Margarise Correa and Innovative Friends at BayBrazil Annual Conference Sept. 21, 2017 Photo by author.
While President Temer says Brazil is turning the corner and as Finance Minister Henrique Meirelles jockeys for a possible run for President in 2018 bragging in international meetings that Brazil has its lowest inflation in years and the economy is starting to grow after almost 3 straight years of recession. Indeed, the Brazilian BOVESPA is at record highs and the international investment community is beginning to see opportunity all over. With a broken economy, there are attractive valuations and the post-PT government is breaking down the national populist restrictions on oil and other natural resources. Still on the ground, things are bleak. Unemployment has barely budged. The state has resources only for political bargaining to guarantee that Temer finishes his mandate and all social and economic projects that were suppose to help the less fortunate have lost resources or are being dismantled.
In this scenario, it is curious and a bit paradoxical to partake in events that reflect favorably and show optimism for Brazil. I have attended all but one of the Bay Brazil Conferences that have been held in Silicon Valley over the past six years. Margarise Correa, the founder and catalyst for many a Brazil-Silicon Valley connection, and her staff, consistently put together an excellent event with an A list of speakers that always have strong and sometimes surprising connections to Brazil. Many are aware that Facebook’s Eduardo Saverin is from Brazil, but did you know Instagram founder Michael Krieger also grew up in Sao Paulo? This year’s speaker lineup was not an exception, as can be seen from the program: http://www.baybrazilconference.org/#agenda
Silicon Valley nests venture capital and while Brazil is always a challenge, VC firms seek talent, innovation, entrepreneurship and marketing that will lead to profits. In this search, there is no correlation between growth of GDP, political stability, and democracy and VC investment. So Brazil’s macro level crisis is of little import and money will flow where investors find a deal no matter the political economic situation. This year’s event once again showed deals in Brazil and a growing maturity of Brazil’s VC environment. Since the early 2000’s, Brazil has completed numerous cycles of VC funding and the infrastructure for VC investment is favorable. We find a thriving VC community, accelerators, service providers, mentorship organizations, cloud services, corporate support and perhaps most important investors and success stories.
Fintech (High Tech Finance) was this year’s standout sector at Bay Brazil. The basic idea behind FINTECH is that the Brazilian banking and financial market while powerful; it is also replete with inefficiencies and therefore ripe for challenges and changes. The sector is notoriously concentrated and even oligopolistic with high spreads on some of the world’s highest interest rate and outstanding profit margins. The Fintech sector recognizes inefficiencies in the banks and is entering the sector offering major reductions in the cost of credit or funds by taking advantage of the Internet, reliable databases, robust platforms and the ability to evaluate potential clients in an expedited fashion that banks cannot match. Fintechs have found a niche in Brazil (reportedly the world’s second largest lending market) by offering money at a much lower cost and more quickly than the banks. The bank reaction has involved stages ranging from rejection, awareness, engagement, and finally collaboration and acquisition. Along this line, it is perhaps worthwhile to note that Christine LaGarde, the IMF General Director, recently questioned the future of banks with the emergence of electronic currencies and fintech endeavors. So Brazilian banks need to be aware that they also face the tech redefinition that has hit many other industries, i.e. hotels, taxis, travel agencies, newspapers, books and manufacturing, etc.
Bay Brazil and Silicon Valley thrive on innovation and by rare coincidence, the US based Council on Competiveness together with Brazil’s Confederacao Nacional de Industria and the University of California San Diego held their 4th US-Brazil Innovation Summit in San Diego. (www.compete.org/programs/compete-global/26-us-brazil-summit)
Inevitably, there was overlap between the two events. The Innovation Summit like BayBrazil emphasized the positive synergy between Brazil and the USA at government, institutional, entrepreneurial and individual levels. Like BayBrazil, the Innovation Summit served to catalyze interactions between innovators, entrepreneurs and the business of making products for national and international markets. Both forums provided excellent opportunities for sharing ideas and showing positive initiatives, incentives and exchanges in both countries. The forums projected positive developments in the Brazilian economy in spite of the political economic crisis and lack of governmental legitimacy in the eyes of the population.
The optimism and, at times boosterish nature inherent in business events seemed a bit as we might say in Brazil “fora da realidade” or “too good to be true.” While promotion can be healthy it is also a bit illogical given all the negativity and pessimism that surrounds anything governmental and business in today’s Brazil. At Bay Brazil, I raised the question of crime, corruption and complacency affecting Brazil’s development. The optimistic response was that corruption was being addressed through the ongoing and unique progress in the Lava Jato investigations. The Federal Police have been strengthened and, different from the past, bureaucrats and businessmen have been arrested and convicted. On the other hand, shoulders shrugged at the mention of complacency, perhaps indicating that Brazilians continue to be content in a land blessed by sun, beaches and beauty and thus able to shrug off the evils of underdevelopment and even a possible return to the authoritarianism that characterized Brazil’s military governments between 1964 and 1985. In spite of optimism and corners to be turned, Brazil must still face the question as to the correlation between effective democracy, citizen participation and balanced economic development for all. Another question is the role innovation and venture capital will play in this process.
Participants at 4th Annual US-Brazil Innovation Summit, San Diego, CA, Sept. 21, 2017. Photo from Twitter @chadevans1019