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An introduction to Sao Paulo’s startup ecosystem

The Sao Paulo Startup Ecosystem is the strong, overperforming innovation hub of South America. Sao Paulo is home to some of South America’s largest and highly successful startups and companies, as well as a number of investors and tech entrepreneurs.  In StartupBlink’s 2019 report, Sao Paulo ranked 1st in Brazil and 23st globally. 

And the startup buzz in Sao Paulo is here to stay! With an ever-increasing number of smartphone and internet users and a marked economic shift, the city is a hotbed of opportunity for startups with innovative and mobile solutions…

Sao Paulo startups that made it big

1. Dafiti (@dafiti_brasil): Started in 2011, Dafiti is an e-commerce site that delivers apparels, shoes and accessories. The company has managed to raise $250 million of equity funding through several rounds.

2. Kekanto (@kekanto): A social network for exchanging recommendations and reviews, Kekanto was founded in the year 2010. The highly successful startup has so far raised $5.6 million in funding.

3. Nubank (@nubankbrasil): The first Brazilian company to raise funding from Sequoia, Nubank offers a digital credit card for smartphones and payment. It has raised $14.3 million in funding. It’s CEO David Velez is a former Sequoia partner, leading its Latin American counterpart.

4. Easy Taxi (@easytaxi): Founded in 2011, Easy Taxi is a taxi hailing app that is now present in 30 countries and 420 cities. It has raised $77 million in funding so far.

Strengths of Brazil’s startup ecosystem

Matias Vazquez, founder of Sharing E.C., a coworking space in Sao Paulo, considers the Sao Paulo startup ecosystem complete, with increasing startup events, accelerators, co-working spaces and big firms investing in startups.

He believes there are a couple of reasons why startups thrive in Sao Paulo. He says, “Sao Paulo is the Financial center of the country. Sao Paulo literally carries the country financially as it contributes to 60% of the Brazilian GDP.” Being the financial center, Sao Paulo also houses the offices of multinational corporations.

Vazquez also mentions that a lot of major accelerators are located in Sao Paulo, along with smaller investors looking for a good product. “Big companies (agencies, banks and construction) are building full sectors exclusively for funding new start-ups. So there is indeed a lot of money available for investment, but not enough good and promising startups for investment in 2015,” he says.

When it comes to market size,  Sao Paulo with a population of 11.8 million offers a huge opportunity to startup founders. The Brazilian economy is seeing a major shift, with the rapid growth of the lower and middle classes. Add to that the increased usage of smartphones, and it translates to a wide scope for mobile-based businesses, especially e-commerce.

The city also has an abundance of talent, owing to the number of well-regarded universities present. Although it may be a bit of a challenge to convince the right personnel to join a startup’s workforce, and not take up a traditional job.

Weaknesses of Brazil’s startup ecosystem

According to Vazquez, the biggest weakness of not only Sao Paulo’s ecosystem, but Bazil as a whole, is bureaucracy. “To open a company it can take 2 to 4 months, and to register a name it can take up to 10 years. Other important factor is the legal security as there are many laws and interpretations to the same subject and no law to others,” he rues.

Taxation in Brazil is another challenge startups must surmount. Entrepreneurs have to pay an enormous 100 – 120 % taxes on employee salaries, revenues, goods, and services.  The high taxes are also pointed out by Vazquez who mentions, “According to SEBRAE during the first year of a new company between 50% and 60% close.”

With a booming population, another major problem is the Brazilian infrastructure. Employees spend hours in traffic to reach their workplace or meetings.

And finally, the last major issue plaguing startups in Sao Paulo is that many of them are not looking for ground-breaking innovation, but are content with starting the “Amazon of Brazil”or the “Groupon of Brazil.” Startups need to break out of this mindset in order to make a mark on a global level.

Key Players in Sao Paulo’s ecosystem

Entrepreneurs and Venture Capitalists in Sao Paulo:

Gustavo Araujo: CEO and founder of A.SENSES, he invests in early stage startups in areas of advertising and entertainment. He is also the founder of A.LIFE Entertainment Group.

João Luiz Olivério (@joao_oliverio): He is a mentor at Aceleratech. Often invited as a speaker at conferences and startups, he is well-experienced in developing startups and funding companies.

Erik Cavalcante: A venture capitalist and entrepreneur, Eric Cavalcante has experience in the field of  IT and telecommunications. He is currently a partner at Vox Capital.

Investment Firms in Sao Paulo:

Vox Capital (@Vox_Capital): Founded in 2009, Vox Capital invests in small as well as high-potential businesses. It aims to create a cluster of profitable and scalable social businesses that improve millions of lives.

Bolt Ventures: Bolt Ventures makes seed and early stage investments in companies, and has an operating office in Sao Paulo. They invest in startups with market innovation and in areas such as education, e-commerce, mobile and subscription based models.

Victoria Capital Partners: A private equity firm with a focus on South America, it has offices in Sao Paulo, Buenos Aires and Bogota. Their investment activities are guided by teamwork, flexibility and transparency.

Monashees Capital: It is a Brazilian investment fund with 20 companies in its portfolio. The areas of investment include education and internet based companies. Some of its existing portfolio companies include Oppa, GetNinjas and Elo7.

Accelerators and Incubators in Sao Paulo:

Aceleratech (@Aceleratech): This program provides startups with an extensive range of benefits: from the business model, strategy and preparing for investments to networking opportunities and free services provided by its 40 partner companies. It has mentors from Silicon Valley and New York as well.

Startup Farm (@startupfarm): An accelerator for tech startups, it is 5-week long. The startups are provided with entrepreneurial knowledge, access to capital as well as an opportunity to collaborate extensively. Some of the startups that they have accelerated include Up Points, Easy Taxi and WorldPackers.

Acelera Partners (@AceleraPartners): An accelerator for 1-3 years old startups, Accelera Partners is a six-month program. It chooses four startups from Rio de Janeiro and Sao Paulo. Selected startups are offered mentoring, networking opportunities and financial support.

Co-working spaces in Sao Paulo:

Plug N`Work (@PlugNWorkSP): Home to a number of successful startups, Plug N’Work offers startups an opportunity to join an ever-growing community. It is present in three locations. It also has private offices and organises a number of events.

Sharing E.C. (@SharingEC): With 16 private offices, 14 internet links, 2 meeting rooms and 88 coworking spaces, Sharing E.C. was named “Best coworking in 2015” by Quality International. Among other utilities, it provides startups with lockers, coffee, a refrigerator, microwave and team tables.

Estacao Coworking (@EstacaoCo): Estacao coworking wishes to become the ultimate space for initiating new projects and collaborating effortlessly. A plan for one person includes unlimited office hours, 4-hour usage of the meeting room and locker space.

Conclusion

All in all, Sao Paulo is a growing hub of startups and extensive market filled opportunities. However, there are still a few problems such as taxation and bureaucracy that startups must conquer to grow rapidly!

A special thank you to Mr. Matias Vazquez (@MatiVazquez) for his insights into Sao Paulo’s startup ecosystem!