by: Markus Lampinen
Brazil Labelled Map.

Image via Wikipedia

This is a guest post by Jorgen D, a Swedish entrepreneur living in Brazil since the 90′s.

We are in a long growth cycle in Brazil. This is due to various factors. It is just more than 25 years Brazil went from strong dictatorship to democracy. Fighting against hyperinflation, the Plano Real was introduced in 1994, bringing an end to an unstable economy. The Plano Real laid the foundation for the continuous growth we see in this South American country today. It is the world’s fifth largest country with a population of 201 million. The largest country on the continent, it dominates in terms of trade and growth. Different from Europeans and Americans, the Brazilians are looking into the future with strong growth, development and a system largely in change. Brazil’s abundant natural resources: large oil reserves, and iron ore/steel, together with an increasing world demand, has largely contributed to this. During the last crisis and turbulence on the stock markets, we saw very few effects in Brazil. On the contrary, investments grew, and the country continued its growth.

The view on the country is changing abroad and at home. The country’s first female president Dilma Rousseff was inaugurated on January 1, 2011. President Obama visited Brazil early this year, to strengthen the ties with a country in change. Besides the economic changes, efforts are high to lower the violence and poverty. Large shanty towns in Rio de Janeiro have been pacified as Brazil is going to host the 2014 FIFA World Cup. Two years later in 2016, Rio de Janeiro hosts the Summer Olympics. Corruption, poverty and violence are still important issues that need to be dealt with for a continuing strong development.

Compared to the countries in region, the Brazilian stock market is the largest. The São Paulo stock market is the only trading exchange in Brazil and the largest one in Latin America. About 70% of the trading volume of the entire region takes place here, worth about $2.2 billion on an average day. It is the most important country in the region compared to Mexico, Chile, Peru, Colombia, Venezuela and Argentina. Bovespa is the first Latin American market to follow the global trend toward issuing its own shares to investors. The large size of this market, compared with others in Latin America, makes Brazil less sensitive to changes. The total market value of the stocks quoted on the Brazilian exchange is more than $1 trillion. NYSE Euronext has acquired ownership of Bovespa and the CME Group, the world’s largest futures market, agreed on October 23, 2007 to purchase 10% of Brazil’s Mercantile and Futures Exchange (BM&F) for a price of about $700 million. Still, a lot of work needs to be done. The capital markets have grown larger, and more efficient. This in combination with a continued stable economy has strongly grown the foreign interest.

Government initiatives for startups have mainly been FINEP (Financiadora de Estudos e Projetos). However, FINEP only invests money in companies who are not yet incorporated. The government incubator investments (PRIME) started 2007, and they made about 1300 payments of U$75k to promising start-ups with less than one year in operation. The program is still being evaluated, and as such continued investments in startups are on hold. This kind of funding is hard to get and is just the tip of an iceberg, counting the need for incubator investments. Other means for startups are funds and banks. Banks are very rigorous, and with their high interest rates (1-2% per month), it is a difficult way of financing operations and R&D. The number of small-cap funds are few compared to the US and Europe, limiting the funding available.

The São Paulo Stock Exchange (Bovespa).

Image via Wikipedia

The way the private investors have grown their investments on the stock market shows there should be a high interest for investing in startups. In terms of technology offered for the average investor on the stock market, we are at least 10 years behind the US. There is only one computer trading tool for investing on the stock market in Brazil, the “Home Broker”. The majority of trading is still manually cared for via telephone calls, even though the stock market is electronic. That means a good opportunity for new and easier investment platforms.

Looking at Brazil we see a country in strong growth. We see a strong demand for new funding alternatives and we also see a need for new investing platforms. For sure, new alternatives will appear to meet demand.

If you want to know more about what Grow VC is doing in Latin America, get in touch with Patricia at patricia@growvc.com

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About the author

Markus Lampinen Passionate, driven entrepreneur. CEO at Crowd Valley, the crowd funding infrastructure, Senior Partner at the Grow VC Group. Markus has also worked with actors in both the private and public sector, to improve the infrastructure for entrepreneurship and serves as a frequent public speaker on related themes. Follow Markus on Twitter, LinkedIn & Google

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This entry was posted on Wednesday, July 20th, 2011 at 3:03 pm and is filed under Online Startup Business. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.