The Brazuca VC Ecosystem

As has now become tradition, last week marked another edition of Brazil at Silicon Valley (BSV). The event brought together ~500 Brazucas at the Google Cloud campus conference center. As always, it was impeccably organized — and, as always, accompanied by the usual complaints about the lack of a direct SP–SFO flight (while Portugal, with half the population of greater SP, enjoys one).

So, the occasion offers a timely opportunity to reflect on the traits and current state of Brazuca VC:

* A drop in the ocean: In 2024, Brazilian startups raised $2.0B in VC funding. By contrast, US startups secured $216B (PitchBook) — over two orders of magnitude more than Brazil. Brazil counts with 17 unicorns, while the “tiny” Fabrica Ventures has invested in over 40 US unicorns. Databricks alone, a Fabrica Ventures portco, raised $10B in its latest round

* BelIndia: B2C basic services and credit for 190M, out of 215M people — that’s what there is 

* Weak B2B: With only ~260 companies on Bovespa valued above $50M, there are few companies to sell technology in Brazil. Indeed, there are only two B2B services companies among the 100 largest market caps in Bovespa: Totvs (tech) and GPS (people outsourcing). Moreover, the few Brazilian tech B2B startups face intense competition from US tech companies — Oracle, Salesforce, you name them

* Tech-Enabled instead of Tech business models: Tech-enabled startups operate with low gross margins, typically 15%-20%, as technology is not the core offering but a means to an end. The vast majority of Brazilian startups fall into this category — iFood, a bike delivery service, is a good example

* Little innovation: Most are copycats with no real moats. Sectors like cybersecurity, robotics, semiconductors, GenAI, quantum, crypto, defense, etc., etc. are virtually absent

* Financial sector concentration: Since giving credit to the poor at triple-digit interest rates is a national leisure. However, the atmosphere on Faria Lima Ave can be toxic

* Narrow exit window: IPOs are virtually nonexistent — the last on Bovespa was nearly 4 years ago, with an average of just eight per year since 2010 — with most founders hoping for acquisition by an international company seeking a foothold in Brazil. GPs primarily seek secondary exits following a Series B round

* Absence of the essence: Entrepreneurs are society’s true heroes — especially in Brazil, where they battle an insatiable Leviathan. Thus, every Brazuca entrepreneur deserves a standing ovation. However, VC is mostly about developing technology with 80% gross margins and targeting global markets to gain scale. There’s nothing wrong  with a retail chain of construction finishing materials or a health insurance broker (both actual portcos of a leading Brazuca VC fund) — these can be highly profitable ventures. But they don’t embody the essence of VC

* Beauty matters: VC, as an illiquid and high-risk asset class, should aim for extraordinary returns (which has rarely been the case in Brazil, but that’s beside the point). For GPs and LPs who appreciate great businesses, there’s real satisfaction in backing startups you’d gladly own post-IPO. Being proud of your portfolio companies doesn’t guarantee returns, but investing in high value-added startups over uninspired ones is undeniably a more beautiful path

Conclusion

Talent knows no borders, but borders matter. The message at BSV from Tractian’s Brazilian founder, whose startup is now booming in the US, was clear: move to the US. Yes, entrepreneurship is an act of courage.

The Brazuca VC ecosystem simply lacks the magic tripod of capital, science and technology needed to thrive in the true spirit of VC.