Investment in startups in Brazil more than doubles in 2021 and exceeds US$ 9.4 billion

Investments in startups in Brazil in 2021 once again broke records. There were US$ 9.4 billion (about R$ 53 billion) injected into the Brazilian innovation market, almost 2.6 times what was raised by companies in this segment in 2020, US$ 3.5 billion.

The data, obtained exclusively by the leaf, are from Distrito, an innovation platform that monitors the sector.

The billionaire figures consolidate what has been the rule in the Brazilian startup market in the last ten years: since 2011, the only moment of drop in investments was 2016, a year of acute economic crisis amid the impeachment of President Dilma Rousseff (PT).

Last year, a conjuncture of factors led the innovation ecosystem to this good moment.

In Brazil, investors looked at the Stock Exchange and saw red numbers for weeks on end: the fall was almost 12% year-to-date. Fixed-income bonds, in many cases, gave little return – a ripple from the Central Bank’s stimulus policy to the economy during the pandemic, when the institution froze the Selic rate at 2% for seven months.

A similar decision by the Fed (US central bank) also made US investors look to the real economy. In a saturated market, which is already based on technology companies, many of them put their money in countries of the global south, such as Brazil – which, with the dollar above R$5, was cheap.

Everywhere, demand for technology has grown. Meetings began to require videoconferencing applications, trips to restaurants became deliveries and medical consultations began to be made, when possible, using telemedicine. The expectation for tech investors was that behavior change driven by social distancing would translate into profit.

This was the result seen: entrepreneurs opening capital on Stock Exchanges, seeing a lot of money coming into their businesses and leading mega investment rounds. Proof of this is the herd of unicorns that were born in Brazil. There were ten technology companies that exceeded US$ 1 billion (about R$ 5.6 billion) in market value during 2021, which normally happens in funding that moves a few million dollars.

The oldest unicorn, Nubank was the star of the year among Brazilian fintechs. Valued at US$41.5 billion (R$233.8 billion), the digital bank debuted on the New York Stock Exchange in early December. Like other IPOs, the feat is a showcase for Brazil and ends up being a magnet for investments.

Since the end of last year, however, the scenario has changed. Even if the market continues to grow, as experts indicate, the frenzy may have a deadline.

The liquidity seen by the stimulus measures generates discussions about a financial bubble. Nubank itself had to cut $10 billion from its initial offering amid a slump in fintech stocks around the world.

“There is a cycle now that is not what we experienced last year”, says the co-founder of Distrito Gustavo Araujo.

He noticed the winds starting to change late last year. “As we began to approach greater global instability, investors became a little more rational and raised the bar a little more”, he says, referring to the new wave of contamination caused by the ômicron variant that generated flight cancellations and restrictions of displacement.

At the same time, the Fed announced that it would begin to gradually reduce its bond purchase program – a measure that follows the same line as the Central Bank of Brazil, which, in March of last year, said goodbye to the historic low rate and started to raise interest rates. fees.

“There’s no way to keep growing so much”, says Araujo. “At some point, investors who have gone this whole journey and multiplied capital for two years since the start of the pandemic need to take a profit and get the money out.”

The trend is for capital to be reallocated in the technology market, but in companies that are safer than startups — such as energy companies, for example, which in many cases have 30-year concessions. In general, the return is lower, but it is certain.

“It is natural that you balance your portfolio looking for more stable companies. Are they companies that will grow and give you a huge return? No. But they are companies that do not run the risk of losing so much value”, says the businessman.

Mature rounds such as B, C and D should also be rare. Dependent on larger checks, they feel more the shakes of the economy.

Despite the “very complicated” economic situation, as Araujo defends, the investment scenario in Brazil will not be a desert. Everything indicates that digitalization driven by the pandemic is here to stay and this market will not decrease. The startups that are able to make a profit, in turn, will be rewarded.

Another number that should not slow down this year is mergers and acquisitions. This type of business has taken a leap in the past year.

“This mentality of looking outside for what you don’t have and lack was installed during 2020, but it accelerated a lot in 2021”, says Araujo. “In 2022 we don’t believe it will slow down, not least because any discount in the market value of technology companies means that good assets can be bought at cheaper prices.”

In general, startups suffer less from economic crises because it is more difficult to speculate: they are investments with long-term returns.

“Whoever put money in 2021 is not thinking about a return on capital in 2022 or 2023, but in 2031”, says Araujo, noting that the cycles are normally 8 to 12 years. “In public capital you buy the rumor and sell the news.”

“When you invest in a startup, unlike a stock, you don’t have liquidity, so you can’t sell your stake the next day. You’re stuck in that asset until it performs,” ​​he says.

Financial market tremors can hit the innovation sector like a ripple, but startups are not exempt from possible impacts, even more so with elections in sight.

“It is always a year of greater instability, volatility. Until there is a definition of who can win or who will compete, the year is unstable”, says Araujo. “And investors don’t like instability, so they walk away.”

In short, says the entrepreneur, “the technology market runs in a parallel lane, but it’s the same pool. If the pool dries up, dries up for everyone.”