Inside Brazil’s VC Boom: Funding Trends, Fintech Growth, and Startup Exits in Latin America

**Brian:** [Music] Welcome, everyone, to the Nearshore Cafe podcast, where we talk about the stories and people doing business in Latin America. I’m Brian Samson, your host. If you’re interested in the investing landscape and ecosystem in Latin America, and in particular Brazil, this is going to be a special podcast for you. We have Mitsuru Nakayama, and he is an expert in this space. Before we jump right into it, this podcast is sponsored by Plug Technologies. Plug.tech is a great way to connect all the amazing talent from Latin America to growing US companies. Let’s get right into it. Welcome to the show, Mitsuru.

**Mitsuru:** Thank you very much for having me here. My pleasure to be here.

**Brian:** Amazing. Well, let’s just start. Let me ask a kind of a general overview. As you’ve been an investor in Latin America for a little while, what does it look like today? Do you feel optimistic or pessimistic right now?

**Mitsuru:** Well, very optimistic, actually. Because, just like the U.S. market, the venture capital market had some adjustments after 2022 and 2023. So, we’re kind of in a slower mode these years. However, I think as we had a big wave in 2020 and 2021, that wave produced a lot of experienced entrepreneurs and several unicorns, meaning a lot of people working in growing startups in Latin America. I think more than 50 companies became unicorns at the time. So, that really gives us a much better opportunity for potential excellent, expert startups and entrepreneurs in the regions. We feel that when we started investing in Latin America in 2014, and as we are looking at these entrepreneurs today, after 10 years, I feel the quality and the excellence of the business plans and the analytical perspective of the problem solutions became much better than they were 10 years ago.

**Brian:** I’d like to talk a little more about Brazil as a standalone country when it comes to the VC tech ecosystem. How is it maybe the same, how might it be different from some of the other powerhouse countries like Mexico, Argentina, Colombia? I’d love to hear more.

**Mitsuru:** Well, I think first of all, we kind of divide Latin America into two different regions. One is Brazil, which speaks Portuguese, and the other is Spanish-speaking Latin countries. Characteristics of Brazil are its population, more than 200 million people, and also the country itself is very strong in terms of a lot of natural resources and all that stuff. So, its economy is much stronger than other countries, and that’s why it’s kind of an independent ecosystem, I would say.

And also, thinking about the venture capital industry, the local government helped a lot to invest in startups. So, it means you needed to establish a fund in Brazil and invest in Brazilian startups; that was the beginning of the ecosystem. So, it means Brazil has a longer history of ecosystem, and also the volume of investment in startups has been much larger than other countries in Latin America.

Also, people in Latin America say Brazil kind of rapidly adapts new technology or new business models. One good example could be rideshare. When rideshare like Uber, and at the time there were companies like Cabify and local 99, actually started operating in Brazil, the Brazilian government started creating regulation for rideshare, not adapting or modifying the taxes regulation, which is totally different from the movement that we see in Japan, for example. The Japanese government would like to put these new businesses into some traditional business framework in terms of regulation, especially. That can prevent opportunities to take advantage of having— sorry, let me rephrase this again. That kind of movement by government can prevent local people from taking advantage of new technology or new business models.

Similar things are happening, for example, with drones in agricultural areas. The Brazilian government regulated the payload of the drone, especially in agricultural land where there are almost no people living there. So, in many countries, if drones become more than 25 kilograms, then the regulation becomes more restrictive, and it’s kind of tough to really operate the drone in these areas. So, a few years back, people were operating drones within this weight limit. However, a few years ago, the Brazilian government opened up the weight limit only in agriculture, without any limit. So, you can have large drones that can be replaceable to, for example, helicopters or sometimes planes. That reduces a lot of carbon emission because you don’t need to fly with the plane. And also, as drones can fly very precisely and spray in a specific location, for example, that reduces the use of chemical material by 80%, for example.

This kind of movement is continuing, for example, in stablecoins. The Brazilian government kind of decided how to make interbanking transactions using stablecoins, how to report officially, to make an official transaction. But before that, it was considered kind of a gray zone. People were thinking it’s going to be okay, however, there might be a risk. And as the government decides how to do it, even though it’s kind of complicated, people are safely operating and innovating the business within the legal framework. And other countries probably are seeing the tendency will be there, so many Latin American countries are looking at Brazilian government’s regulation policy as if it’s going to come through to their own countries.

**Brian:** Yeah, interesting, interesting. And when you talked about volume of investment, I wanted to peel the onion a little bit in terms of how investors there are maybe thinking about check sizes, size of rounds, and then how that might even be allocated. For example, we’ve spoken to entrepreneurs in Lima, Peru, and they need significantly less money than a U.S. startup. And they’re also able to pay much better than domestic companies, so they can attract talent much easier. I’d love to see how that plays out in Brazil.

**Mitsuru:** Yeah, well, that’s a very good question. We see interesting, different dynamics among countries. So, I guess what determines valuation, ticket size, and everything is based on the history or accumulated experience as an ecosystem. For instance, I guess if there are two companies of the same revenue size, pro-growth, and everything, I think a valuation in Brazil can be a little bit lower than other countries in Latin America. The reason is, as Brazil experienced a lot of exits, mainly by M&A and some by IPO, people understand how much they can gain at the end of the journey of a startup. So, as VCs, we calculate in an inverted way. As you need to have several rounds, you should have a double or a triple valuation, and then at this stage, the valuation should be X dollars. But in other countries in Latin America, I see there are not so many exit cases, so people don’t have numbers. That’s why any startup can be a unicorn is a kind of expectation by investors, especially in the initial phase. So, people see like, okay, $1 million, $3 million, $5 million valuation can be similar because it’s going to be like $1 billion at the end of the day.

Another different characteristic can be the type of investors. In these 10 years, Brazil created experienced investors, both micro-funds and individual investors, like we call it. However, in other countries in Latin America—well, Mexico has a little bit better than others—but in these countries, people are experiencing the first cycle of investment in startups. So, there is a very big lack of experience of how much it will be at the end of the day. So, people are a little bit optimistic in these countries, which don’t have actual numbers. And so, that’s kind of a struggle that we may face because we know how it’s going to be like in Brazil, a little bit less Brazil because of the market size. But people are more optimistic in Spanish-speaking countries. So, that’s why we are trying to share our experience as much as possible, launching our venture financing online courses in Spanish, for example, to try to establish a market standard in a way. But comparing with U.S. startups, for sure, valuation is much lower, and so ticket size can be much smaller. For example, we are in the pre-seed round. Valuation of the startup can be like $1 to $4 million. Our ticket size could be $100K to $200K. And a startup, let’s say, the recent investment we made, the startup had $35,000 revenue per month, profitable, growing 10% per month, plus still a $4-5 million valuation. I guess it might be much lower than the U.S. or even the Japanese market.

**Brian:** Are there particular regions that you see are taking off more than others, say Florianopolis or São Paulo, Rio? You know, where is the hottest space right now?

**Mitsuru:** Well, it’s interesting in Brazil. There’s not so much concentration. For example, São Paulo is the biggest city in terms of commercial activity and population, everything. However, as Brazil is too big to concentrate everyone in one city, each state has a good educational system and good universities, and people tend to stay in the local regions. So, if we look at our portfolio, for example, I’d say 40-50% are in São Paulo, but the rest is kind of scattered in several cities. So, we don’t see much of that geography.

But I think an interesting area in Latin America in general is the fintech area. And because of—as Brazil experienced one cycle of what kind of business model works and doesn’t work—we see several sub-areas where there might be more potential than others. And as I commented about the stablecoin transaction, how to adapt new technology to real social implementation happens rapidly in Latin America. So, we are looking at this area as well, and we are kind of feeling the SaaS business model started getting traction in Latin America. I guess it happens a few years after what happens in other countries. So, as I know much about the Japanese startup ecosystem, and of course, in general, we follow the U.S. startup ecosystem, that can be a very good reference point and benchmark for us to decide where to look more and help make decisions.

**Brian:** Interesting. As you talked about maybe some of the apps that might be more successful, I’d love to hear just more about how consumers might think about that. For example, in China, it’s often the focus on super apps that do many, many things. In the U.S., for a long time, it’s, you know, pick a very singular focus, do that excellent. How might Brazil think about that?

**Mitsuru:** Brazil is pretty much similar to the U.S. market in that sense. So, one particular example is Uber. Uber is dominant in Brazil for rideshare. And Uber launched Uber Eats for delivery, for the food services, and also grocery. But Uber Eats just stopped operating in Brazil a few years ago because there are other local apps like iFood and Rappi that are very strong in the region. So, and also I know Asian countries also have a lot of super apps, however, I don’t know why, but super apps don’t happen so much in Latin America.

**Brian:** Yeah, yeah, yeah, I’ve seen that too. And also as we’re thinking about Asia, I think about San Francisco as a very, very mature market for startups. And the way that I might measure it is three things: Do you have capital? Do you have talent? And then do you have mentors? Right? Like people that recycle their knowledge, recycle their capital, and so forth. They have exits, they stay there, they reinvest, right? So, I look at a country like Singapore that almost tries to buy their way into it. You know, they don’t quite have the talent or the mentorship, but they have the capital. You know, let’s try to accelerate where we are. Where is Brazil? Like, has there been enough cycles where the mentorship and exits have flowed through?

**Mitsuru:** Well, I think it’s still evolving, so I wouldn’t say it’s very much established yet. So, I would say, let’s say 10 years ago, when I started investing in Brazil, there weren’t so many entrepreneurs with a higher education or a better background in general. Because in Brazil, there’s almost like a 10% interest rate per year. So, once you have $1 million, you get like $100K without doing anything. And it’s a very diversified country. So, if you’re in a top tier in terms of education and financial status, it’s kind of much easier to stay in big companies or being public employees to kind of maintain the status.

At that time, there was only one exceptional startup that made a very big exit. However, in 2018, three Brazilian startups made an IPO in the U.S., and then the value was a few billion dollars. That kind of totally changed the mindset of being an entrepreneur of a startup or in the tech area in Brazil. So, before that, I think it was very tough to find experienced mentors in Brazil, and there was a scarcity of money. Because when we started in 2014, $400 million was the whole amount of investment into startups in Brazil. But eventually, in 20—that kind of trigger of 2018, and the top was 2021—I’d say $10 billion went to Brazilian startups. Such a big difference in only seven years. And as I said, well, there are a lot of unicorns, and many people can start, make an exit, and some entrepreneurs became investors, launched some VC funds. So, VC funds, and we see a lot of successful entrepreneurs working in our VC funds. So, these people naturally can share their experience, so that flourishes the Brazilian ecosystem.

However, I guess it’s so much a limited ecosystem with a very limited number of people. So, I guess we see a lot of opportunity in the future as well. But comparing with other countries in Latin America, I guess we have much better experienced mentors in Brazil, and also the capital as well, at the same time. So, that’s kind of how we call it an ecosystem, right? So, the ecosystem started rolling in Brazil, but still some other countries are in the beginning of the development of the ecosystem. So, we see a very big time difference between Brazil and other countries in Latin America.

**Brian:** I’d love to hear more about your firm. Tell us about it. Are there any sectors that you’re particularly focused on right now, and check sizes? And if there are entrepreneurs that are interested in speaking with you, what should they know?

**Mitsuru:** Okay, yeah, well, we’re venture capital. We started in 2014 in Brazil. So, the first fund only invested in Brazilian startups. We made 12 investments in Brazil. And the second fund, we started in the beginning of 2021. And from Fund Two, we expanded to other Latin American countries as well, as the world in general became online-based. So, having some Spanish speakers in the team, we can cover almost all Latin American countries. The idea, in reality, it’s not that much online-based. We still need face-to-face communication and stuff. So, from then, we have teams in Colombia, Peru, and Brazil. And my colleague, our co-GP, is in Peru as well. He’s Peruvian. And from the second fund, we invested in 25 startups. So, in total, we have 37 investments in Latin American startups. And now we started our third fund. We made the first investment in a Brazilian startup from our third fund.

So, our third fund focuses more on fintech and SaaS. I think we’re going to invest 50% in Brazil, and the rest can be divided by other Spanish-speaking countries. Our check size is $100K as an initial investment, but we do follow-on. We would like to enter in the first round, I mean, after the family and friends round, with some revenue, even though small, it’s fine. It doesn’t have to be profitable, for sure. However, we want to invest in a startup that has just gotten out of the prototype mode. It can be okay with the MVP, but still you need to have paying customers for us.

**Brian:** Excellent, excellent. And then, just aside from business, what’s life like as an expat in Brazil? And then maybe you can also comment on the fact that there are a lot of Japanese living in Brazil too.

**Mitsuru:** Yeah, well, for me, it’s a very good part of life in Brazil. Because I think the recent statistics show more than 1.4% of the Brazilian population is of Japanese descent. And it’s especially concentrated much in São Paulo. So, if you walk around the city, you see a lot of Oriental faces. So, it kind of makes me comfortable because I don’t stand out from anyone. And I would say Brazil has a lot of different cultural backgrounds. So, if you don’t speak anything, you can be Brazilian. I mean, probably from appearance, you cannot tell who is Brazilian, who is not Brazilian, really. So, that’s that.

And also, people are very open to foreigners as well. So, I remember when I started working at the bank company in São Paulo, I didn’t speak any Portuguese. So, I needed to use a translator, like Google Translator, for example. And I needed to repeat questions, and people patiently listened to my very poor Portuguese. That is totally different from cultural acceptance in Japan, for example. If I don’t speak Japanese in a Japanese bank company’s office, maybe I can work in a 100% English project with English-speaking clients. However, I cannot be working in a Japanese project, right? So, the acceptance of foreigners is very warm and very comfortable.

And also, food is amazing. I mean, not only in Brazil, but many countries in Latin America, they have a lot of good food and high-quality ingredients as well. Peru is also quite famous for its gastronomy, but also other countries are improving a lot on those things. And I can easily find Japanese food in Brazil, so that’s a very good part of my life. So, I think in general, I don’t feel like I’m an expat. I kind of immigrated as a first generation. My wife is Brazilian as well; I met her after I moved to Brazil. And also, kind of interesting, I’m probably the only Japanese in my firm. And it was called Brazilian Venture Capital, but now we kind of became B Venture Capital. So, no one knows where we are from. So, it’s a very interesting mixture of the culture and our people.

**Brian:** Amazing, amazing. Are there any particular restaurants you’d like to mention on the show if anyone is traveling there, your recommendation?

**Mitsuru:** Oh, I think there are a lot of good, we call it, churrascaria, the Brazilian barbecue style restaurant, like you can see, probably in the U.S. I don’t know how to pronounce it in English, though. And also, we have a lot of… my friend is running a very good French bistro called Le in São Paulo. They offer very good dishes, and I have a lot of good ones as well. So, I mean, it’s kind of hard to pick one.

However, one thing, one dish I would like to recommend to everyone, is called Moqueca. It’s kind of like a seafood stew with coconut milk, a lot of fresh fish or seafood like shrimp and stuff. And also, Caipirinha, which is a kind of local cocktail made by cachaça. Cachaça is a rum made of sugarcane. That is also there. It’s just mixed in with local delicious foods as well. So, I mean, there are a lot of things you should try, so you should come here not for a week, but for a month or something. But still, you’re not tired of trying a lot of things here.

**Brian:** Amazing. Fantastic. Well, Mitsuru, this was such a pleasure having you on the show. Really appreciate your time. Learned a lot about the Brazilian ecosystem. You’re listening to the Nearshore Cafe podcast. Brian Samson, your host. And this was sponsored by Plug Technologies. Plug.tech, a great way to connect talent from all over Latin America, including Brazil, with U.S. companies. Thanks everyone for listening. We’ll see you next time.

**Brian:** [Music]