Is AI pulling Brazil out of the startup investment slump?

“This year versus the pandemic peak, we’re still at a fraction right of where we were,” says Phillip Trauer, managing director of Vivo Ventures, the investment arm of Telefonica, and one of Brazil’s most active corporate investors. But, he says, VC investment is showing signs of picking up.

“We’re seeing some pretty interesting rounds happening, particularly in AI here in Brazil and some top-notch US venture firms venturing back into Brazil.”

Khosla Ventures did its first deal in Brazil in February this year, backing AI-native HR tech company Comp. Sequoia returned to the Brazilian market for the first time in 12 years, backing seed, series A and B rounds for Enter, the AI legal platform. Several big US funds, including Andreessen Horowitz, were present at a flagship VC event in September hosted by Brazilian venture capital firm Canary, signalling returning interest by outside investors.

The Corporate Venture in Brasil conference, organised jointly by GCV and apexBrasil, saw not only an uptick in attendees this year but hosted an international delegation of 40 overseas corporate investors looking for opportunities in the market.

At the same time, in the domestic market, a clutch of Brazil’s early-stage VC investors – including Canary, OneVC, Big Bets, Monashees, Valor Capital, Kaszek and Maya Capital – have all raised new second or third vintages, leaving “plenty of capital availability for the pre-seed through series A stages,” as Trauer put it.

All of this could signal the start of a recovery after a steep decline in Brazil’s startup investment market in the past five years since the 2020-21 Covid era boom. Severe currency volatility, global risk aversion and the country’s exceptionally high interest rate, currently at 14%, have throttled venture markets.

As Peter Seiffert, the founder and CEO of São Paulo-based investment firm and corporate venture capital manager Valetec puts it: “The interest rates in Brazil are the second highest in the world. So everybody keeps their money in their pocket and is reluctant to spend on R&D, marketing, M&A.”

Ricardo Kahn, director of corporate venture at Valetec, says that at least two large Brazilian corporations that were planning to set up CVC funds put these on hold due to the high interest rate environment.