Since 2014 NDM works as a Brazilian law office that helps startups and investors get better deals and improve Brazil's entrepreneurial ecosystem. Looking to keep working on these topics, we’ve decided to write some articles for foreign investors and startups about the Brazilian ecosystem and how you can get into it and create great opportunities.
First steps and concepts.
Brazil has a complex environment for entrepreneurs, especially if we look at the costs and duties linked to someone who opens a company and fails. Brazilian labor and tax legislation can prevent anyone from having a new business after a first fail.
Following the latest Fundação Dom Cabral study, an educational foundation focused on helping entrepreneurs, 75% of startups die in Brazil before completing 4 (four) years of its foundation.
Considering this study, it is crucial to understand that this is not an excellent option to be a registered shareholder in a Brazilian startup if you are trying to invest and get great returns in companies of this market. If this startup fails, maybe some of your assets could be in danger.
On the other hand, Brazil is one of the best environments for startups to emerge, motivated by the lack of many necessary improvements and the low-interest rate that the country has established in recent years.
In this scenario, there are many opportunities to solve relevant problems and low benefits, leaving money in more conservative funds, since inflation would quickly reduce the value of money.
That is why many investors are looking at Brazil as a great option to invest. We see the number of series A, B, and IPO deals increasing quarterly in a fast movement to improve the Brazilian startup ecosystem.
Following this movement, foreign investors' most common vehicles to invest in Brazil are convertible notes, named in Portuguese as Mútuo Conversível. In this type of investment, the investor lends money and guarantees to receive the investment back with some monetary correction or a percentage of the business motivated by some trigger that can be a liquidation event or a lapse of time.
The benefit of choosing this option, Mútuo Conversível, is to guarantee some protection to the investor's assets against failures of the startups invested by him.
Obviously, is it possible to choose other ways to invest in Brazil, using Delaware companies linked directly to the Brazilian startups or other mechanisms that can be more interesting to foreign investors, but this always needs to be looked at case by case.
After exposing a little about Brazil's entrepreneurship environment and how investors generally invest in startups in the country, we hope to have made it clear that the opportunity is always relevant. Still, the operations must be done with professionals who know this market and are of your trust to avoid unforeseen events that can be costly in the future.
If you have doubts/questions about this topic, please contact us!
Luiz Eduardo Duarte