Why the booming startup's ecosystem in Brazil needs SaaS

Why the booming startup's ecosystem in Brazil needs SaaS? An expert's view on the current market

The industry of startups and fintechs in Brazil is growing more and more. In this article, we answer the following questions: why does this ecosystem need SaaS and how can it become the best ally for market expansion and increase competitiveness globally.

Brazil has become a place where business seems to flow naturally, attracting the attention of big investors and becoming a friendly terrain to giving rise to successful unicorn companies. Proof of this is the group of startups with more than $1 billion in valuation in the country: Nubank, Movile, Stone, 99, PagSeguro, and Gympass.

The technology sector has been in the spotlight for many years in Latin America, with Brazil being one of the countries with the greatest growth. To achieve controlled development and growth, effective solutions are needed to offer more efficient working mechanisms, with cost benefits and the promise of opening the doors to global markets. This is why SaaS has been consolidated with excellent results year after year, and their growth in the region is forecast to be 24.9% by 2022.

We talked to Mariana Foresti, Managing Partner of hi.capital, a company that invests in startups at early-stage about how SaaS has an opportunity to invest in Brazil and be a key tool in the expansion of this sector.

Mariana Foresti, Managing Partner of hi.capital

According to Foresti regarding the LVCA report, “investment in venture capital had grown by 52% in 2018 in relation to 2017. Since we are increasing the number of companies, especially in the area of ​​technology, that is having access to capital and growing exponentially.” 

The expert also mentioned the increase in the number of businesses that will need tools that allow them to scale and optimize marketing, sales, customer relationship management, financial controls, payments, and more. “They will also need to create processes for activities that are done repetitively to make the business more efficient,” she said.

The SaaS model, without doubt, has become a great solution since it is an easy-to-use set of tools that runs from the cloud and has mechanisms for rapid implementation,” the expert concluded. 

Pay as you grow in the path of profitable

One of the biggest challenges in scaling up SaaS businesses in Latin America has to do with the large investments needed to consolidate effective growth. The Pay-as-you-grow model then becomes the formula to find the best balance. This pricing model is used by some storage vendors, in contrast to payment models that require customers to pay for capacity upfront, even if most of it is unused.

When we talk about startups, we often think about the high-costs of B2B software and how this could be an obstacle for success. For this main reason, a business model such as pay-as-you-grow, allows these startups to pay only for what they are actually using. “This is a very interesting model, including some SaaS companies such as “Resultados Digitais’, Hubspot and Zendesk already have programs aimed at startups, where the company could get a discount in the first months and this discount decreases with time as the company grows,” said Mariana Foresti.

As she explains, another relevant point is that some international SaaS still charge the startups in Brazil in dollars, which end up making the costs of the service much less predictable at the end of the month. Payments in local currency offer a great advantage.

The time for SaaS in Brazil is here

São Paulo is the capital of SaaS in Brazil
São Paulo, the SaaS capital in Brazil, according to Tech Crunch

As per a report from Tech Crunch, São Paulo is the SaaS capital of Brazil, followed by Santa Catarina and Minas Gerais. According to Foresti, “there are many types of SaaS that have huge demand by startups in Brazil, among them marketing, sales, customer service, CRMs, financial management software, controllership, internal communication, business intelligence, and the list goes on. Some SaaS that are also winning space are those focused on some specific sectors such as education, real estate, health or retail.

But there are a lot of obstacles and challenges. The first challenge is the tax burden, along with bureaucracy. The second important challenge, which is also common in other countries, is talent attraction and cost of labor. Regarding the first point, Foresti believes that “the SaaS for financial, accounting, and legal management SaaS helps a lot, bringing greater visibility to financial planning and automating the maximum bureaucratic processes”.

On the second concern around talent attraction, “HRtech’s tools work from recruiting to retaining of the talents. The other automation SaaS helps to reduce the number of people required to perform a given task, impacting the efficiency of the sheet as a whole”, the Managing Partner of hi.capital explained.

Key growth factors

Entrepreneurs are aware that SaaS solutions have become a determining factor for growth. And this growth is much more relevant when it comes to emerging markets with its main feature of giving additional benefits to local companies. In this way, SaaS solutions are key when it comes to managing processes, doing so with structures that benefit the budget. With e-commerce growing in Latin America, the demand for SaaS solutions is also stimulated.

Brazilian startups are putting the country in the spotlight and are also paving the way for Latin America to open up to new ways of doing business. With tools like SaaS solutions, they are achieving exponential growth and ensuring a more collaborative and structured work.

For this reason, it should come as no surprise that emerging companies in Brazil and other countries in Latin America have sparked the interest of large international investors, surpassing markets as consolidated as Asia. This is suggested by research done by the German Economic Commission for Latin America (LADW) with McKinsey Consulting. The report concluded that “companies in Brazil and other Latin American countries may be more profitable than those in Asian markets.”

The time is now for SaaS solutions. It an opportunity for startups and fintech businesses to take advantage of solutions that are right at their doors, to facilitate them everything. The SaaS solutions are here to help not only the big unicorns to maintain growth and help them expand globally, but also to help new startups in the region that need to scale faster to win their space in a market that moves even faster.

Opportunity is ripe for the picking!