Brazil: a nation of people getting ahead, online

5th Jun, 2015

Brazil’s economy has been slowing down over the past couple of years. No longer able to ride the global commodity boom, the government need to pursue a new economic approach. Those born at the end of military rule in the 1980s have an undeniable entrepreneurial spirit. Although the government has done much to increase class mobility, in terms of fostering and enabling startups, they have been slow to catch on.

As John Schumpeter theorised in the early twentieth century, businesses and individuals which innovate and act with entrepreneurial spirit often affect the economy in ways the traditional forces cannot. With 1 in 6 Brazilians owning small businesses and founding new companies, you would hope that the entrepreneurs would give the economy the jolt it needs. Unfortunately, individuals still have an excessive amount of red to tape to clamber over before they can be of assistance. To counteract these problems, young entrepreneurs are turning away from government support and towards the internet to fund their ventures.

One third of entrepreneurs in Brazil are between 18-35 years old. Born at the start of a different chapter in Brazil’s political history, young people often turn to the American model of business start-ups for insight into what works and what doesn’t. The success stories of Silicon Valley and the like have led to a pronounced interest in e-commerce among young Brazilian entrepreneurs, and in a nation with newfound class mobility, more and more people have access to these new projects.

Since the end of military rule, the government has established two legal concepts to help entrepreneurs in their endeavours. Microempreendedor (Small Entrepreneur) allows small firms to register themselves as formal contractors, thus reducing tax rates which would otherwise lead to the temptation of hiring workers illegally under the table. In 2007, Simples Nacional was introduced, a unified tax collection system, it aims to reduce tax rates and cut filing time for entrepreneurs and small business owners. However, these systems were not effectively enacted in law, and entrepreneurs rely on state laws to assist them.

Caio Martins, 24, is the founder of an information exchange for travelers in Brazil called Dubbi. He talked about government incentive policies created for startups, such as Program Startup Brasil but highlighted they are “still not very effective”.

Demand to get on these schemes greatly exceeds their capacity, and many young entrepreneurs still find themselves completing the 13 procedures and waiting the 119 days until their business can be established. “The laws are very confusing even for lawyers” says Martins, frustrated with the excessive bureaucracy, which, he points out, ultimately adds to the cost of operating a business in Brazil. Unless you are on one of these schemes, the state applies the same regulations and taxes as they do to any other business, making it hard for those without capital to get their project off the ground.

In 2009 the Brazilian crowdfunding website Vakinha launched. Whereas crowdfunding in Brazil takes similar form as elsewhere the world (raising money for creative projects, plastic surgeries etc.), Brazilian entrepreneurs find themselves able to partake in equity crowdfunding, made possible by the CVM (Comissão de Valores Mobiliários). The CVM permits small businesses which work on social projects to find shareholders whilst remaining unlisted on the stock market.

According to Martins, however, this form of funding is still a new phenomenon, “There is a new movement to strengthen the equity crowdfunding in Brazil, which facilitates fundraising for several startups. But this model of fundraising is still very new and few companies have used this type of investment yet”. Access to the internet has never been easier for Brazilians living in the Favelas, four in ten of whom say they dream of starting their own business. With the advent of equity crowdfunding, they may be able to circumvent traditional avenues of gaining finance.

Freed from the difficulties of finding private investment, of applying for bank loans, and relief from attempting to seek government support, e-commerce and crowdfunding provide the financial foundations needed for young entrepreneurs. Business-minded young Brazilians are using the internet as an alternative to government organized schemes, thus showcasing their savvy and eagerness to truly go it alone. Brazil is a nation of people getting ahead, online.