Why unicorn maker Brazil is fertile ground for fintech startups


As of April, the Brazilian economy reached the ninth spot as the country with the highest number of unicorn firms.

A new breed of tech startups continued to draw significant funding from global investors.

According to TechCrunch, the largest economy in Latin America has minted 18 unicorn companies so far, a term typically coined for tech startups that reach a valuation over $1 billion.

Over the past few years, the Brazilian startup scene has succeeded in attracting venture capital flows, contributing to its companies swiftly scaling up both in size and reach. The country more than doubles Latin America’s second-largest market, Mexico, which saw seven unicorn firms created so far.

“The entrepreneurial ecosystem in Brazil is already much consolidated,” said Hernán Haro, founder at MrPink VC. “There are tons of entrepreneurs and available funding now that can help them scale.”

The last member of the privileged list was online bank Neon, which saw a $300 million investment from banking giant BBVA this year. The digital lender was an attractive asset for the Spanish bank to make its way into the country, a market in which it had little participation before. By acquiring a stake in Neon, it gained access to a clientele of some 15 million.

‘Growing rapidly in market with potential’

“Neon’s value proposition connects with the financial needs of Brazilians, serving as a platform to continue to grow rapidly in a market with great potential,” Carlos Torres Vila, BBVA’s chairman, said at the time.

Brazil comes as an increasingly attractive market for financial technology companies, given the sheer size of its economy ($1.5 trillion) and a population of 210 million.

Such a sizeable addressable market contributes to more robust valuations for fintech companies, experts said. On top of that, the pandemic has contributed to the digitization of the economy faster, driving the adoption of digital banking services and allowing neobanks to draw in clients by millions.

Even though Brazil has one of the highest levels of banked adults in Latin America, service quality and usage have much room to catch up with developed peers.

It is no surprise that out of all 18 unicorns, six belong to the financial technology sector. These range from cryptocurrency companies such as Mercado Bitcoin stock exchange, cross-border payments firm Ebanx, digital banks Neon and C6, and Nubank, currently the flagship of Brazilian fintechs and one of the largest neobanks worldwide by the number of customers.

Typically, $1 in every $2 that flows to the region in private capital funding goes to a Brazilian firm. Last year, Nubank made waves when it tapped some $750 million from private investors before going public on the New York Stock Exchange. Creditas, which sells secured loans in the Brazilian credit market, also reached unicorn status by the end of 2020.

Brazil receptive to innovation

“Brazil has very favorable conditions,” Carlos Augusto de Oliveira, a fintech consultant, said. “This is due to the territorial size of the country, millions of unattended customers, and growing digitization in the population,” he said. “That is making them receptive to innovative and more convenient solutions.”

Some praise the central bank and its innovation agenda as a promoter of recent financial improvements. The adoption of Pix, a low-cost payment system championed by the central bank, has been massive. It has seen adoption rates that would be the envy of just about any private company, reaching over 110 million individual users in little more than a year.

“The role of the central bank in regulatory simplification for startups and also standardization of the use of digital processes (use of cloud, digital signatures, remote service, etc.) was key to make way for new, agile business models that got strong support from the public,” said Oliveira. “It has broken the oligopoly of big banks, slow to keep up with this new transformation phase.”

However, even though Brazil is the leading place in Latin America for unicorns to be born, it is also a reality that competing in the market and adapting to its bureaucracy can be a challenge. Also, prominent financial players already have a strong advantage that is sometimes difficult to overcome.

“Brazil is an ultra-competitive market, and if you are not fast enough… you lose,” Haro said. “The fintech sector has monopolized almost all investments in recent years. Now it’s time to show that it is more than just a trend.”



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