Angel Investments in Brazilian Enterprises Decline for First Time

By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – Over the past few years, angel investments have grown significantly throughout the world, including in Brazil, where the volume of investments made by angel investors increased at least nine percent every year since 2010. A recent study, however, showed that this type of investment fell in 2018.

A survey conducted by Anjos do Brasil (Angels of Brazil), a non-profit organization that fosters angel investment and supports innovative entrepreneurship in the country, showed that angel investments reached the mark of R$979 (US$244) million invested in 2018, down by 0.4 percent from the sixteen percent growth seen from 2017 to 2018. The decline in 2018 is the first since the beginning of the historical series in 2010.

The study shows that although new angel investors joined the market in 2018, the volume of money invested did not compensate for those who left. The average investment made by angel investors last year was approximately R$126,000 per year, shows the survey.

According to Cassio Spina, founder and partner at Anjos do Brasil, the main reason for the decline is that many current and potential angel investors left the country due to the political/economic situation in Brazil.

“Last year alone, 36,000 of the 180,000 investors who had more than one million dollars in investment in companies in Brazil, emigrated from the country. In Portugal, a survey indicates that Brazilians invested about R$1 billion in real estate,” said Spina during the 7th Angel Investment Congress in São Paulo this past week, where the study was released.

Spina says that, despite the name, angel investors continue to be investors. “They seek returns. When they consider the other options they have outside the country, with less risk and taxation, it is difficult to compete,” he says, criticizing Brazil’s high taxation rates for startups.

“While other types of investments, such as mutual funds and debentures, are tax exempt, startups must pay taxes that vary from fifteen to 22.5 percent,” says Spina.

Angel investors are a key resource to support and accelerate the success of high-growth startups, notes the executive. In addition to the money they provide, these types of investors play an important role in guiding the strategic and operational expertise for new ventures.

The study by Anjos do Brasil shows that a vast majority of angel investors in the country invest in tech startups.

“What Brazil lacks are stimulus policies for investing in startups like those applied by numerous other countries. And these policies would not reduce the volume of tax revenues,” argues Spina.

Today, Anjos do Brasil is the largest investment network firm of this type in Brazil, with representatives in twelve of the 27 states of the country.

For investment experts, stimulus policies, such as tax reductions for startups, could increase the volume of tax revenue, since the better the startups perform, the more significant the tax contribution by them in the future.

“Argentina, even facing an (economic) crisis, has recently adopted stimulus policies. South Africa has also adopted measures which, in addition to tax exemption, allow the investor to offset up to 100 percent of the amount invested in their tax-to-be-paid. There is an urgent need for Brazil to implement these policies or we will be behind when it comes to innovation,” says Spina.

Spina states that the volume of angel investment in Brazil amounts to only 1.2 percent of what is invested in venture capital in the United States, where that amount is approximately US$23.1 billion per year. “Investment in startups in Brazil could be nine times what it is today,” he says.

Despite the disappointing numbers during the first half of 2019, Spina and other investors say that recent signs have lifted the sector’s spirits. One of these signs is the recent announcement of substantial investments made by Japan’s SoftBank. The bank announced earlier this year the creation of Innovation Fund for Latin America, committing to invest at least US$2 billion in tech startups in Central and South America.

In Brazil, SoftBank has already invested US$1.4 billion in companies such as 99Taxi, Loggi, Creditas, NuBank, and Gympass.

“SoftBank entering Latin America brought an abundance of capital,” says Anderson Thees, partner and co-founder of Redpoint Eventures, the first Brazilian venture capital fund created in partnership with Silicon Valley firms.

An abundance of capital will help the entire investment chain.

“SoftBank is a stimulus to Anjos…our investors will need to have more money to invest in their companies in the near future, that is where the venture capital firms and investment funds like SoftBank come in,” says Spina.

According to a survey conducted by the Brazilian Association of Startups (ABStartups), the number of startup companies registered in the association doubled between 2012 and 2017, going from 2519 to 5147. Today, there are more than 12,000 companies following this model, and behind a great majority of them is an angel investor.

With more significant funds and venture capital firms investing in the country, Spina and other investors believe that 2019 should register a growth, of approximately five percent, in the volume of investments made by angel investors.