The Prosperity Paradox and The Next Wave of Innovation in Brazil

Hi everyone and happy Monday,

I am reading this super interesting book by Harvard Professor Clayton M. Christensen and co-authors Efosa Ojomo and Karen Dillon called The Prosperity Paradox. Christensen’s research suggests that enduring prosperity for many countries will not come from fixing poverty. True and lasting prosperity, they have found, is not reliably generated through the flood of resources that we are directly pouring into education, subpar health care, bad governance, nonexistent infrastructure, and many other indicators in which an improvement would suggest prosperity. Instead, the authors believe that for many countries prosperity typically begins to take root in an economy when we invest in a particular type of innovation-market-creating innovation-which often serves as a catalyst and foundation for creating sustained economic development.  

How does that emphasis on innovation and market-based solutions apply to a Brazil-focused VC investment thesis?

There was a time not so long ago when the words like ‘IP heavy’ and ‘deep tech’ didn’t exist in LatAm lingo. LatAm had a reputation of a copycat ’this of that’ kind of market among the global tech and VC community. Today, local tech ecosystem is ready to produce tech companies with strong scientific and engineering barriers to enter due to a combination of factors: recent advances in AI, ML and predictive analytics, strong local engineering and research schools, high degree of digitization, lack of scalable infrastructure for continuous growth of tech sector and growing capital allocation for the region from big strategic and corporate investors. Additionally, there’s a pressing need to address inevitable environmental, inequality, education and health issues in the region, which is impossible without the use of technology.

I think that the next wave of tech innovations in Brazil is building resilient globally connected deep-tech companies in high-impact sectors. The way I define high-impact sectors is based on their contribution (or potential to contribute) to GDP growth of a given country and global ties. In Brazil, for example, my list of top 5 sectors include:

1. Heavy Industries & Manufacturing. Brazil has the second-largest manufacturing sector in the Americas. Brazilian steel industry is ranked as one of the 10 largest in the world, for example and Brazil’s producer and seller of iron ore, pellets and aluminium Vale S.A. was ranked as the most valuable Latin American company on Wall Street at the endow Q1’23.

2. Agriculture & Food. Brazil is the world’s largest producer of sugarcane, coy, coffee and orange and one of the largest producers of animal protein: #1 largest chicken and beef exporter, #4 pork exporter. Brazil is among 10 largest egg producers in the world and today produces ~54.9b eggs per year. That’s 1,700 eggs per second.

3. Energy. Brazil is LatAm’s top oil producer, which owns the largest recoverable ultra-deep oil reserves in the world. It also accounts for ~7% of global renewable energy production and has long been a leader in biofuels and hydropower technologies.

4. Freight & Logistics. In 2021, Brazil’s exports and imports combined were worth the equivalent of 39% of the GDP. In 2022, total exports reached a record high of $338b, a 20.37% growth while imports rose by 35.37% with a value of $297b. This continuous growth and increasing demand leads to a projected CAGR of 4.44% and puts an enormous pressure on the existing infrastructure.

5. Healthcare. Brazil is the largest healthcare market in Latin America and spends 9.1% of its GDP on her;thcare. Brazil ranks among the top 6 markets globally for drugs and pharmaceuticals with`$20b in sales in 2022

Within these sectors, the trends I am currently digging into are energy infrastructure and storage; waste management and recycling; biotech and supply chain efficiency in agriculture; healthy aging and improved medical diagnostics; advanced analytics and sensors and human-robot collaboration in manufacturing and logistics. I will go into each of them in subsequent posts.

In other news:

Last week we dropped our first in studio episode of the J Curve podcast with José Renato Hopf, founders of GetNet and South Summit Brazil. We talked about Jose Renato’s key lessons of building and selling GetNet, secrets behind the success of Uber and Airbnb and how to build productive partnerships. Do check it out on our brand new Youtube channel - it’s super informative.

On Thursday 04.27 we are dropping a new episode with Talita Lacerda, CEO at PetLove, Brazil’s largest online pet retail brand that has raised $225m+ from the likes of L Catterton, Monashees, SoftBank and Riverwood. Stay tuned!

My favorite reads & listens lately:

1. The Story of Pix and What US Banks Can Learn. Before Pix was launched in 2020, 77% of retail transactions in Brazil came from cash. Today, Pix processes ~3b transactions every month with 60%++ of all businesses using it and 700+ financial institutions participate in Pix. Cool article about Brazilian Pix and what US banks and financial companies can learn from it.

2. Excuse me, is there a problem? Many startups fail despite identifying a real problem and building a product that solves that problem. This article explains why.

3. Tim Ferris Show with David Deutsch and Naval Ravikant about the inevitability of Artificial General Intelligence, Redefining Wealth and The Importance of Disobedience

Thanks for reading,

Olga