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Investors are focusing on fintech startups in Brazil

Investors are focusing on fintech startups in Brazil

Posted by PanamericanWorld on May 17, 2017

Brazil’s technology start-up scene is still attracting attention from investors. Yet there was a marked slowdown in overall new amounts pledged in 2016.

Nonetheless, Brazil’s technology-savvy citizens have an obvious appeal to start-ups and their backers. Brazil ranks third globally in the number of Facebook users, behind the US and India. It is fourth in number of internet users and is one of Google’s most important markets for products such as Android. Research from the Latin American Private Equity and Venture Capital Association (Lavca) shows a 37 per cent decline year on year in the overall amount invested by venture capital firms, from $442m invested in 2015 to $279m in 2016. The number of deals also declined, from 101 in 2015 to 64 in 2016. The reluctance among some VC backers is understandable.

Investors bet heavily on consumer-focused internet companies during Brazil’s most recent economic boom from 2010 to 2013, pouring money into companies that were often replicating business models from the US and Europe. However, observers say many of those companies failed, with few ever reaching profitability and, to date, exits that would provide VC firms with returns have been virtually non-existent. “The first vintage [of investment] was poorly invested, mostly in ecommerce, and you’re seeing the result of that now,” says Edson Rigonatti, a founding partner at Astella Investimentos, a VC investment firm.

Since that period though, investors have made adjustments and there has been a new crop of start-ups. Fintech is growing in importance and bucked the recent downward trend in overall VC investment, according to Lavca. In 2016 the fintech sector attracted $113m in venture capital in 14 deals, more than 10 per cent higher than the $102m pledged in 2015 in nine deals. “I was not sure if we’d ever see it, but we’re beginning to see companies export their business model to Europe, the US, and Latin America for the first time,” says Kevin Efrusy, a partner with Accel, the US venture capital company, who has been investing in Brazil for over seven years. Neoway, the Florianopolis-based big data start-up, is among the businesses drawing the interest of global financial companies as potential customers. It is even looking to make acquisitions this year, possibly in the US, its founders have said.

 

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