Regulations, Reacceleration and Growing Pains for Start-Up Brasil

From addressing accusations of gifting equity to working out application kinks, Brazilian government initiative Start-Up Brasil remains a work in progress.

In July, new government program Start-Up Brasil announced the lineup for its inaugural acceleration process – a list that had more than a few members of Brazil’s startup community scratching their heads. Of the 56 companies chosen, more than a few had already been accelerated. What’s more, a handful had been re-selected by the very same organization.

Is government money being used to gift equity to private accelerators? Program organizers say no. “They’re not getting more equity without investing more, because they have to invest,” replied Felipe Matos, COO of Start-Up Brasil, when we posed this question to him in a recent interview. “It really is a matter of merit.”

Once a company is selected by the program committee, it can go to one of nine different accelerators, and even once an organization is pinpointed, reaching a subsequent agreement isn’t always a guarantee – something evidenced by the fact that only 48 of the original 56 selections are still working with the program.

The selection of already-accelerated startups is an intriguing case, especially considering that for some accelerators, it seems to be a point of pride, and it’s been in the rule book all along. Rio de Janeiro-based 21212 announced proudly that three of its startups had been selected for the program. It’s also made some adjustments to the way its program is run. Frederico Lacerda explained:

We’ve already learned and experienced in the Brazilian and Latin America markets that no startup can have a really significant gain scale and growth in just one year. So, we have our program of acceleration divided in two phases. The first takes the first year of team work, in which we have a closer look, and the second phase begins in the second year. Our expectation is to work with startups that will be giving results in three to five years. Therefore, the support of the Start-Up Brasil during this period is extremely important. It´s not about a reacceleration process, but an additional support within the first or second stage of acceleration of 21212.

Like any new initiative, Start-Up Brasil is facing its fair share of growing pains and, at times, causing quite a stir in both negative and positive lights. This reacceleration and equity-gifting issue is just the tip of the iceberg.

The ends of Start-Up Brasil are, at their core, quite different from those of the initiative’s most comparable entity, Start-Up Chile (we recently took a look at just how different they are). The Brazilian program is looking to produce tangible results relatively quickly, in many cases hoping that startups, once finished with the program, will be able to land a Series A.

This in mind, the selection of accelerated and, therefore, more mature companies makes sense. “We want to create good examples, and we want these companies to succeed,” Matos affirmed, adding:

We expect that a good amount of the companies that we are supporting right now will be successful, get their products up and running on the market and make money. Some of them will be super successful, some of them will only be successful, and we know that some of them will fail as well. We want to promote successes and, through those successes, create good examples that will be followed by our community. And we also want to strengthen our ecosystem, as a country as a whole and also locally.

It is worth pointing out that Start-Up Brasil companies must plan to remain in and focus on the Brazilian market – a reasonable expectation given its size. Matos referred to it as a “continental country.” However, fostering a more global mindset is important as well. He explained, “Because of the language barrier and continental dimensions of the country, Brazilians are more focused on the internal market, which is good, but we also want to put Brazil as a map for doing business in South America and to also have Brazilian entrepreneurs thinking of other markets.” Hence the Start-Up Brasil offices in Silicon Valley.

Goals aside, Start-Up Brasil remains a work in progress. It’s just closed its second round of submissions, and while some of the bugs from round one have been eliminated, others, for legal reasons, are still around.

Because this second batch of submissions is really just part two of the same call, the procedures and guidelines of the process cannot be changed. In other words, Start-Up Brasil is facing a predicament that highlights one of the main schisms between government and startups: flexibility.

This time around, Start-Up Brasil has had to stick to its original formula, even though it is aware of cracks in the system. To remedy the issues identified, at least in part, the team has focused on communicating potential problems ahead of time. An example: Brazilian entrepreneurs were required to complete a resume on a specific platform to apply. Some forgot to include their startups o the platform, meaning they were automatically disqualified. This time around, there’s been more emphasis on the guidelines and rules.

Looking ahead to its second call, Start-up Brasil will improve its process and increase transparency in accelerator involvement – a clear sign that it took reacceleration complaints to heart.

The pressure is on for Start-Up Brasil to address the issues at hand and start to churn out high-potential projects. But for Matos, who’s heading up operations, the pressure comes on a much more personal level as well:

I put the most pressure on myself. It’s a big responsibility as the director of a program with such big dimensions and goals. Yes, there is some pressure, and everyone is expecting success – entrepreneurs, accelerators, government, society – and there are a lot of expectations for the program. But most of the pressure is on my side. I am working as hard as I can to achieve results, and this is just the start. The first batch is just beginning, and there’s a lot to learn.