Brazilian startups received $2.7 billion in venture capital investments in 2019. These figures include not only contributions, but also financial transactions related to mergers and acquisitions. The Japanese conglomerate Softbank alone led rounds that amounted to just over $1 billion of this total.
After a year like this, and with the Brazilian economy showing signs that it may finally get into gear, forecasts for 2020 are optimistic. This Tuesday, the Brazilian innovation platform Distrito is launching the second edition of its Race of the Unicorns report (in Portuguese), announcing the 10 Brazilian startups that are expected to achieve the status in the next years.
In 2019, four (Gympass, Loggi, Quinto Andar and EBANX) of the five unicorns born in the country were on the Distrito’s list from a year earlier. Some of this year bets were actually on the 2018’s list too. That’s the case of Creditas, CargoX, Conta Azul and Resultados Digitais, which received large contributions but have not yet reached the billionaire valuation (or at least have not officially assumed that status).
And this year’s race has everything to be even faster than 2019. If we analyze the ecosystem, it’s clear how much faster are the investment cycles that lead a Brazilian startup to become a unicorn. Within less than two years of operation, Loft, a startup focused on buying and selling real estate properties, was the first Brazilian unicorn of 2020. The company was unofficially valued at $1 billion in January after receiving a $175 million contribution from Andreessen Horowitz, Fifth Wall Ventures and Vulcan Capital funds.
If, on the one hand, the 2020’s Distrito list has repeated names from 2018, on the other, some of the bets made at that time are no longer considered as such by the platform. This is the case of ZAP, the real estate platform which after merging with VivaReal lost some of the necessary characteristics to be called a startup; Neoway, the data platform which underwent a reorganization after the departure of its founder; and Grow, the company born in the beginning of 2019 after the merger between the Brazilian bicycle sharing startup Yellow and the Mexican electric scooter rental startup, Grin.
In January, Grow announced a restructuring plan and its departure from 14 Brazilian cities. According to the news website Neofeed, the company is looking for sponsors to resume its bicycles operation, following Tembici‘s business model, another Brazilian startup in the same micromobility segment.
It’s also important to notice that Distrito has changed its criteria for calling a startup a unicorn. The platform has created a new classification for companies that achieve a valuation of $1 billion or more after going public: IPOgrifo, an expression that mixes a mythological creature (the hippogryph) with the acronym that represents a company’s debut on the stock exchange.
By going back to the concept created by Aileen Lee, which only considered private companies, Distrito removed PagSeguro, Arco and Stone from its unicorns’s list, and reclassified them as IPOgrifos.
What it takes to be an Aspiring Unicorn
Together the 10 startups listed to become unicorns–Buser, CargoX, Conta Azul, Creditas, Dr. Consulta, MadeiraMadeira, Neon, Olist, Resultados Digitais and VTEX–have raised nearly $750 million in investment rounds since their founding.
In general, in order to make its list of the next Brazillian unicorns, Distrito evaluated factors such as the profile of the founders, the volume of investment raised and the interval between rounds, in addition to the evolution in the number of employees, followers in social networks, and even the size of the market in which each of the startups operates.
According to the coordinator of Distrito Dataminer Distrito’s database, Daniel Quandt, the main factor for creating a unicorn is the ability to raise funds. “For this reason, the most important factors (to join the list) were related to the company’s fundraising history, with whom it captured these investments and the speed with which it did it. Startups working in capital-intensive markets that require heavier cash injections have also been boosted (to enter the list),” he explains.
Among the aspirants with the highest volume of search on Google, MadeiraMadeira stands out, followed by Dr. Consulta. Perhaps this is explained by the segment of the two: the first one presents itself as the largest Brazilian marketplace for home products and should launch its own furniture brand in the coming weeks; the second connects patients and doctors in an uncomplicated and cheaper way, something essential for a country that has just emerged from the worst crisis in its history and has seen the number of health plan users fall during this period.
Although fintechs are the spearhead of innovation and entrepreneurship in Brazil, they are not a majority among startups that should become unicorns in the next years. This happens, according to Quandt, because some of the largest Brazilian fintechs are, in fact, growing ‘off the startup route’, or because they are part of large business groups (like PicPay) or because they already had a large reserves of equity from the beginning (such as C6 Bank).
Another factor for the next unicorns not necessarily being fintechs is that this is not a capital intensive sector, with a lot being done digitally. This slightly slows down the attraction of large investments and leads to a little more restrained growth.
“Even so, there are great promises in the sector (Creditas, for example, is probably already a unicorn and just didn’t make it officially), and others that are a little smaller, but have great potential for growing a lot in the coming years (like Rebel and Weel, which just received a contribution),” highlights Quandt.