Brazil’s startup market is reaching new heights, and its domestic stock market could benefit from the boom.
According to data from KPMG, Brazilian startups raised the most capital in a single quarter in Q1 2021, when some $1.4 billion flowed into domestic technology upstarts. That record stood until the second quarter of 2021 saw $2.7 billion raised by Brazilian startups.
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Inflows are only half of the startup equation, however. Brazil has seen notable acquisitions in recent years, including Twilio buying Teravoz in January 2020, and Etsy buying Elo7 in June for more than $200 million. Magazine Luiza spent $528 million to buy Kabum, a Brazilian e-commerce player, earlier this year. 
Acquisitions are merely one path to liquidity, however. IPOs are another. The good news for Brazil and its startup ecosystem is that despite a historical dearth of technology public offerings on domestic exchanges, the IPO market for Brazilian tech startups could be gearing up for more volume.
GetNinjas, a platform for hiring local labor for household needs like plumbing and painting, went public earlier this year on the B3 exchange, located in São Paulo. And it’s not alone.
The IPO market in Brazil is changing, data indicates. TechCrunch noted last year that in the decade leading up to 2020, just two of the 56 IPOs in Brazil were technology companies. More recently, the number of technology companies listed in the country has swelled to at least 16, up from just four in 2019.
Will the trend of domestic IPOs continue for Brazilian technology companies? Or will U.S. IPOs play a preeminent role for the country’s leading tech startups?
The question is not idle, with São Paulo-based fintech giant Nubank heading toward an eventual public offering and more capital than ever wagered on the country’s current generation of startups, all of which must aspire to the most famous of exit paths. Brazil is also minting new unicorns, with at least four graduating to the valuation threshold this year alone.
But even that data point is outdated: Just this morning, Nuvemshop, a Brazilian e-commerce company, announced a new $500 million round valuing it at more than $3 billion.
To better understand the recently expanding number of domestically listed Brazilian technology offerings, and what could be ahead for the country’s startups, The Exchange spoke to GetNinjas CEO Eduardo L’Hotellier about its IPO and Renata Quintini from Renegade Partners, a venture capital firm, about what’s happening in the country. We’ll lean on data as we go. Let’s explore Brazil!
What’s driving rising technology IPO volume in Brazil?
The number of public companies, overall depressed compared to historical highs in the Brazilian market, is impacted by both sector-specific and more macro trends. When we consider what is driving more technology offerings in Brazil, we’ll want to think about larger macroeconomic factors along with what’s happening in technology more specifically.
In broad economic terms, the same reasons that technology startup markets around the world have seen a boom in venture capital funding apply to Brazil. As Nathan Lustig of Magma Partners told The Exchange earlier in the year, global trends like historically low interest rates are helping drive venture investment in Brazil, while startups are also scaling more quickly as digital technologies penetrate daily life more deeply.
Low interest rates drive more capital toward riskier investments, away from bonds and commodities, and into realms like venture capital. Recall that Brazil has a history of higher interest rates, making the current financial environment notable; before rising in recent months, the cost of money in the country reached a multidecade low in the wake of COVID-19, while inflation topped recent highs. More capital can mean faster-growing startups — and more in total — naturally leading to more IPO-ready firms over time.
But there’s more going on than simple capital allocation changes and technology-friendly trends like an accelerating digital transformation.
A key driver here is the rise in domestic retail investors, whose number grew from fewer than 2 million in February 2020 to close to 4 million as of last June, and who are also more willing to invest in homegrown startups. In a recent talk (in Portuguese), B3’s private equity and venture capital-focused Rafaela Vesterman Araujo pointed out that the pandemic accelerated the digital transformation of companies, which helped investors better understand that phenomenon, making them less wary of tech startups.
“Investors now understand and believe the long-term story of these tech companies,” Quintini seconded.
This has resulted in an “increased appetite for owning high-growth technology companies,” Quintini told TechCrunch — therefore leading to a dramatic change in how domestic tech firms are valued, she said. Stronger public-market valuations for technology stocks would make for a warmer domestic climate for tech listings, a cohort of companies always wary of exceeding their preceding valuation mark when they raise capital or exit.
Recent Brazilian technology IPOs are benefiting from well-known global trends that apply locally and from some specific boosts from their home country.
Narrowing our view to just intratechnology industry dynamics, the Brazilian tech market is maturing. Rising unicorn counts are one way to measure its progress. SoftBank’s appetite for investing in the country is another. More good news could be on the horizon for Brazil’s startup ecosystem: Thanks to recent public offerings, the country could see accelerated startup M&A activity.
According to L’Hotellier, there are venture-backed companies in Brazil that won’t go public themselves but make for “great acquisition targets” for public tech companies in the country. Those deals, he noted, can drive venture capital returns. In turn, those exits could foster cash returns to VC backers, and thus recycle more money back into the Brazilian technology scene.
Web services company Locaweb is a good example of that trend: In February 2020, it reportedly became the first Brazilian tech company to IPO on the B3 stock exchange since 2013 and it has since gone on an acquisition spree. With some of these CEOs becoming angel investors, and Locaweb itself serving as an inspiration for other IPOs, there is no doubt that a virtuous circle is now in place.
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So IPOs are more than just individual liquidity events for tech companies and their backers in the country; they are also a way to unfreeze capital invested in other startups, allowing for more funds to flow domestically. Which, in time, should lead to more technology startups, and thus more IPOs.
For B3, with only a few hundred companies listed currently, a rising tide of technology offerings could expand its total index of companies.
No slam-dunk
Certainly, rising technology listing tallies in Brazil are bullish for its domestic startup market and stock market exchanges. But not all companies maturing in the Brazilian tech market are going to stay local when they choose to list.
Indeed, Brazilian companies listing in the U.S. isn’t a new phenomenon, but it reached records in 2021. In the last five years, Brazilian companies have raised almost $9 billion in IPOs in the United States in 13 operations that don’t include dual listings, Valor reported.
Nubank, perhaps the best-known example of the Brazilian startup scene’s recent growth, is considering a U.S. IPO — and, according to Valor, so are fellow tech companies CI&T, Hotmart, Conductor and Elo. B3 is aware; according to an interview with its CEO Gilson Finkelsztain (in Portuguese), B3 is hoping that companies will opt for dual listings.
“This is what we are going to pursue: to show companies that perhaps the best of all worlds is to list abroad concurrently with a listing here,” he said [translation: TechCrunch].
How much that happens will also depend on Brazil’s broader context. As a matter of fact, 2021’s second quarter wasn’t as strong as the first three months of the year, Finkelsztain acknowledged this May. As to why, he cited “a pickup in COVID numbers, with an increase in hospitalizations and deaths, and some measures to shut down the economy [as well as] a lot of political noise.” However, he was still optimistic about IPOs in Q3, and it will definitely be an interesting quarter to watch, as some IPO candidates withdrew their applications, only to go ahead with more restricted plans.
What’s next
There are still reasons why Brazilian tech companies may want to pursue IPOs in Brazil. For one, they are more likely to get attention on their home turf.
“For many of these Brazilian unicorns, it makes much more sense to be the belle of the ball at the B3 exchange than a smaller fish in the big Nasdaq/NYSE pond,” Quintini said.
The sentiment was echoed by L’Hotellier, who sees the spotlight as accretive in the long run: Even if there is a discount on the listing itself, he explained, it is worth doing it locally to attract top-level funds on your cap table, which is one of the effects of listing in Brazil — because it will make your company more valuable in the medium to long term. (Smaller companies in the United States might struggle to attract similar levels of attention.)
Other startups are already getting ready to follow GetNinjas’ footsteps. “Every week or two, other founders [backed by] Monashees or Kaszek reach out [to me] to talk,” L’Hotellier said. That other venture-backed Brazilian startups are reaching out to L’Hotellier is no small point; it indicates that there could be a long runway of local companies with their eyes on a domestic listing.
Those companies could shake up the valuation differential that technology companies find themselves in on the Brazilian exchanges. Per Quintini, “there is a lot of value to be created by tech companies in Brazil.” She pointed out the fact that Apple, Microsoft, Amazon, Alphabet and Facebook together represent more than 20% of the S&P 500, while that same figure is still “in the low single-digit percentage” on B3.
This could soon change, Quintini predicted: “There are many high-quality tech companies being built in Brazil, with very experienced management teams and very exciting stories that will capture the hearts and wallets of Brazilian public markets investors.”
If it does, this will have a broader effect not only via M&As and recycled capital but also on the attractiveness of tech startups as a whole. “It will show that taking the riskier path of startups pays off,” Quintini said.
Or, in L’Hotellier’s words, developers will now think, “As an engineer, I’m going to work on this startup, because 10 years from now, I’m going to see the company going public.”
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