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Angel investment in Brazilian startups exceeded BRL 1 billion in 2019, but 2020 may be a setback

However, according to Anjos, Brazil angel investment is still far below its potential due to taxes

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  • The investment volume in Brazil is only 0.85% of what is invested in startups in the United States;
  • The investment amount expectation for 2020 is a set back compared to 2019 if there is no readjust in taxes, says the report.

Angel investment volume in Brazilian startups exceeded the BRL 1 billion milestone in 2019, for the first time since the beginning of the historical series. It is an increase of 9% compared to 2018. But for 2020, the expectation is a setback.

The investment volume in Brazil is only 0.85% of what is invested in startups in the United States, which add up to approximately $23.9 billion annually. Data are part of the historical series of the research carried out by Anjos do Brasil, a non-profit organization that encourages angel investment and supports innovative entrepreneurship in the country.

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According to the report, the investment expectation for 2020 is set back compared to 2019 if there is no equal treatment in tax, it said. The results indicate a drop of at least 10% compared to last year. According to the survey, before the COVID-19 pandemic, the projection was for 2020 to present a percentage increase in the volume invested, greater than that which occurred in the previous year. Thus, it represents an estimation of a relative loss above 20% in 2020.

Cassio Spina, president and founder of Anjos do Brasil said the outlook for 2020 is quite negative, especially considering that, while several investments are encouraged, the one in startups is doubly taxed. “In addition to the tax on capital gains, eventual losses cannot be deducted. We realize that there is an urgent need to establish the equivalence of tax treatment and the creation of incentive mechanisms, such as those existing in the United Kingdom, Italy, and Spain, countries in which, besides exemption, it is allowed to offset up to 50% of the amount invested in startups in the taxes due”, he stated.

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According to Anjos, Brazil angel investment is still far below its potential. Considering the ratio of the countries’ GDP is about 10 times, the angel investment in Brazil may be at least BRL 12 billion. However, the report argues that for achieving it, it is necessary to create public policies to encourage investment in startups.

Taxes hinder angel investment, says survey

According to the report, in Italy there is a policy to promote the entrepreneurial ecosystem with two well-defined lines of action: support for startups in each of the phases and more support for the so-called innovative SME projects. The policies are:

  • Tax incentives for seed and early-stage investors: individuals can deduct 30% income tax on equity investments in startups of up to € 1 million;
  • Limited companies can deduct from their tax base 30% of investments up to 1.8 million euros;
  • Debt financing: easier access to public funds for SMEs, approximately € 1 billion of loans already granted in 5 years;
  • Publicly funded subsidized products.

Anjos said that incentive laws can be a powerful factor in driving innovation in countries and the adoption of measures similar to the Italian ones would be effectively beneficial for the development of the Brazilian ecosystem.