazil, Mexico, Chile, Colombia and Argentina.
What is a Unicorn Startup
A unicorn is a privately held startup company valued at over USD 1 billion. Venture capitalist Aileen Lee coined the term back in 2013, choosing the mythical creature to represent the statistical rarity of such successful ventures. Maybe she didn’t expect that 6 years later dozens of companies would fit into that category. According to TechCrunch, as of March of 2018, there were 279 unicorns. As a matter of fact, in 2018 alone, 53 startups acquired such status.
Unicorn startups have some things in common as they tend to make the lives of their clients easier. 87% of the unicorn products are software while only 7% are hardware, and the remaining 6% are other products and services. Almost all of the unicorns so far have now capitalized on the market undergoing a technology paradigm shift. 62% of the unicorns are B2C and their business models are focused on making the things more simple and affordable for consumers.
GymPass, a digital good company that connects people to gyms, studios and sports classes, acquired the unicorn status in January of 2019 and is the newest Brazilian name on the list. Created in 2012, GymPass gives users access to more than 19,000 gyms and studios for a monthly subscription or individual payments. The clients can choose a plan from one of the available options and attend classes in bodybuilding, pilates, yoga, swimming, fights, dances and other modalities. They are now present in 15 countries and havecontabilize 25 thousand partner gyms.
How Did a Country Affected by Corruption Scandals Become a Crib for Unicorns?

Brazil has been through a lot over the past couple of years. Between the years of 2014 and 2016, the country experienced a severe economic crisis, coupled with corruption scandals that led to a political scenario full of plot twists. It was difficult to follow the news even from inside the country.
According to Tim Draper, billionaire and investor who has backed companies such as Hotmail, Twitter, Tesla, and many others, such difficulties make entrepreneurship flourish. That’s because when the system fails the population, there is room for them to come up with solutions that will meet their current demands.
He believes that a country amidst political turmoil and economical difficulties is a great opportunity for anyone who wants to test new ideas and make great leaps of progress. In fact, he feels like it is one of the best moments to go to the country and create an entrepreneurial ecosystem. He believes that that’s when the best entrepreneurs arise. This has been the case in China, for example. Some regions went from not having telephone communication to smartphones without going through the time of cabling and landlines.
Brazilians seem to have a similar attitude. In times of crisis, people seem to have a more open mind and the opposite is true: when people have steady jobs and everything works fine, there is no desire to try new products, which can hinder an entrepreneur’s work and generate stagnation.
99, formerly known as 99Taxi, was founded in 2012 aiming to improve and facilitate taxi services in Brazil. When Uber entered the market, the company evolved by adding another service, 99Pop, to directly compete with the American company. 99 was the first Brazilian unicorn, acquiring the status in January of 2018, a year after DiDi Chuxing, a Chinese urban mobility company, invested 100 million USD in it.
According to Matheus Moraes, 99’s president, the secret was to have a keen eye to the mobility problems that afflicted Brazilians as a business opportunity. Their strategy is to offer competitive rates for their clients while giving a larger share of profit for their drivers. He says that his employees earn 20% more than self-employed drivers, while his customers pay 15% less for their rides. When questioned about the plans for the future of the company, Moraes says he wants to meet the demands of lower income neighborhoods, where 99 is not yet present.
There are pros and cons when it comes to dealing with turbulent scenarios, such as taxation complications, a lack of certainty regarding the legal system and the smaller amount of capital. But that also means that there will be fewer competitors, the grounds for creativity are larger and the chances of a business to thrive are even bigger.
Growth Projections for Fintechs in Brazil

Brazil has a very concentrated banking sector, and the cost of credit in the country is incredibly high, making the financial market extremely profitable. And since the financial industry in Brazil has acted in a very accomodated manner so far, a large number of customers are drawn to better offers.
The country is also home to a very large young and unbanked population, of which 60% have mobile phones or internet access. The scenario is very interesting for players that have the capacity to penetrate it by offering competitive prices and cheaper technological solutions.
The digital model and simplified access combined with low cost operations provided by fintechs put these companies in an advantageous position. They have been able to boost inclusion for the large mass of people living in the margins of the financial system and attract those feeling unsatisfied with the traditional institutions. The younger population is willing to let go of traditional consultants, they expect a better service experience through digital channels. The fast technology penetration has also drastically transformed consumer habits.
This explains why NuBank is one of the Brazilian unicorns. Created to serve the demand for faster, less bureaucratic financial services, it has established itself as the digital bank with more customers outside of Asia. There are now more than 3 million customers using its purple credit cards in the national territory. Recent investments will enable the fintech to accelerate its transformation into a complete digital bank.
According to PcW’s Consumer Insights Survey, the percentage of Brazilian consumers aged from 18 to 34 who shop at least once a month through their smartphones jumped from 19% in 2013 to 48% in 2018. 29% of them see mobile website navigation as a key experience for online purchasing. 28% of them use mobile as a mean of payment.
What We Can Learn from Millennials
The Millennial Disruption Index, a study performed in the United States, shows that 53% of respondents don’t believe their banks have special offerings. 71% would rather go to the dentist than listening to a bank. One in three is ready to change banks within the next 90 days, and 73% would be more excited by a new offering from financial services such as Google, Amazon, Apple or PayPal than from a traditional bank from their own country. This is interesting given millennials are an age group also aimed at in Brazil.
Bruno Diniz, a fintech specialist and professor at Fundação Getúlio Vargas (FGV) believes that the current moment is favourable for credit startups. In line with Tim Draper’s speech, he says that innovation comes so we can have a more democratic financial system.
Brazil is currently experiencing a regulatory moment that is beginning to favour financial solutions. In April of 2018, the National Monetary Council (CMN) passed a regulation approving the activity of credit fintechs, thus allowing tech companies to act unlinked to financial institutions, which is a great opportunity for the sector.
The new regulations open new opportunities as local legal entities are poorly served. As for investment alternatives, the professor believes that solutions involving crypto-coins can stand out.
The key technologies behind the solutions supplied by fintechs are cloud, data analytics and mobile. In fact, they are becoming commodities in the segment and traditional institutions have been catching up on this trend in order to enhance the quality of the customer experience – which is one of the key factors’ of success of the fintechs. In order to safeguard their development in the future, companies will have to master blockchain and artificial intelligence. Technological reinvention is a mean to maintain a competitive edge.
Investors and Companies That Provide Technology Should Take Advantage of This Favorable Moment
This particular moment is favourable as it is providing fintechs with the right exposure, the one needed to influence investor decisions by showing the gains that they may provide for society in terms of a better balance between supply and demand, a wider and better access to services, or creating new opportunities to develop businesses and innovative services.
Brazil is set to become an important hub for both local consumption and exporting technology in financial services, but this development will depend heavily on incentives. The regulations are already in favour of this booming sector. It is up to fintechs to take up a more strategic position and reach out to their customers and accelerate the adoption curve for new solutions.
A likely trend is the consolidation of fintechs themselves, or between fintechs and large banks. PwC’s study shows that a mere 17% of Brazilian fintechs serve only individual customers (B2C). A large corporate niche is not being well served by traditional banks, insurers or financial institutions. Open banking and blockchain finance will diversify the market and eliminate centralizing agents. Blockchain is receiving a lot of media attention, and it’s the technology that will really make a difference in the coming years.
Startups, new and old, are looking carefully into artificial intelligence, as a big disruption in this particular type of technology is about to happen. Tech companies have been learning from the algorithms and putting effort into machine learning for so long, and it is now time to offer products with enhanced experiences and customization to its users.
A few other sectors of startups have dawned this year alongside Brazilian fintechs. The so-called agritechs, logitechs, foodtechs, and startups for the industry. The agribusiness, which plays such a big role in the Brazilian economy, has grown a lot with the digitalization of the field.
Brazil Has a Privileged Position on the Global Startup Ecosystem

For a long time, the country has been an important hub for technology. In recent years, digital entrepreneurship has been flourishing in different areas in order to supply the population with solutions to make their lives easier. The digital products created by Brazilian startups have been so innovative that they are being exported to other countries in Latin America and other regions of the world, which is the case of GymPass. It’s no wonder the country is home to more than a handful of unicorns.
Customers are quick to adopt new technologies and services, especially the ones that rid them from traditional financial institutions, making room for fintechs.
Given the continental dimensions of the country, there’s also a lot of room for development of SaaS providers. Some other extremely successful cases are Rappi, which provides deliveries, and iFood, a food delivery service. SaaS is also seen as a solution to facilitate system integration, streamline operational capabilities and move towards digital/mobile disruption.
It’s not hard to understand why VC investments in Latin America more than doubled recently, with Brazil leading the region as the major Latin American market to receive most of this amount. What this means for the future isn’t known yet, but with such a dynamic setting, waiting isn’t a great option; it’s best to act.