Beyond “Silicon Island”: How Brazil’s Santa Catarina state is attracting startups inland

RIO DE JANEIRO, BRAZIL – Florianópolis, the capital of Santa Catarina, is known as the Brazilian Silicon Island. But other regions in the southern state are mobilizing to set up innovation ecosystems.

Many associate Santa Catarina’s economy with the tourism generated by its beaches – but the state has been surfing a different wave in the past decades: startups.

The share of technology in the state’s revenue currently represents almost double the national average. With only 1.1% of the national territory and 3.4% of the Brazilian population, Santa Catarina is the state with the fourth-highest revenue from technology.

It is behind only São Paulo, Paraná, and Rio Grande do Sul. Among these states, Santa Catarina posted the highest growth in the number of technology companies between 2015 and 2019 – an 11.8% increase, raising the number of technology companies in Santa Catarina to more than 12,000.

In the same period, the number of companies in the technology sector fell 8.5% in Brazil as a whole. A good part of these companies are startups – scalable, innovative, and technological businesses.

Florianópolis has the highest density of startups per inhabitant in the country – there are five startups for every 1,000 inhabitants. But startups in Santa Catarina are no longer restricted to “Silicon Island”. Blumenau (in Vale do Itajaí) and Joinville (in the north) are also among the ten Brazilian cities with the highest density of scalable, innovative and technological businesses.

The next step is to make startups in other regions of the state – such as the west, mountains, and south – gain relevance and prompt the creation of more such ventures. With support from academic and public institutions, each location is creating its own initiatives to foster innovation. The report talked to founders of technology companies in each region of Santa Catarina to draw an overview of the state’s innovation promotion.

1970 and 1980: industry and IT

]The president of the Associação Catarinense de Tecnologia (Santa Catarina Technology Association – ACATE), Iomani Engelmann, explains that startups in Santa Catarina have as their embryo to serve the industries spread throughout the state.

In the 1970s and 1980s, computer companies started to provide solutions such as management and payroll for the industry. This is the case of Datasul (1978) and Betha (1985). “Leveraging on the local establishment of industries can be a lower risk path with faster results. The potential customers portfolio is already in place,” says Engelmann.

Betha provides public management software for more than 3,000 customers, in 800 Brazilian municipalities. They are city halls, city councils, foundations, municipalities, schools, and state sanitation companies. Business grew 8.1% in 2020, and is expected to expand 25% in 2021. “The history of technology in the state – or computerization, as we called it at the time – blends with Betha’s. There was still no incentive for technology, which was concentrated in very few companies, and there were limitations in the development of solutions. We started by renting computers to city halls that struggled to buy them,” says Aldo Garcia, Betha’s CEO.

“As equipment became cheaper, the demand for management software grew. We’ve seen more technology companies emerging in the last 15 years, some owned by former Betha employees. It’s hard to decide which product or service to buy today.”

Compufour Zucchetti (1995) and NDD (2004) were founded in the following decades, but follow the tradition of computer companies. Compufour Zucchetti provides tax management software to 40,000 micro and small entrepreneurs, through 1,700 distribution channels and monthly subscriptions. Its CEO, Wagner Muller, tells a story similar to Betha’s. He liked programming and started as an office clerk at the company, to access computers and test codes in his spare time. After promotions, buyouts, and the departure of its founding partners, Muller became CEO in 2017.

“It was a computer company in the beginning, not a technology company. We started selling equipment and providing technical support to agribusiness companies. A computer cost about 45 minimum wages, so software development came in only as a hobby. There was no demand, we only used it for internal control,” says Muller.

The sale of fiscal management systems began in 1995, with the participation in IT fairs, such as Fenasoft. “People only talked about technology in Blumenau or Joinville. Florianópolis hadn’t even entered the radar. We were invited to fill the space, but we sold all the floppy disks we had prepared, even though there were not that many computers among micro and small companies. We saw the opportunity to invest in the software vertical, which had much more scale,” says the CEO.

The equipment sales line was discontinued in 2001. In 2020 alone, Compufour brokered R$26 billion in invoice issues. In October last year, Compufour was sold to Zucchetti Italian group, in a transaction valued at R$100 million. Zuchetti provides software for 400,000 micro and small entrepreneurs in countries like Germany, Spain, the United States, France, and Switzerland. Now, Compufour Zucchetti expects to grow by double digits in 2021.

NDD also started selling computer equipment in 2004, but soon moved into printer and document management. Years later, NDD focused on the electronic invoice processing segment, supported by the emergence of the NFe – an electronic tax invoice.

The company processes and controls 1.2 billion fiscal documents for 20,000 companies. Recently, it expanded into the digitalization of transport documents, such as freight bills.

NDD grew 13% in 2020, and expects to repeat the rate in 2021. “We had a strong share of the timber industry. Then came agriculture. Then trade. It was crazy to start a technology company in 2004. But the situation has changed, and even printing has become digitalization. We always have to think about the future needs of the customers. Several technology companies have sprung up around us, including those created by former employees,” says Raphael Serrana, NDD’s executive director.

1980 onward: Silicon Island

Florianópolis inaugurated its first case of artificial promotion of the technology segment in Santa Catarina – no longer to attend nearby industries. “Professors understood that the region’s universities, such as UFSC (Santa Catarina Federal University), formed a good labor force in technology. But the students didn’t find any job opportunities, in an island without industry, and moved to [Brazil’s] Southeast,” says Engelmann.

The first generation of technology companies on the island came with Dígitro (1977) and Softplan (1990). In 1986, academic institutions, public and private initiative created the Business Center for Advanced Technology Laboratories (CELTA). The incubator for early-stage, technology-driven companies has housed more than 100 projects since then.

Supported by the lower cost of technological development, other initiatives to foster entrepreneurship emerged, as did a new generation of technology companies. Focused on large and rapid growth rates, such organizations were part of the startup movement.

Florianópolis accumulates success cases, such as the digital marketing startup RD Station (2011), that have inspired more people to create innovative businesses. “Technology is one of the few possible economic vocations for the island of Florianópolis that does not depend on seasonality, characteristic of tourism, or on the condition of state capital for public services,” says Engelmann.

A series of support entities and an entrepreneurship community in which everyone knows each other have led to comparisons between Florianópolis and Silicon Valley, in the United States. For this reason, the capital of Santa Catarina was nicknamed Silicon Island.

The new startup creators

The history of Silicon Island is well known, and the region of Greater Florianópolis is still the most representative for technology in Santa Catarina, with 32.5% of the state’s companies in the segment.

Santa Catarina’s current challenge is to replicate the method that created the technological entrepreneurship ecosystem in Florianópolis across the rest of the state. “Decentralization is healthy to foster a balance of development across regions and prevent a migratory process to the coast. You don’t need to be in a big city to work with technology,” says Engelmann.

ACATE has represented the industry since 1986, the same year Celta was founded. The state government has ACATE among the partners for 9 innovation centers spread throughout Santa Catarina – buildings provided by the state government itself and that house public and private entrepreneurship initiatives. Another 3 are under construction, and 3 more are in the design phase.

“We map the maturity of each region and what kind of program it can absorb. There is no point in creating a local venture capital fund if there are no companies to receive the money,” explains Engelmann. ACATE lists 4 sets of initiatives, with increasing maturity: technological competitions and meetings (hackathons and meetups); incubation and acceleration programs; angel investment; and, finally, local venture capital funds and connection initiatives with large companies.

Vale do Itajaí, for instance, is close to Florianópolis and already has Blumenau as its flagship in terms of scalable, innovative, and technological entrepreneurship. The region comes right after Greater Florianópolis, in terms of concentration of technology companies – it holds 27.4% of the companies in the state. Next comes the north, with an18.7% share, and with Joinville as the highlight.

But there is still the challenge of taking the startup movement to other cities in the Itajaí Valley and the north of the state. Jonatan da Costa, founder of the startup that manages Área Central’s commercial trading centers, lists some initiatives to foster technological entrepreneurship in Rio do Sul. The city has about 70,000 inhabitants and is located approximately 100 km from Blumenau.

Área Central serves 190 chains, responsible for 8,000 business units. The units work together and are able to negotiate better prices with suppliers – for instance, supermarket branches can group together to negotiate with consumer goods giant Unilever. The startup grew 25% in 2020, and expects to expand 61% in 2021.

Área Central arose from another of the entrepreneur’s businesses, a digital services company called Área Local. Área Local underwent incubation at the University for the Development of the Upper Itajaí Valley (UNIDAVI) in 2004. In 2012, a R$150,000 angel investment transformed an internal network project for procurement management into the new company.

Área Central participated five years later in Startup SC, a training program of SEBRAE in partnership with the State Government of Santa Catarina. In 2018 and 2019, the entrepreneur brought two editions of Startup Weekend to Rio do Sul. Startup Weekend is a mix of hackaton and meetup. Over a weekend, entrepreneurs form groups to create business projects.

The most representative initiative for startups in Rio do Sul is the Norberto Frahm Innovation Center. The space for coworking and entrepreneurial get-togethers was founded in 2019, at the meeting of the Itajaí do Sul and Itajaí do Oeste rivers. The region is considered the cradle of innovation in the Upper Itajaí Valley, serving from indigenous tribes to ferries for transporting wood. The village of Bella Aliança was formed around the rivers – and later changed its name to Rio do Sul.

The Norberto Frahm Innovation Center was created by UNIDAVI and the Rio do Sul Business Association (ACIRS) to become “a major hub for innovation, development, and entrepreneurship,” according to the center’s website. In addition to being Área Central’s CEO, Costa is director of innovation at ACIRS. “The center today works together with the association and the university, but we have secured a budget to build an exclusive building soon. We already have an innovation center, proving that the creation of startups in Santa Catarina goes beyond Florianópolis or Joinville,” he says.

Source: InfoMoney