Brazil currently has more than 12,7 startups in its territory. This data from the Brazilian Startup Association shows how promising this type of business is, even with the lows in startup market in the last years.
One of the reasons was the global rise in interest rates, which generated a lack of investment in sectors linked to innovation. As a result, investors and entrepreneurs began to look more closely at the future of startup ecosystem.
But then what can we expect from Brazilian startup market for 2024? Bruno Henrique Silva, Integration Manager at Softplan, helps us to better understand this scenario.
Continue reading, see what the sector’s growth prospects are and find out how a startup can stand out in 2024.
Startup market: an overview of recent years
Especially in 2021 there was a considerable increase in investments in startups in the Brazilian market. However, in 2022, this sector experienced the phenomenon that became known as the “winter of startups”, due to the sudden drop in the volume of contributions.
Although in 2023 several startups will have reached the rank of unicorn – which are those valued in the market at 1 billion dollars – there was a 60% drop in investments in the segment compared to 2022.
This index was raised by the report Inside Venture Capital, from the Distrito platform, which compared investments in the Brazilian startup market in May 2022 with the same period in 2023.
For the remainder of 2023, the trend is for inflation and interest rates to remain higher. However, investors remain attentive to the prospects for improvement for next year, as the scenario is optimistic.
However, in order to analyze 2024 trends more clearly, it is important to go back to 2018 to understand what the startup market was like at that time.
Brazilian startup market: from 2018 to 2024
Bruno Henrique Silva, Integration Manager at Softplan, associates the growth period of startups between 2018 and 2021 with the macroeconomic scenario at that time, both in Brazil and in the United States.
As the manager explained: “American macroeconomic policy is what dictates the market’s growth prospects. In 2018, the North American and Brazilian scenario was one of low interest rates. This allowed investors to place capital in assets that, even though they were high risk – as is the case with startups – could provide a great return.”
However, in 2020 the US central bank began to tighten. As consequence of the pandemic, the interest rate rose so that federal governments could provide attention and financial support to the population.
“At that time, the American central bank increased the interest rate by around 5,5%. So, the investor who was previously willing to put his money in risky assets began to consider this choice. And that’s when we had a winter of startups”, explains Bruno.
However, the manager predicts that 2024 will be a time of recovery for the startup market. This is because the turning point, from the point of view of North American macroeconomic policy, is a decrease in interest rates.
“Thus, as startups proved capable of receiving new assets, investors’ expected returns will also return. This will be a gradual movement and, at first, for a few companies. So I would say that we will now go through a kind of startup spring”, analyzes Bruno.
Has AI played a significant role in increasing investment in startups in 2023?
In 2023, total investments in the startup market were US$778,1 million in the first half of the year. Despite being a significant number, this index is lower than the amount invested in the same period in 2022. And, yes, AI (Artificial Intelligence) played an important role in this, however, this resource was not the only one responsible for this warming .
The report "From standby to infinity”, developed by LLYC in partnership with iDeals and M&A Community, pointed out the following reasons as responsible for the drop in investments in startups: geopolitical uncertainty, macroeconomic scenario and rising interest rates.
However, the LLYC report also predicts great chances of recovery for the sector in 2024, precisely with regard to the access to new technologies provided by Artificial Intelligence (AI).
Bruno agrees with this reasoning, but draws attention to the fact that the resumption of Brazilian startup market It depends on several factors, not just AI.
“We can say that, from a multivariate perspective, AI is a factor that helps improve operational efficiency, leaving startups with more robust and intelligent solutions. This naturally attracts more investment. However, AI alone is not capable of dictating this moment of recovery for startups. In any case, working with artificial intelligence is something that will be practically mandatory for any technology company in the coming years”, says the manager.
For 2024, what can we expect from the startup market?
The scenario for the resumption of startups can be considered optimistic due to the North American macroeconomic turnaround cycle, towards decrease in interest rates.
Manager Bruno Henrique makes a very didactic analogy to explain this moment: “That period between 2018 and 2020 was like a moment in which the startup market drank from various sources and, soon after, ended up having to deal with a certain hangover, as the bill came.”
However, he considers that this movement will be gradual: “I believe that the market will accelerate little by little and in a more selective way. However, as startups demonstrate potential to receive the assets, investments will naturally occur”, reinforces Bruno.
Which segments are expected to stand out in the coming years?
For Bruno, the fintech sector, which for a long time was considered attractive, gives space to sectors that are still poorly digitized. Agro and the energy segment There are some that have been attracting more attention due to their growth potential.
“Agriculture, for example, will come with everything from now on. We are already seeing the digitalization of this sector through intelligent farm management, the use of AI tools to manage productivity in the field, etc. Another sector that I believe is coming strong is the energy market, even more so if we consider the new regulations on obtaining electricity that are scheduled to be processed by 2028.”
As for the healthcare sector, this segment is one of those that has suffered the most positive impacts from the digitalization of solutions and the consequent improvement in the services provided. “Although there are already many startups in the healthcare market, with this boom in artificial intelligence coming, this sector can develop even further”, predicts Bruno.
How can a startup stand out in the market in 2024?
A ability to execute is one of the main criteria for a startup to stand out in the coming years. However, more than the feasibility of “making it happen”, these companies need to have a clear and practical strategic plan.
In Bruno's view, what sometimes happens is that the company has a great projection axis, but lacks the execution capacity to do the minimum, as well as a team that is aligned and consistent with the same purposes. In this sense, the manager highlights the focus as another essential criterion for those who want to stand out in the Brazilian start-up marketwhoops.
“Here in Brazil we have various types of entrepreneurs, including those who set up a tech startup without having any initial concerns about cash generation. And today I think this should be a priority in the sector. You have to generate cash, have a good execution capacity and a very good team at your side, as well as being down to earth”, concludes the manager.
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