In contrast with more mature innovation ecosystems, Brazilian deep techs take more than five years to start growing (image: Freepik*)
Published on 11/04/2024
By Elton Alisson | Agência FAPESP – Brazil has some 900 deep techs – startups whose business models are geared to the development of technologies based on scientific advances, which are exposed to or have surmounted development risks, and have significant potential to drive change, establish new industries and reinvent existing ones.
Almost 70% of Brazil’s deep techs operate in the Southeast region, with São Paulo state accounting for 55%, thanks largely to the availability of funding, especially from FAPESP’s Innovative Research in Small Business Program (PIPE).
These are some of the points made by a report (Relatório Deep Techs Brasil 2024) produced by the consultancy Emerge in partnership with Cubo Itaú, an innovation hub run by Banco Itaú, Brazil’s largest private-sector bank, and Chemical Abstract Services (CAS).
The report notes that deep techs are increasingly important in the investment, industrial, governmental and academic spheres in light of their contributions to efforts to address major global challenges and to socioeconomic development.
The authors of the report analyzed funding and other forms of support for startups with this profile, as well as open data and the results of surveys conducted by Emerge. On this basis, they identified 875 deep techs in Brazil, operating in a wide array of sectors; 55.2% are located in São Paulo state, and 28% have received funding from PIPE-FAPESP.
“This context reflects the strong stimulus and support for the development of startups in São Paulo state, which introduced Brazil’s first innovation ecosystem and remains the strongest funder of innovation in this sphere. It also has some of the most renowned universities and research centers in the country, including the University of São Paulo (USP), the State University of Campinas (UNICAMP), São Paulo State University (UNESP), the Aeronautical Technology Institute (ITA) and the Brazilian Center for Research on Energy and Materials (CNPEM),” the report says.
“Science-based innovation funding initiatives such as calls for proposals by state research support agencies and regional programs such as Innovate Amazonia are contributing to the growth of innovation ecosystems in other federative units of Brazil.”
Funding challenge
According to the report, deep techs in Brazil take more than five years to begin growing, unlike more mature innovation ecosystems. Some have been on the market for more than a decade without managing to scale up their technologies.
“The challenge of obtaining funding for the development of technologies in Brazil is significant. Many startups end up depending on calls for proposals or subsidies, growing very slowly even then,” it says.
Most Brazilian deep techs are still developing their technologies. Only 30% have embarked on the stage in which they scale up, commercialize and expand. The difficulty of making the quantum leap between initial development and finalization of a solution, including proof of feasibility and applicability to meet market demand, is considerable.
“During this transition, they face a critical obstacle relating to capital, as organizations at this stage of maturity are not usually eligible for public funding, and private investment is scarce owing to the risk associated with low technological maturity,” the report says.
Subsidies, public research funding agencies and angel investors account for 70% of investment in deep techs in Brazil. In the case of deep techs that have received more than BRL 5 million in investment, 70% use public funding.
“Given the risk associated with technological development by deep techs, winning non-refundable public investment is a necessary strategy for most startups. FAPESP, FINEP [the Brazilian Innovation Agency, an arm of MCTI, the Ministry for Science, Technology and Innovation], SEBRAE [a nonprofit that supports small and medium enterprises] and EMBRAPII [Brazilian Industrial Research and Innovation Company, also linked to MCTI] have played a highly significant part in this Brazilian ecosystem. Similarly, the private investment chain is complex and requires various types of investor at each state of technological development and business maturity,” the report says.
The business models of Brazilian deep techs focus on developing novel technologies for direct sale or licensing to major industrial firms. Their main markets are health and agribusiness, which grew 19.8% and 20.8% respectively between 2015 and 2024. These growth rates were similar to the average for all sectors in the same period (18.8%).
“This shows that despite the evident potential of both sectors, the number of deep techs being founded in other sectors has increased, and so have their opportunities,” the report says.
The full report in Portuguese can be requested here: emergebrasil.in/panorama-startups-deep-tech-brasileiras/.
Source: https://agencia.fapesp.br/53212
