Startup Hubs Around the World: Rio de Janeiro
Considered by many to be the land of unrivaled soccer, Brazil is famous for its lifestyle of outdoor pursuits. Pristine beaches, historic sites, lush rainforests and world-class cities are scattered across the landscape of this South American country. One could travel the roads, crossing the mountainous regions and native vegetation, or one could head straight to Rio de Janeiro for a chance to witness a little bit of everything Brazil has to offer. Beneath the surface of this tourist hot spot, however, is a vibrant, thriving and growing community of entrepreneurs who have pushed Rio de Janeiro into becoming one of the world’s leading start-up hubs.
In this article about Rio de Janeiro, we look at six essential elements of a potential start-up location that must be considered: 1) location, 2) tax incentives, 3) legal incentives, 4) availability of investors, 5) local resources and workforce, and 6) specialization.
The second largest city in Brazil, Rio de Janeiro sits along the western coast, nestled up to the Atlantic Ocean. It may be hard to imagine that a city surrounded by such beauty could also be a city filled with experts and developers. Nevertheless, the city of beauty has proven that it can be both beautiful and smart – as it was chosen recently to host the Global Entrepreneurship Congress (GEC). Bringing together some of the smartest minds in the business, the GEC was a method of raising awareness and education for entrepreneurs. Hoping to further cultivate a sense of global community among entrepreneurs and developers, the GEC used the city of Rio as a live demonstration of the power of networking and business.
One of Brazil’s major transportation hubs, Rio has a wide range of transportation options that makes travelling to and from the city easy. Rio de Janeiro has an international airport with easy connections to most other major airports in the world. With relatively short flights, start-up developers can travel to other locations to secure funding or investigate expansion possibilities. In the same manner, investors and other interested parties can easily reach start-up headquarters. A well-developed roadway offers transportation around the city by bus, taxi or car. For the international entrepreneur who may be just beginning to live in Brazil, there is a subway system to allow for quick and easy navigation of the city. Rio is a connected city.
Several large corporations are building technology centers in the city of Rio de Janeiro, creating incubators for the city’s start-ups. Siemens, Cisco and Microsoft have pledged to build large facilities (at least $100 million each) around the city. Using the city’s newly designed digital map, an interested party would notice that Rio de Janeiro has a collection of incubators, accelerators, investors and start-ups scattered throughout the city. By strategically placing the start-up facilities through-out the city, the entire city is strengthened and benefits from the creative ideas and plans.
2. TAX INCENTIVES
Officials in Rio de Janeiro have put together an incentive package that will help entrepreneurs establish their business and will encourage companies to maintain a local office. Aptly named “Start-Up Brasil”, it promises up to $78 million in government funds to back 100 start-ups. Designed to attract local and foreign developers, the goal is to create jobs within the country as well as push Rio towards the front of the highly competitive start-up race. Backed by a mixture of public/private funds, the initiative will allow selected start-ups to move through one of Rio’s business accelerators and receive monthly operational money in the form of grants. Limiting the number of foreign owned start-ups is vital for a city that wants to encourage long term local growth. Foreign ownership would receive assistance in applying for visas and permits, a process that has been described as tedious and confusing.
Currently, the entrepreneur who wishes to start-up a company in Rio de Janeiro would most likely consider the taxes and start-up costs expensive as compared to other locations. As the government of Brazil begins to embrace the entrepreneurial spirit, one can speculate that other tax incentives will be instituted. At the present time, payroll taxes hover up to 27.5% for residents and flat 25% for non-residents, which leaves the income after tax by around 70%. The government is investing millions in improving the infrastructure of the country: upgrading internet broadband, repairing roads and railways, investing in the education system. These additions to the current trend of entrepreneurs in Rio are all helping to create an environment where innovation and design can flourish, but they cost money. The high tax rates in Brazil are a definite drawback to the otherwise charming city of Rio de Janeiro’s allure.
3. LEGAL INCENTIVES
The bureaucracy involved in beginning a start-up within Rio de Janeiro is daunting. Out of 183 countries, Brazil is ranked 120th in simplicity in opening a business. Tax legislation (described as a ‘quagmire’) and legal processes require a Brazilian resident as well as a lawyer or accountant.
There are rumors of corruption within the Brazilian system, and foreigners seem to struggle with the process of establishing a business. Recent changes to the process of filing the necessary paperwork has been streamlined to allow for online payment of filing fees and registration. It is unclear if this will be enough to encourage more entrepreneurs to wade into the start-up market.
Rio de Janeiro would benefit from creating additional incentives for start-ups that make it attractive to young entrepreneurs who are looking for a career. Offering visa extensions and assistance to foreign designers, establishing collaboration workspaces or business zones with relaxed zoning regulations would help to encourage growth. Rio has been studying the success of other start-up hubs around the world – they need to pay closer attention to the additional incentives that can be offered. With a healthy economy, the competition for qualified workers is strong. As the global marketplace continues to grow, there will be a shift to areas other than Rio de Janeiro if they cannot prepare an environment that will be welcoming to start-ups.
With a centralized group for entrepreneurs, the government can offer legal assistance to new start-ups, provide advice and support for companies who are selling their products or offer a myriad of other support methods that would help ease the transition to success.
4. AVAILABILITY OF INVESTORS
Attracting attention from all over the world, investors are starting to flock to Rio de Janeiro – and they aren’t rushing to the beach. Start-ups have access to over $400 billion through assets managers, pensions and private equity. In addition, the world’s largest venture capital funds have all established a presence in Rio: Accell Partners, Redpoint Ventures, as well as several others. SVB Capital, a California venture based capital firm, invested over $300 million in Brazil within the last few years. The money is beginning to flow into Rio – the question is: How easy is it to access?
There is a gap between the start-up funding and the growth capital that a company needs to establish itself, but the availability of the money may be a problem. Many companies are interested in seed venture, but have not made the jump into growth money. With the larger venture capital funds moving into the city, the opportunity for a company to push through to the next level may be easier and quicker. In addition, the government grants to companies that develop technologies within a specific field will help bridge the gap between investments.
In a further effort to raise awareness of the Brazilian start-up market, Startup Brasil will maintain a hub in Silicon Valley. Part of Brazil’s major initiative to increase entrepreneurship, the hub will serve to attract foreign investors, generate business and increase global collaboration. Presumably the first of several hubs around the world, Brazil is not wasting any time establishing themselves as a player in this high-stakes game of business.
5. LOCAL RESOURCE & WORKFORCE
One of the largest resources available in any start-up market is the workforce. This is particularly true in Rio de Janeiro. With the second largest population in Brazil, sheer numbers indicate that there is a large number of available staff. To assist in maintaining a high level of education, four of Brazil’s top nine universities are located within the city and offer highly specialized courses of study. Knowing that there are multiple opportunities for growth and entrepreneurship, the universities offer more high challenging courses in geometry, engineering, physics and more.
Hubs, or collaboration zones, are created to encourage growth in a particular area. In the last five years, over 1.1 billion dollars have been invested in the hubs in Rio – more than any other South American city. Within Rio de Janeiro are start-up hubs for Innovation, Math, Energy & Health, Media & Entertainment. The 22 incubators in Rio have graduated 182 companies – proving that innovation and design are possible and attainable. Success breeds success in the start-up community, so the success of any company is also considered effective marketing.
With a growing e-commerce market, the people of Rio are highly connected to the internet. One of the world’s largest numbers of social media users, Brazil offers residents a glimpse into the world that previously had only been outside the reach of the people. As the government improves the broadband capabilities, one can imagine that even more people will begin to take advantage of the chance to shop online. The demand for new technology solutions will increase, and the cycle of innovation and design will continue.
The culture of the people of Rio has gradually changed, with a tendency towards entrepreneurship that has been missing up until now. It is a slow process, with less than 10% of the population involved in entrepreneurship. Those who are becoming more active in entrepreneurship are from all walks of life and Rio has an equal number of men and women who have taken the start-up plunge.
The leadership of the entrepreneurial push in Rio is not content to sit back and let start-ups find their way on their own. There is a strong push towards markets that Rio de Janeiro (and, in turn, Brazil) is weak in, as well as markets that they are excelling in.
Predominately, tech leaders and government officials want to develop a strategic plan to increase the number of start-ups who will cater to the Brazilian market. While they encourage international start-ups to make Rio their home, they are particularly interested in the companies that will maintain a presence within Brazil. Whether through a local office or a company headquarters, Brazil is looking for staying power in their start-up zones.
In addition, Brazil is placing a high premium on developers in the area of information technology. Considered a vital part of their ability to attract new business, Rio wants to excel in the IT start-up world. They are focusing on several other areas that hold potential for future advancement: agribusiness (an area that will help Brazil’s already strong economy even more) and aeronautics, as well as transportation and healthcare.
For the next several years, Brazil will be in the spotlight as the world turns their eyes towards this country. With essentially back-to-back global competitions all centering in Rio, there is a rich market available for the tech developer who can cater to the visitor/sports enthusiast client.
Further, the e-commerce industry is beginning to boom within the nation’s capital as Brazilians embrace the power of technology and online shopping. Within Rio, the climate is ready for new and improved shopping experiences. An entrepreneur who has their finger on the pulse of the city will be ready to spring into action at a moment’s notice and capitalize on the new tech-hungry audience.
Sports fans are anticipating greatness from the country of Brazil over the next few years, and the world will be watching to witness how they handle the onslaught of press, people and attention. After the sporting events, however, the press will move on to the next story and the public will turn its attention to another topic. Out of the public eye, Rio de Janeiro will be still working to establish its place on the world stage in a different arena: the entrepreneurial start-ups. Only time will tell if Rio de Janeiro will succeed in their quest to dominate the start-up market and establish a hub that will draw the attention of investors from around the world. There are no trophies handed out for winning, but the rewards are long-lasting for a country that prides itself on its global appeal.