copy the linklink copied!Chapter 7. The innovative start-up ecosystem in Brazil

This chapter describes and assesses the innovative start-up ecosystem of Brazil. This ecosystem includes many public and private sector entities which collaborate well with each other. Brazil also has a sound innovation policy legal framework in which priorities are well outlined. Nonetheless, the patent system is burdened by a heavy backlog, while research and development (R&D) tax credits are virtually not available to either start-ups or innovative small- and medium-sized enterprises (SMEs). There are quite a large number of specific programmes targeted at start-ups in Brazil. Business incubators, technology parks and accelerators are widely available and have generated positive results, while open innovation programmes look promising. On the downside, there are some redundancies among certain programmes and some of them are of a very small scale.

    

copy the linklink copied!Introduction

Brazil’s entrepreneurial activity is not particularly growth-oriented   
        

Chapter 2 has shown that Brazil displays high rates of business creation and business destruction, but that high business churning is not associated with strong job creation. Furthermore, Brazil has a high rate of high-growth firms (HGFs), but most HGF employment is found in a small number of large high-growth firms and the average HGF age is not very young. Overall, this suggests that entrepreneurial activity in Brazil is not sufficiently growth-oriented.

Brazilian innovative SMEs also have limited access to international markets. In particular, contrary to other countries, innovation does not make internationalisation more likely to happen for Brazilian SMEs (Figure 7.1).

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Figure 7.1. SMEs participating in international markets by innovation status, 2012-14
Percentage of businesses in the relevant category
Figure 7.1. SMEs participating in international markets by innovation status, 2012-14

Note: SMEs are defined as companies with up to 249 employees.

Source: OECD (2017), OECD Science, Technology and Industry Scoreboard 2017: The Digital Transformation, https://doi.org/10.1787/9789264268821-en.

 StatLink http://dx.doi.org/10.1787/888934088636

Turning to the specific sector of information and communication technology (ICT), Brazil exhibits a high share of young micro and small firms in this sector. As many as 44.6% of all ICT companies in Brazil are young and small, which is more than in many other OECD countries, although the difference between ICT and other sectors is narrower in Brazil than in most OECD countries (Figure 7.2).

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Figure 7.2. Young small firms in ICT and other sectors, 2013-15
Percentage of total enterprises in ICT and other sectors
Figure 7.2. Young small firms in ICT and other sectors, 2013-15

Note: Young small firms are companies that have been operational for less than 6 years and with under 50 employees.

Source: OECD (2017), OECD Science, Technology and Industry Scoreboard 2017: The Digital Transformation, OECD Publishing, Paris, https://doi.org/10.1787/9789264268821-en.

 StatLink http://dx.doi.org/10.1787/888934088655

Brazil lacks a definition of innovative start-up   
        

Contrary to micro and small businesses, which have long been defined by Brazilian legislation, only very recently a debate on a possible legal definition of start-ups has started to burgeon among Brazilian lawmakers. Between May and June 2019, the government launched a first public consultation among relevant stakeholder organisations for the elaboration of a Legal Framework for Start-ups and Innovative Entrepreneurship. The first question discussed in public consultation concerned a possible legal definition of a start-up. While a legal definition of a start-up is therefore still in the making, existing government and policy documents point to a concept of start-up closely linked to one of the new enterprises in technology-based and digitally-focused fields. Accordingly, this is the definition of “innovative start-up” that we adopt in this chapter.

For example, the National Digital Transformation Strategy prepared by the Ministry of Science, Technology, Innovation and Communication (Ministério da Ciência, Tecnologia, Inovações e Comunicações, MCTIC) defines a start-up as an “agile, dynamic and innovative economic organisation, acting upon new business models” (MCTIC, 2018a). The government-led Applied Economics Research Institute (Instituto de Pesquisa Econômica Aplicada, IPEA) defines a start-up as a “nascent or new endeavour, intensive in innovation, searching for resources to create a product or a service, amidst uncertainty and risk” (Turchi and de Morais, 2017).

Government investment in science and technology mostly comes from the Ministry of Education and MCTIC, followed by the Ministry of Agriculture (De Negri, 2018). However, when it comes to business innovation, MCTIC and the Ministry of Economy are the main players. MCTIC is in charge of setting long-term national research and innovation strategies, although it also operates some targeted programmes. The Ministry of Economy (notably the Special Secretariat for Productivity, Employment and Competitiveness) is in charge with the design and implementation of specific programmes aimed at innovative start-ups and SMEs (e.g. grants, knowledge transfer initiatives, etc.). Both the MCTIC and the Ministry of Economy are supported by a large number of institutions from the private sector and Sistema S in programme implementation, as shown later in this chapter.

copy the linklink copied!Key players in the start-up ecosystem

This section describes the main public and private sector players in the start-up ecosystem of Brazil and assesses the way they interact with each other in policy design and implementation.

Several ministries and government agencies are involved in the innovative start-up ecosystem  
        

Brazil’s Ministry of Science, Technology, Innovation and Communication (MCTIC) is responsible for the recently published new legal framework for innovation and for Brazil’s 2018-22 Action Plan for Technological Innovation. Apart from co-ordinating scientific institutions, MCTIC also manages the national R&D tax credit programme and co-ordinates a broad network of technology parks, open laboratories, innovation centres and incubators.

At the Ministry of Economy, the Special Secretariat for Productivity, Employment and Competitiveness (Secretaria Especial de Produtividade, Emprego e Competitividade, SEPEC) and, within its structure, the Sub-secretariat of Innovation (Subsecretaria de Inovação, SIN) is the department responsible for business innovation and start-ups. Under its charter, the secretariat manages innovation programmes; interacts with other governmental organisations on intellectual property; promotes the development of credit and funding instruments as well as tax incentives for innovation; and participates in the elaboration of public policy strategy documents related to new, high-impact ventures.

BNDES (Banco Nacional de Desenvolvimento Econômico e Social), one of Brazil’s public development banks, plays an important role in stimulating SME growth in Brazil. Between credit lines and equity instruments, BNDES offers diverse financial support mechanisms to Brazilian companies of all sizes. In 2016, the support of BNDES to SMEs reached a record high, with 53% of total business loans going to SMEs (see Chapter 3). BNDESPAR, a subsidiary of BNDES, has also committed BRL 1.1 billion to seed and venture capital funds (see Chapter 5).

FINEP (Financiadora de Estudos e Projetos) is the national innovation agency of Brazil and operates under the authority of MCTIC. FINEP provides support through grants and co-funding schemes (including redeemable and non-redeemable loans and equity stakes) at different stages of the innovation lifecycle. The agency finances basic and applied research, technological development, prototyping and business scale-up. It often works in collaboration with universities, public labs, companies, business angels, venture capital and private equity firms.

INPI (Instituto Nacional da Propriedade Industrial) is the Brazilian industrial property office, a government agency operating under the Ministry of Economy. It is responsible for granting patents and registering trademarks, industrial designs, geographical indications, integrated circuits topography, software programmes, licenses and assignments of industrial property rights, technology transfer and franchise agreements. INPI is actively involved in cross-border collaboration with fellow patent offices. For example, through IBEPI (an Iberian American platform), the agency participates in CIBEPYME to raise SME awareness of intellectual property (IP) through technological bulletins, data on granted patents, tutorial videos and online consultancy. INPI is also involved in the PROSUL Proyecta initiative, an online tool which sees the participation of 13 Latin American countries and which wishes to create a meeting point where researchers, entrepreneurs and IP professionals can learn more about developing, using and transferring intellectual property rights (IPR). INPI also collaborates with its counterparts in other large emerging economies, notably through IP BRICS, an initiative that started in 2012 and has one of its six axes on IP promotion among SMEs.

ABDI (Agência Brasileira de Desenvolvimento Industrial, Brazilian Agency for Industrial Development) is a governmental agency under the Ministry of Economy dedicated to market intelligence and technology diffusion in industrial sectors. It focuses on bridging the gap between the current industrial processes in Brazil and new worldwide industrial trends. The agency provides grants and financial incentives to manufacturing enterprises, including start-ups, and encourages collaboration among companies of different size to increase industrial competitiveness.

SENAI (Serviço Nacional de Aprendizagem na Industria, National Service for Apprenticeship in Industry) is the main training organisation that caters to manufacturing and stems from the National Industry Confederation (CNI). Part of Sistema S (see Chapter 4), it covers 28 industrial sectors and has 2.5 million students enrolled in its courses. SENAI strengthens innovation through training and consultancy services.

SEBRAE (Serviço Brasileiro de Apoio às Micro e Pequenas Empresas) is Brazil’s de facto micro and small business agency. Similarly to SENAI, SEBRAE is part of Sistema S, receiving public funding through the payroll system but operating at arms’ length from the government. SEBRAE’s constituency is micro and small companies as defined by Lei Complementar 123/2006 (i.e. annual gross revenues up to BRL 4.8 million), but some of its programmes also target innovative start-ups.

EMBRAPII (Empresa Brasileira de Pesquisa e Inovação Industrial) is the Brazilian Agency for Industrial Research and Innovation, a government agency under two different ministries, the MCTIC and the Ministry of Education. It has two essential attributions: to certify public and private technological and scientific institutions across Brazil and to award non-refundable grants to innovation projects. EMBRAPII’s overarching goal is to promote collaboration between industry and higher education and research institutes.

EMBRAPA (Empresa Brasileira de Pesquisa Agropecuária, Brazilian Agricultural Research Agency) is a Brazilian public company dedicated to agricultural research and innovation. It operates under the Ministry of Agriculture. Among its services, EMBRAPA produces know-how on agricultural products and processes, lab analysis, technical best practices, and production methods. EMBRAPA supports innovative start-ups mostly through the transfer of knowledge and technology.

Apex-Brasil (the export and investment promotion agency of Brazil), which is part of Sistema S, works to promote Brazilian products and services abroad, and to attract foreign investment to strategic sectors of the Brazilian economy (see also Chapter 6). The Agency reaches out to innovative start-ups through its activities which include, among others, trade and prospective missions and the organisation of technical visits of foreign buyers.

Private sector and not-for-profit organisations also play an important role   
        

ABStartups is the Brazilian Start-up Association, a not-for-profit association. Among its activities, the association organises matchmaking sessions between start-ups and potential stakeholders; provides management training and mentorship services; and facilitates commercial services to start-up companies. ABStartups essentially acts as a platform to connect start-ups, larger companies, and investors.

Anjos do Brasil is a network of Brazilian business angels, a not-for-profit organisation. The network works with investors and entrepreneurs, offering the former access to investment opportunities and the latter advice on how to pitch business ideas and draft legal documents.

ANPROTEC (Associação Nacional de Entidades Promotoras de Empreendimentos Inovadores) is the Brazilian Association of Science Parks, Business Incubators and Business Accelerators, a not-for-profit organisation. Its membership includes incubators, accelerators, technological centres, higher education and research institutes, public agencies and other entities engaged in entrepreneurship and innovation.

Fundação Certi is an independent not-for-profit foundation that offers research, development and specialised technological services for the private sector, the government and the third sector. It was originally founded as a research spin-off of the Faculty of Mechanical Engineering at the Federal University of Santa Catarina. Fundação Certi owns research centres in eight different technical and scientific domains, specifically: mechatronics, metrology, manufacturing, entrepreneurship and innovation, advanced technologies, green economy, and renewable energy. The foundation also delivers innovation programmes on behalf of the Ministry of Economy and MCTIC.

Most programmes for start-ups are the result of inter-agency collaboration and operate through matching funds  
        

Thanks to the presence of many public, semi-public and private sector organisations involved in the national start-up ecosystem, Brazilian programmes for innovative start-ups are often based on multi-party expertise and operate through matching funds. Nonetheless, public sector programmes and competencies sometimes overlap both at horizontal and vertical levels. This means that different bodies compete in adjacent fields and that sub-entities are not always strategically aligned with parent bodies. For example, SENAI, SEBRAE and the Instituto Euvaldo Lodi (IEL) all provide management training, although SEBRAE only works with micro and small enterprises, while SENAI and IEL tend to work with larger companies.

Brazil’s governmental research and innovation agencies, notably EMBRAPA and EMBRAPII, are both actively engaged in programme implementation, providing scientific accreditation and academic input. However, it is not clear if they also play a relevant role in policy design, a stage in the policy cycle where better articulation with frontline players can help inform policymakers. Such an approach would also enable increased sectorial participation in programmes, to the extent that EMBRAPA and EMBRAPII operate under sectorial ministries. A stronger role could also be envisaged for INPI, which seems to be disconnected from other players in the ecosystem.

In a country of the size of Brazil, policy design and policy delivery need to be closely articulated. Local presence in the start-up ecosystem is guaranteed through the network of state and local offices of organisations part of Sistema S, state-level economic development departments (Secretarias de Desenvolvimento Econômico, SEDE) and economic development agencies, as well as through specific national programmes, such as the National Programme of Incubators and Technology Parks (Programa Nacional de Incubadoras e Parques Tecnológicos, PNI), which runs nationwide in collaboration with local institutions.

Overall, Brazil’s main challenges in the governance of the innovative start-up ecosystem reside in correcting some institutional and functional redundancies, mostly in the public sector, as well as in improving intellectual property management. Moreover, additional focus on post-programme impact assessments would allow to streamline policy management and better evaluate external private sector partners.

copy the linklink copied!The legal framework for innovative start-ups

This section looks at the Brazilian legal framework for innovative start-ups, that is to say, at the main legislation which affects the development of innovative start-ups in Brazil.

The National Strategy for Digital Transformation

The National Strategy for Digital Transformation was published in 2018 by MCTIC (MCTIC, 2018a). It embraces the United Nation’s 17 sustainable development goals and sets out, as its main objective, to improve Brazil’s standing in the World Economic Forum’s Global Competitiveness Index. The strategy rests on five pillars: digital infrastructure, R&D, trust, education and internationalisation.

Innovation is a common theme across the strategy. Innovation is, for example, specifically addressed in the digital infrastructure and R&D pillars. In the first, the emphasis is on connectivity and Internet coverage, while in the second the focus is on ICT, knowledge transfer and applied innovation. Both digital infrastructure and R&D are key to the emergence of more innovative start-ups in Brazil.

The focus on connectivity and Internet coverage

Agglomeration effects around major cities have allowed rapid access to the Internet and mobile communication services for people living in urban areas, who account for 85% of the total population in Brazil. However, people living outside of cities remain isolated and frequently without access to basic, fixed and mobile, communication infrastructures. Only 40% of Brazilian households have access to fixed-line broadband services and, on average, only 50% of households have access to the Internet. The 4G technology is currently available in 51% of municipalities covering 86% of the population. However, 3G is still the main standard in Brazil.

The National Strategy for Digital Transformation envisions enhanced digital connectivity including through new public tenders for radio frequencies and mobile broadband infrastructure networks; increased 4G coverage and technical preparation for 5G networks; collaborative projects between central/urban and remote/rural regions; and investments in digital data storage capacity.

The focus on business R&D

As shown in Chapter 3, Brazil’s investment in R&D is equal to 1.3% of gross domestic product (GDP), compared to an OECD average of 2.4%. Among the main tax incentives for R&D and innovation, the strategy identifies Lei do Bem and Lei da Informática, which both administer R&D tax credits. Regarding additional support programmes (e.g. public grants and subsidies) those from BNDES, FINEP and EMBRAPII are singled out as the most popular. To support R&D, the strategy advocates the need for technology hubs and testbeds for experimental technologies and innovation; public procurement to induce innovation; re-visiting the legal framework for innovation and related tax incentives; public-private partnerships between higher education institutions and private sector companies; and cross-border scientific collaboration in theoretical and applied innovation.

Start-ups are identified as potential beneficiaries of the National Strategy for Digital Transformation. In agriculture, innovative start-ups are expected to benefit from EMPRAPA’s 2014-34 Action Plan, which includes a specific start-up programme (Desafios de Startups). Digital infrastructural investments in rural areas will also help. In services, where most innovative start-ups operate, the strategy expects opportunities to be most significant in health services, financial services and logistics.

Among the main obstacles working against innovative companies, the National Strategy for Digital Transformation refers to the lack of skilled workers (supposedly a deficit of 92 000 trained people), notably computer programmers; lack of entrepreneurial attitudes; bureaucratic and lengthy procedures for company registration and liquidation; a rigid labour law; and a complex and expensive web of state-level and federal taxes (see also Chapter 3).

To address such challenges, the strategy intends to support a minimum of 200 digital start-ups per year; simplify visa procedures for foreign workers; increase public resources dedicated to digital skills; introduce a new tax framework for equity funding; support venture capital, incubators and accelerators; create a fast-track insolvency regime; reduce registration bureaucracy and open up public procurement to start-ups; promote the internationalisation of Brazilian start-ups; and develop regulatory sandboxes for innovative experimentation.

The Action Plan for Technological Innovation 2018-22

A very small share of the national labour force works on R&D   
        

The MCTIC published the Action Plan for Technological Innovation in 2018 within the framework of the National Strategy for Science, Technology and Innovation, 2016-22 (MCTIC, 2018b). The Action Plan sets the context of innovation in Brazil by initially presenting some data from the national innovation survey (PINTEC) run by the national statistical office. This survey shows, for example, that the share of people working on R&D in Brazil is less than in other similar countries and is also highly concentrated in public institutions. In 2014, only 1.9 per every 1 000 occupied people were employed in R&D in Brazil, compared with 2.9 in Argentina. Of those employed in R&D, more than 70% were working for the government or public higher education institutions.

Additional data from the national innovation survey show that 36% of Brazilian companies are involved in some form of innovative activity (product/process and/or marketing/organisational innovation), but only 5.7% carry out internal R&D. Moreover, most reported innovation expenditure (about 40%) consisted of the acquisition of equipment and machinery, whereas internal R&D accounted for roughly 30%. Overall, process innovation was more common than product innovation. Collaboration in innovation was mostly established with clients and suppliers, and to a much lower extent with universities and research centres. Among businesses engaged in innovation, 40% in industry and 36% in services made use of existing public policies (see Chapter 2 for more details on SME innovation performance in Brazil).

The Action Plan for Technological Innovation aims to make the business sector the main source of R&D investment  
        

Against this backdrop, the Action Plan for Technological Innovation aims at different things. First, it intends to make Brazil’s private sector the main engine of R&D investment. Second, it focuses on bridging the distance between academia and industry. Third, it aims at enhancing the technological content and international specialisation of the Brazilian economy. The Action Plan sets goals and actions in four areas, including the innovation legal framework, the entrepreneurial ecosystem, incentives for technological development and innovation, and innovation management. Concerning the entrepreneurial ecosystem, start-ups are meant to be mostly supported through public-private collaborative efforts, IP protection, and access to venture capital finance.

R&D tax credits through Lei do Bem should be made more easily available to start-ups   
        

The Action Plan also addresses the lack of effectiveness of the Lei do Bem, a law which provides innovation-related tax benefits. This law is only applicable to companies operating in the “real-profit” corporate income tax regime, whereas Brazilian SMEs typically operate under the “presumed profit” (lucro presumido) corporate income tax regime or the Simples Nacional preferential regime (see also Chapter 3). In total, only 3% of Brazilian companies opt for the “real-profit” regime; of these, only 0.62% uses the R&D tax credits offered by the Lei do Bem. Currently, the only practical way for innovative start-ups to make use of the Lei do Bem is to partner with larger, eligible companies and benefit indirectly through tax-exempt revenues derived from such partnerships.

In its current format, the Lei do Bem is not suitable for innovative start-ups, for example, because it does not include cash-refund or carry-forward provisions for those young companies which want to invest in R&D but do not have yet enough taxable income against which to claim tax credits. It would, therefore, be important to increase the period during which R&D expenditures can be deducted from the corporate income tax or to offset tax credits, presently un-collectable, against other taxes and levies paid by innovative start-ups.

The proposed shift from local content requirements to local R&D requirements comes with some risks   
        

The Action Plan for Technological Innovation also suggests accelerating the phase-out of local content requirements (LCRs), to be replaced in some cases with local R&D requirements. This change would allow multinational enterprises (MNEs) to keep their global supply chains unchanged in exchange for investments in Brazilian R&D, which could assume the form of investments in innovative start-ups or in local venture capital funds investing in start-ups.

While this policy is well-intentioned, it would still dislodge the value chains of MNEs by targeting their internal allocation of R&D spending, thus imposing opportunity costs on foreign companies. In the specific case of mandatory R&D investments in local start-ups, they would probably not be effective if not accompanied by better intellectual property management and an upgrade in the local knowledge base. Better alternatives could be to encourage open innovation programmes led by MNEs or to seek their participation in existing private-public initiatives.

The New Innovation Legal Framework

The New Innovation Legal Framework has resulted in a revision of different laws with an impact on innovation   
        

The New Innovation Legal Framework, which was introduced in 2016 and came into effect in 2018, is based on five fundamental pillars (MCTIC, 2018c): promoting scientific and technological activities strategic for economic and social development; promoting a triple-helix entrepreneurial ecosystem; supporting knowledge transfer and innovation; supporting innovative activities in private sector companies; and simplifying administrative procedures in science, technology and innovation projects. The new framework has resulted in a comprehensive overhaul of different laws related to higher education governance, public procurement, trade and industrial policies, and labour regulations. These legislative changes are meant to increase the agility of R&D in Brazil and to make universities more entrepreneurial and versatile.

The new framework introduces two main changes. First, it allows public sector companies to invest in private sector companies through minority equity stakes. Second, it facilitates the transfer of knowledge from public entities to private ones. Intellectual property generated by individual public sector institutions will be managed by local decentralised organisations called NITs (Núcleos de Inovação Tecnológica, Technology Innovation Hubs), which will be autonomous in nature and work as either public foundations or private not-for-profit organisations.

With respect to the first change, policymakers should be cautious with public equity participation in private companies, as government investments can occasionally turn into hidden subsidies. In this case, it might be better to opt for a transparent and competitive programme of government grants. On the other hand, the proposed NITs could provide an effective way to bridge the distance between public higher education institutions and private sector companies. Reality suggests that whenever investing in a university start-up, private sector investors tend to demand ownership of the intellectual property involved in the venture. NITs should not only increase the supply of intellectual property but also facilitate its marketability with third parties.

The Brazilian patent system

The Brazilian patent system is affected by a severe backlog   
        

Brazil’s patent system faces serious challenges. Patent registration backlogs go back to 10 years on average, although there have recently been some improvements.1 In the last years, the national industrial property office (INPI) has invested BRL 40 million in IT spending, and 210 people have been hired. But, still at the end of 2018, the patent office employed only 450 researchers in IP, compared with the 810 authorised posts. Furthermore, in 2018, the agency’s spending amounted to BRL 390 million, of which 80% was absorbed by staff costs, whereas revenues reached a total BRL 457 million (INPI, 2018).

Historical data point to a disconnection between scientific and technological production in Brazil. While the number of Brazilian scientific publications has grown steadily, rising from less than 40 000 in 2007 to roughly 70 000 in 2016, the number of submitted patents has remained unchanged. In 2018, INPI received 27 444 patents submissions, a number close to the one of 2008 and 17% lower than in 2014.

Submissions for patent registration are led by foreign applicants. China, France, Germany, Italy, Japan, the Netherlands, Switzerland, the United Kingdom and the United States account for 65% of total patent submissions in Brazil. The United States alone represents 30% of the total, whereas Brazilian applicants account for only 20%. Of these, small companies account for 11% of the resident submitted patents, while individuals account for the largest proportion of the resident share (42%), suggesting the existence of entrepreneurial potential.

The backlog issue is less acute in trademark protection, where decisions are taken on average in 9 months. Most applications, 86% of the total, are submitted by Brazilian residents. Of these, 48% are submitted by micro and small businesses and 23% by individuals.

Several fast-track patent regimes have been introduced in the past to alleviate the backlog problem  
        

INPI manages a number of special patent regimes for certain target groups. For example, Lei Complementar 123/2006 stipulates that INPI reduce patent fees up to 60% for micro and small companies. In response, INPI has operated since 2016 a fast-track registration scheme dedicated to this business segment (Patentes MPE). Three rounds have since then been launched, all of which have already been closed. Until now, 50 patents have been approved out of 253 initial applications.2

INPI also offers additional fast-track regimes. Projecto Piloto Patentes ICT, for example, was launched in 2017 for science and technology research institutions. Another related programme is INPI’s Projecto Piloto Prioridade Brasil. This lane gives priority for international patent protection to applicants who already have a domestic patent protection procedure ongoing at INPI. In addition, INPI operates another ten mechanisms aimed at expediting patent procedures, four of which focus on minority groups, one on financial restitution linked to patent abuse, one for green patents, and one for businesses whose external financing depends on patent approval.

While fast-track regimes can help certain target groups, they hardly solve the core problem of the backlog. Furthermore, although the situation has improved in the last two years, the patent approval process is still lengthy, especially from the perspective of a start-up. As a result, as of mid-2019, existing fast-track regimes were expected to go through a review process to make them more uniform, favour the equal treatment of applicants, and facilitate the overall patent assessment process.

There are a number of initiatives aimed at modernising INPI   
        

To address the backlog problem, INPI, with support from the Ministry of Economy, has recently started to work on an important restructuring project which includes four main initiatives. First, the Backlog Combat Plan aims to reduce the backlog by 80% in two years through, inter alia, improving the productivity of patent examiners. Second, the IP Digital Plan aims to digitalise all services provided by INPI. Third, an agreement between INPI, ABDI and the Ministry of Economy intends to modernise the patent application process, including through the acquisition by ABDI for INPI of new network equipment, servers and storage system. Fourth, a co-operation agreement between the government of Brazil and the UK Prosperity Fund aims to redesign the whole patent examination process by introducing a quality management system.

In addition to these reforms, the experience of the Japan patent office provides a model on how to expedite the patent application process. One specific measure that proved successful was to sub-contract preliminary activities, such as research before technical decisions, to accredited private companies. Japan also hired temporary examiners for a period of five years, with the possibility of renewal. These measures helped reduce the average time to process a patent application from 2.4 years in 2008 to 10 months in 2014.

The need for a new Start-up Act?

There is currently a public debate on whether to introduce a Start-up Act   
        

As noted earlier, Brazil currently lacks a legal definition of a start-up. However, this gap in legislation has recently started to be addressed through a public consultation process, co-ordinated by the Ministry of Economy and MCTIC, which has seen the involvement of over 70 organisations and 160 people. The consultation was undertaken between May and June 2019 and should support the elaboration of a Legal Framework for Start-ups and Innovative Entrepreneurship.

The idea of a Start-up Act is not unique to Brazil, and a number of other countries have already introduced similar laws. Italy introduced its Start-up Act in 2012 (Law 172/2012), Spain enacted an entrepreneurship law in 2013 (Law 14/2013), and Argentina followed suit in 2016 with the Ley de Empreendedores. The case of Italy is presented below as a possible inspiring practice for Brazil (see Box 7.1). The main advantage of such legislation would be not only the formulation of a legal definition of start-up – which could make existing programmes more targeted – but also the possibility to undertake a review of start-up programmes to rationalise the existing policy offer. This last objective, however, can also be achieved through the preparation of a Start-up Strategy, as done by Portugal for example (see Box 7.2).

Broadly speaking, it is important that programmes for start-ups maintain a certain degree of flexibility with respect to eligibility requirements. While a normative definition can help narrow down the policy focus, flexibility in programme formulation is essential when dealing with the concept of start-up, which is more elusive and evolving than the one of a micro and small company. Nonetheless, intellectual property ownership and R&D spending are eligibility criteria that should always be found in programmes for innovative start-ups.

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Box 7.1. International learning model – Italy’s Start-up Act

Description of the approach

Italy’s Start-up Act offers a number of special preferences for innovative start-ups, such as: dedicated digital and free of charge procedures for incorporation; exemptions from certain fees associated with business registration; tailor-made labour laws; tax-free work-for-equity schemes; tax incentives for start-up equity investors; fast-track access to the local SME guarantee fund; support from the Italian Trade Agency to access foreign markets; a start-up visa programme for non-EU citizens or student entrepreneurs; and fast-fail bankruptcy procedures (Menon et al., 2018).

Italian law sets strict criteria to identify innovative start-ups. These should be five years old or younger; be headquartered in Italy; have an annual turnover lower than EUR 5 million; not be the result of a spinout of another company or the merger of two companies; have a mission statement explicitly related to innovation; be a limited company not publicly listed; and not have distributed profits. An innovative start-up must also comply with at least one of the following three criteria: at least 15% of R&D expenditure ratio; one-third of employees are PhD students/graduates or researchers and/or two-thirds hold a master’s degree; and being the holder, depository or licensee of a patent, or owner/author of registered software (Menon et al., 2018).

Factors for success

Information on the different policy instruments is critical. In Italy’s Start-Up Act there are 19 different instruments. The start-up charge reduction is the most widely known among entrepreneurs. Human capital and educational attainment of innovative start-ups’ founders are also relevant factors for success, as innovation typically requires technical and scientific knowledge.

Obstacles and responses

Excessive reliance on bank loans can act as a disincentive to receiving equity finance. Thus, public guarantees underlying start-up loans should be well-balanced, and policymakers should also make sure that a deep venture capital market is available. Moreover, eligibility criteria for start-up policies should not focus on discretionary elements, but rather on innovation-related and market-driven criteria.

Relevance for Brazil

A Start-Up Act could provide structure and coherence to the existing programmes for start-ups and spur growth-oriented entrepreneurship, which is not very strong in Brazil. Furthermore, the process of preparing this act could encourage a comprehensive review of existing tax, labour and regulatory laws from the viewpoint of start-ups.

Sources for further information

Menon, C. et al. (2018), “The evaluation of the Italian “Start-up Act”", OECD Science, Technology and Industry Policy Papers, No. 54, OECD Publishing, Paris, https://doi.org/10.1787/02ab0eb7-en.

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Box 7.2. Portugal’s National Start-up Strategy

In 2016 the Portuguese government launched the National Start-up Strategy to attract national and foreign investors into the national start-up ecosystem, to co-finance start-ups (especially in the idea/early stage of development), to promote and accelerate the growth of start-ups into foreign markets and, more generally, to implement the Government’s measures to foster entrepreneurship.

The Start-up Portugal+ Programme, presented in July 2018, was designed by the Portuguese government to give a new impetus to the initial strategy and to address emerging challenges. In addition to the original 5 measures, 20 new measures were introduced.

Portugal’s start-up policies are mostly focused on the digital economy and aim to support those who have already launched a new business, with a view to increasing the impact these companies can have on value generation and job creation.

Some examples of the measures part of the strategy include:

  • Start-up Vouchers: they support young people aged 18-35 who have good business ideas and want to start a business. Financial support takes the form of a monthly salary (EUR 692), mentoring and follow-up by one of the national business incubators.

  • Incubation Vouchers: they provide new enterprises with up to EUR 5 000 to acquire business incubation services.

  • Momentum programme: it provides financial support to innovative projects that have a high-growth potential through monthly funding, free housing and incubation.

  • Seed Programme: this is a tax regime for investors in start-ups. Through this measure, investors can obtain tax deductions of up to a maximum of 40% on their personal income tax, while new businesses have access to seed capital for R&D projects as well as the acquisition of intangible assets and some tangible assets.

  • National Network of Incubators and Accelerators: Portugal has a network of 150 incubators and accelerators which help domestic SMEs to grow and become more competitive.

Overall, Start-up Portugal is an embracing strategy that supports entrepreneurs through the life cycle of a business start-up. Developing a similar strategy could help Brazil rationalise and systematise its existing package of policy measures in support of new start-ups.

copy the linklink copied!Targeted programmes for innovative start-ups

While the previous section looked at the overall legal framework in support of innovative start-ups, this section focuses on the main targeted initiatives for this group of companies, most of which originate from the Ministry of Economy, SEBRAE and FINEP.

Programmes led by the Ministry of Economy

InovAtiva Brasil is a highly recognised programme in Latin America  
        

InovAtiva Brasil is implemented by the Ministry of Economy in partnership with SEBRAE and Fundação Certi. This programme is essentially a four-month start-up acceleration programme: eligible companies must be start-ups, but past the idea stage. Between 2013 and July 2019, 936 start-ups in roughly 20 different economic sectors had completed the programme, at a rate of about 100 start-ups per semester. Overall, since inception, more than 10 000 companies have applied for the programme, 2 155 have been selected, and 936 have completed the programme.3

InovAtiva Brasil’s main objective is to assist entrepreneurs in the development of business skills. Up to 130 start-ups are selected per semester, with selection criteria including the degree of innovation, scalability, team profile, and the project’s development stage. Selected start-ups are provided with online training and mentoring through a network of over 500 volunteer mentors, who are typically top executives, experienced entrepreneurs and/or venture capital investors. Four months after the programme’s start, there is a 3-day final event, which includes a boot-camp and a demo day, during which start-ups present their business plans to investors. Post-programme activities include keeping track of graduate companies and fostering connections with investors and larger corporations engaged in open innovation initiatives.

InovAtiva Brasil is a highly recognised programme in Latin America and has been publicly praised for its role in innovation and entrepreneurship development in Brazil. Supported companies regularly feature in national rankings of start-ups to watch and start-ups involved in open innovation programmes. Since inception in 2013, the programme’s cumulative budget has totalled more than BRL 10 million for which the Ministry of Economy has been the main contributor (95% of total). The programme is essentially free of cost for participating companies, except for lodging and travel expenses related to the three-day final event.

InovAtiva Brasil is a well-structured accelerator programme. It is also an example of transparency, with detailed data on the profiles of participants that are regularly published. Companies are profiled based on several dimensions including location, business models, business fields and number of employees. Given the sheer number of innovative start-ups that have graduated from the programme, programme managers should produce additional impact assessment studies. This could include analysis of aggregate turnover, export value, number of people employed and registered patents among graduated companies vis-à-vis non-graduates or non-participant companies.

StartOut Brasil aims at born-global start-ups; some changes in the programme design could enhance its impact   
        

StartOut Brasil was launched in 2017 with the aim to foster born-global start-ups. The programme is managed by the Ministry of Economy in partnership with the Ministry of Foreign Affairs, SEBRAE, ANPROTEC and Apex-Brasil. The programme targets already established start-ups, ideally with revenues above BRL 500 000 and/or having benefitted from venture capital investment, willing to expand into international markets. Candidates are evaluated according to their degree of innovation, development maturity, team quality, and foreign market fit.

StartOut Brasil has targeted different foreign markets such as Berlin, Paris, Buenos Aires, Miami, Lisbon, Santiago, Toronto and Boston. The selection process starts with an initial application period during which 40 start-ups are selected for a specific foreign market. The number narrows down to 20 final choices after a second-round selection led by external experts. The 20 start-ups go through a 6-8 week-long capacity-building programme consisting of consultancy, mentorship and pitch training with experts on the foreign market being targeted. After a warm-up event in São Paulo, the programme participants travel to the targeted destination for a one-week mission. During this mission, participants interact with local industry players and stakeholders in the region’s entrepreneurial ecosystem. This includes visiting corporations with open innovation programmes, fellow start-ups, accelerators and potential investors. After returning to Brazil, participants are de-briefed through two post-programme counselling sessions to assess opportunities identified during the trip. Start-ups interested in relocating to their target markets are also assisted by the programme. Since 2019, the programme also selects, at each cycle, five start-ups that have gone through at least two editions of the programme for a new immersion, but with a reduced offer of services.

Since inception, the programme’s cumulative budget has totalled almost BRL 4 million, and more than 70 companies have been supported. However, if companies which have participated more than once are considered, the number of supported cases exceeds 90. Similarly to InovAtiva Brasil, the programme is free of charge, except for lodging and travel expenses during the warm-up event and the one-week trip abroad.

StartOut Brasil exhibits many procedural similarities with InovAtiva Brasil, but it differentiates itself by focusing on venture-backed companies or companies that have already gained some commercial traction. In theory, StartOut Brasil aims at fostering born-global companies, but the revenue criteria might, in fact, exclude very new companies without consolidated sales. Furthermore, it is not totally clear how immersion sites are selected. Thus, although StartOut Brasil is relatively new, some changes might benefit the programme.

First, StartOut Brasil should consider dropping the revenue eligibility criteria, since this is partly inconsistent with the aim of encouraging born-global start-ups. Programme managers should instead stick to the venture-backed criterion and other technical and managerial screens largely inherited from InovAtiva Brasil’s successful experience. Second, screening and selecting a cohort while attempting to match industry targets and preferential geographies may result in excessive latitude by programme managers. Perhaps a better way to approach StartOut Brasil might be to reverse its inner workings: instead of taking cohorts of start-ups to a specific foreign immersion, bringing multiple foreign investors and large companies with open innovation programmes into a local immersion. This way multiple geographies could be targeted for selected industries, bringing those geographies closer to Brazil in selected niches. Such a change would radically alter the nature of StartOut Brasil, but it could prove more effective and also more efficient from a budgetary point of view. As of mid-2019, a similar reform of the programme was being considered.

SEBRAE-led programmes

Capital Empreendedor is aimed at raising awareness about Venture Capital among innovative start-ups and SMEs  
        

Capital Empreendedor aims to raise awareness about venture capital and private equity funding among high-growth firms and innovative start-ups through workshops and mentorship sessions. After three mentorship meetings, two in person and one online, entrepreneurs are offered an investor roadshow. Depending on the company’s development stage, investors might include businesses and/or private equity funds. This programme is managed by SEBRAE in partnership with other public programmes, such as InovAtiva Brasil, and other private sector organisations such as Anjos do Brasil. In addition to raising awareness, Capital Empreendedor invests in private sector venture capital funds specialised in seed and early-stage equity investments in micro and small companies. Available funds for investment amount to BRL 45 million.4

Raising awareness about venture capital and private equity is laudable. However, only a very small universe of small companies will be up for the challenge of a professional investor roadshow. In addition, only a tiny share of professional investors will be interested in seed or early-stage equity stakes in innovative start-ups. Thus, offering micro and small companies investor roadshows is likely to be cost-ineffective. An alternative option, building on SEBRAE’s extensive network, would be the creation of a digital platform where innovative start-ups could be screened based on objective criteria and, henceforth, matched with potential investors. Capital Empreendedor could then co-invest with outside investors. While such an initiative would result in a large pool of investment opportunities, it would probably limit such opportunities to series C funding.

SEBRAE like a Boss & SEBRAE Start-up Way offer diagnostic services to small businesses   
        

SEBRAE like a Boss is a web platform aimed at diagnosing the development stage of a company. Following the initial assessment, micro and small companies are redirected to appropriate support services offered by SEBRAE. These include low-intensive and high-intensive services. SEBRAE like a Boss classifies companies according to five different maturity stages (pre-ideation, ideation, starting operation, getting traction and scaling-up), and can be considered a gateway for start-ups and potential entrepreneurs into the SEBRAE ecosystem.

SEBRAE Start-up Way is closely related to SEBRAE like a Boss. It is the programme through which support services are mapped and integrated into the maturity assessment conducted initially. More than 7 000 start-ups have signed up for this programme, and roughly 2 000 have been individually assisted by SEBRAE’s regional offices.5 Individual assistance includes support for entrepreneurial development, innovation, market intelligence, marketing, partnerships, matchmaking and funding.

Though not specifically oriented for innovative start-ups, these two programmes could easily be adapted to identify promising innovative ventures. Given the difficulty of assessing what is innovative and what is not, adopted criteria for screening should be very objective and quantifiable. These could include educational attainment of employees, a standard definition of gross value added, intellectual property ownership, revenue growth rates and/or online revenues as a percentage of overall revenues. By identifying early-on innovative start-ups, other SEBRAE initiatives, such as Capital Empreendedor, would also benefit.

NEXOS offers a well-balanced approach to open innovation   
        

NEXOS is a new open innovation programme established in late 2018 by SEBRAE and which is administered by ANPROTEC, the national association of business incubators. Its purpose is to connect medium and large-sized companies with technology-oriented start-ups through open calls for innovation. Medium and large-sized companies define the technological domains of the calls, while start-ups are invited to develop products and services in the fields of the calls. Start-ups are allowed to use resources owned by large companies as well as those owned by incubators and accelerators involved in the programme.

In the framework of NEXOS, larger companies can use R&D and innovation tax benefits from Lei da Informática and Lei do Bem. The government invests in the start-ups based on the achievement of development milestones, with investments capped at between BRL 100 000 and BRL 250 000. The large companies involved in the programme are expected to match government funding. Start-ups receive 90% of allocated funds, whereas incubators and accelerators receive 10%.6

The NEXOS programme builds on a previous experience in which SEBRAE, since 2016, has given guidance to roughly 200 start-ups collaborating on open innovation initiatives with about 40 large-sized companies, mostly multinationals. Thus, NEXOS intends to provide a formal structure to these partnerships, offering specific tax incentives to leverage existing opportunities for innovative start-ups in Brazil.

This programme provides a well-balanced approach to open innovation involving public subsidies. It builds on a long-standing, successful partnership with ANPROTEC and allows large companies to take advantage of tax incentives which, as they stand today, are not accessible by start-ups. Furthermore, the calls for innovation are industry-driven, focusing the programme on real-life challenges.

SEBRAE & EMBRAPII collaboration constitutes a good example of a triple-helix model of innovation  
        

In 2017 SEBRAE also signed an innovation contract with EMBRAPII, the Brazilian Agency for Industrial Research and Innovation. The partnership focuses on micro and small companies on a standalone basis or, alternatively, on micro and small businesses working jointly with medium and large companies. One-third of the funding comes directly from EMBRAPII, another third from technology institutes accredited by EMBRAPII, and a final third by participating companies. SEBRAE covers up to 80% of the costs endured by participating micro and small businesses.

Until October 2018, the partnership between SEBRAE and EMBRAPII had committed BRL 12 million to 74 projects. The programme allows participating companies to access over 40 EMBRAPII-accredited technology centres in Brazil, fostering open innovation and knowledge transfer to small companies from technology institutes and larger companies. This type of collaboration between SEBRAE and EMBRAPII constitutes a good example of a triple-helix model of innovation. By including EMBRAPII, such collaboration is more comprehensive than a typical open innovation programme between small and larger firms. Moreover, by allowing small and larger companies to partner up, the programme enhances the commercial viability of innovation produced by start-ups.

ABDI Industry Start-up Connection Programme

ABDI Industry Start-up Connection Programme works through an open innovation model with start-ups  
        

Programa Nacional Conexão Start-up Indústria (Industry Start-up Connection Programme) was first launched by ABDI in 2017 to foster industrial growth through the adoption of Industry 4.0 technologies. The programme operates in two stages: in the first, medium and large industrial companies apply to the programme by specifying up to eight technological challenges they would like to address; in the second, start-ups apply to provide potential solutions to the challenges identified in the first phase. Medium and large industrial companies can then choose up to four start-ups to co-develop technology solutions.

The 2017 edition of the programme resulted in the development of 32 proofs of concept (PoC), 12 of which moved on to the commercialisation phase. All selected start-ups received a grant worth BRL 80 000 to finance their PoC, while an additional BRL 200 000 was awarded to the best 10 PoCs that moved to the stage of product development. As of mid-2019, a second edition of the programme was underway in which ABDI had selected 30 industrial companies submitting more than 150 innovation challenges.7

An evaluation of the 2017 edition of the programme has allowed ABDI to establish a profile of large industrial players in different economic sectors and their degree of innovativeness, including the profile of large corporations that do not seem to be aware of the benefits of innovation. Such market intelligence is expected to allow ABDI to better target industries and regions in the future. According to the study (ABDI, 2017), out of 408 large-sized industrial companies, only 22% had ever carried out business with start-ups, 21% were in the midst of preparing to do so, 23% said they had no clue on how to do business with start-ups, and 21% showed no interest in doing so. As to participating companies, out of 46 registered companies, only 10 found start-ups matching their challenges.

FINEP programmes

FINEP Centelha targets university start-ups   
        

FINEP Centelha is a new flagship initiative started in 2018 by MCTIC and FINEP to promote university start-ups. The immediate goal is to incubate 28 start-ups from an initial 1 000 applications. In the long run, the goal is to incubate 28 start-ups per each adhering state. FINEP Centelha is meant to provide training and coaching for 18 months and will involve a network of mostly public institutions active in innovation and technology research.

The programme is decentralised and managed at the state level by local research foundations, universities, and Fundação Certi. Intellectual property generated within the programme will be managed by IP offices – i.e. the abovementioned NITs, Núcleos de Interacção Tecnológica – established in higher education and research institutions. Funding is available through FINEP and state-level partners. Out of the initial 21 projects approved in 2018 a total BRL 34 million had been granted: BRL 21 million from FINEP and BRL 13 million from state-level entities.8

Critically, FINEP Centelha’s success will largely depend on bridging the gap between academia and the business world. In this regard, it may be advisable to involve private sector companies early on, by introducing some elements of real-world open innovation; for example, by making mandatory experimental testing, conducted in private sector companies, part of the programme.

Another challenge will be the real effectiveness of the NIT arrangement. Investors are often wary of funding university start-ups because ownership of related intellectual property is not always clearly structured. The ownership issue may also be further entangled whenever there are multiple universities and researchers involved, since different researchers may own autonomous segments of intellectual property. Confronted with such uncertainty investors frequently walk away. Finally, academic entrepreneurship may be stimulated by public programmes, such as FINEP Centelha, to the point of first venture formation efforts, but not to the point of operating effectiveness (Bergmann et al., 2016).

FINEP Tecnova addresses Brazil’s industrial policy priorities   
        

FINEP Tecnova was launched in 2012 to support innovation projects nationwide. Its first edition was completed in 2017, while a second edition was launched in 2018. In this programme, state-level public institutions and/or not-for-profit organisations apply for Tecnova funds to finance innovation projects in selected sectors. These institutions manage the programme and select eligible companies. FINEP provides funding, but state-level institutions must match the FINEP funding.

In the first edition (2012-17), which was only dedicated to micro and small companies complying with Lei Complementar 123/2006, FINEP awarded grants worth BRL 173 million, whereas state-level institutions provided matching funds of BRL 90 million. The number of funded projects was 572. In the second edition, a total of BRL 150 million is earmarked for the programme, 60 million of which from FINEP and the remaining from state-level institutions. The second edition will also cater to larger businesses with annual revenues up to BRL 16 million.9

FINEP Tecnova targets economic sectors considered strategic at the national level as well as sectors chosen at the state level. In the first edition, 40% of the funds were earmarked for projects in oil and gas, renewable energy and ICT, whereas 60% could be spent at the discretion of the states. In doing so, FINEP Tecnova addresses Brazil’s industrial policy priorities. Given this objective, policymakers could build on Brazilian specialised research and market intelligence agencies, such as EMBRAPA and EMPRAPII, to make well-informed choices in the selection of strategic sectors for investment. In addition, research agencies could also assist in defining the innovation criteria based on which start-ups would be short-listed for investment.

FINEP is also a main source of equity finance   
        

FINEP is also an active player in equity finance, mostly at the seed stage.10 Since 2000, it has invested in a total of 33 investment funds, with total commitments in the range of BRL 656 million and more than 220 supported innovative companies.

In 2000, FINEP launched Inovar to introduce an equity finance culture in nascent technology-based companies and to help fund managers to raise and manage funds. The programme counted with collaboration from the Inter-American Development Bank (IDB), SEBRAE, Petros (A Petrobras Foundation) and other Brazilian institutional investors. In 2005, FINEP launched Inovar Semente to leverage venture capital resources for micro and small technology-based companies. This programme had ten approved seed capital funds.

More recently, in 2015, FINEP established the Primatec Fund, a partnership between investors and a group of incubators and technology parks known as Rede Primatec. The Primatec Fund focuses on investments in start-ups incubated in the Primatec network and is expected to complete its first round of investments by 2020. It is externally managed and has a capital commitment of BRL 92 million. Priority sectors are ICT, energy, creative industries, and socially responsible start-ups. As of December 2018, it had invested in 8 companies out of the targeted 20.

The most recent FINEP initiative in equity finance is FINEP Start-up, which was launched in 2017 to support venture capital (VC) investments in technology-based micro and small companies, as defined by Lei Complementar 123/2006 (annual turnover up to BRL 4.8 million). Calls for equity investments are opened in specific sectors and underlying technologies.11 Candidates applying for funds are subject to a two-stage evaluation and selection process. A first panel of three specialists, two from FINEP and one business angel, pre-assesses each company. After the initial assessment, business cases are taken before an investment board led by FINEP officials. Since the inception of the programme, three calls have been conducted.

Under the programme, initial investments in individual start-ups are capped at BRL 1 million. However, subject to contractual terms, another BRL 1 million may be allocated to each company. In each call, 75 companies are pre-selected and 30 are pre-approved for a final due diligence process which, if successful, results in equity investment. In this case, the government co-invests on an equal basis with the business angel, which is a clear strength of the programme.

Launched in 2017, the programme has conducted so far three rounds of investments in which 1 191 businesses have applied and 51 have been approved for investment. Of these, 14 have already received investments for a total of BRL 13.86 million, while 19 are “under investments”, i.e. the contract is still to be signed or resources are to be delivered subject to delivery of some documentation. On the whole, the programme plans to invest BRL 60 million per year of equity finance in micro and small businesses.12

FINEP Start-up aims at bridging the funding gap at companies that are between the stages of prototyping and market traction. In financial terms, it aims at series B and C round of funding. At this stage, initial screening will depend on both technological feasibility and commercial viability. Most likely, eligible candidates will not have yet complete evidence of technological feasibility, nor any specific assurances about commercial viability. Thus, candidacy procedures must be streamlined through digital channels, and the same must happen between expert panels and the ultimate decision-maker at FINEP. Otherwise, companies selected for investment may run out of financial resources, with the managerial fixed costs of the programme which could outweigh its possible benefits. This is especially true for a programme such as FINEP Start-up since there will be very few micro and small companies ready for external investment and few angel investors interested in investing at such an early and risky stage of the enterprise life cycle.

copy the linklink copied!The interaction of the government with other entrepreneurial ecosystem players

While the previous section delved into government programmes aimed at innovative start-ups, this section looks at the way the government interacts through specific initiatives with other major players in the national entrepreneurial ecosystem, notably business incubators and business accelerators and large corporations running open innovation schemes.

Business incubators and business accelerators

Brazil has a large number of incubators, technology parks and accelerators  
        

ANPROTEC, the Brazilian Association of Science Parks and Business Incubators, estimates that there are 369 incubators, about 90 technology parks and 35 accelerators in Brazil. According to 2016 data from the MCTIC, the impact of business incubators on the Brazilian economy over the period 2009-16 corresponded to BRL 15.2 billion in sales and 53 280 jobs, which originated from the about 5 000 companies that had gone through an incubation process.

Incubators in Brazil do not only support technological innovation but also social innovation. For example, ANPROTEC co-ordinates an incubation programme dedicated to start-ups with a social impact. Under this new initiative, up to 25 incubators will be selected for capacity-building in socially-related fields. Priority will be given to incubators established in the North, Northeast and West of Brazil. Following an initial training period, incubators will submit action plans for social impact incubation and 5 out of the original 25 will be selected for further support.

The National Programme of Incubators and Technology Parks (PNI) has achieved good outcomes   
        

The PNI (Programa Nacional de Incubadoras e Parques Tecnológicos) was originally created in 1998 and later redesigned in 2009. It is managed by a committee that includes, among others, the Ministry of Economy, MCTIC, SEBRAE, FINEP, BNDES, CNI and ANPROTEC. The programme supports technology-based small businesses through a network of technology parks and incubators. Between 2002 and 2012, PNI provided grants worth BRL 255 million and BRL 58 million to 44 parks and 90 incubators respectively. During the same period, SEBRAE provided BRL 68 million in additional funds to incubators investing in micro and small businesses (MCTIC, 2015).

According to a 2015 assessment report (MCTIC, 2015), businesses located in PNI-supported technology parks tend to be larger and have larger revenues than similar companies located in parks not supported by the PNI. Similar results have been found for the impact of PNI on companies in incubators. Both tenant and graduated enterprises in PNI-backed incubators are larger and have greater revenues than similar companies located in incubators that are not supported by the PNI.

MCTIC’s Startup Brasil is specifically geared towards IT start-ups   
        

The MCTIC created Startup Brasil in 2012 in the framework of the National Strategy of Science, Technology, and Innovation. The programme involves a partnership between MCTIC, the National Council for Scientific and Technological Development (CNPq), and private sector business accelerators to support IT start-ups. Under this programme, managed by SOFTEX (an association dedicated to the promotion of software developed in Brazil), selected IT companies benefit from grants and access to private sector accelerators. Roughly 200 start-ups have been accelerated since 2012, with the programme receiving a cumulative budget of BRL 350 million. Selected start-ups are awarded BRL 200 000 for R&D support and go through a one-year acceleration programme. Accelerators provide financial support, mentorship, project management, market validity tests, and access to other investors. Apex-Brasil and the Ministry of Foreign Affairs may also be involved when start-ups try to enter international markets.

BNDES Garagem accelerates innovative start-ups through closer relationships with larger companies  
        

BNDES launched BNDES Garagem at the end of 2018 in Rio de Janeiro. The programme is executed by accelerators Wayra (part of Telefonica Group) and Liga Ventures and works as an innovation hub hosting under the same roof start-ups, larger companies, investors, universities and research organisations. The accelerator programme has an annual budget of BRL 10 million and includes two different modules: a first 4-month pre-acceleration (or incubation) module that aims to create 30 start-ups and a second 6-month acceleration module focused on 30 existing start-ups with revenues up to BRL 16 million. Priority industries include education, health, security, financial services, creative industries, smart cities and block-chain related technologies.

Apex-Brasil encourages local venture capital investments by MNEs   
        

Since 2015, Apex-Brasil operates “Corporate Venture in Brazil”, an initiative that aims to stimulate the innovation and venture capital activities of multinational enterprises (MNEs) in Brazil. The programme facilitates the meeting of Brazil-based MNEs with the domestic entrepreneurial ecosystem, including venture capital managers, business angels, business accelerators and incubators and technology parks. Between 2015 and 2018, the programme has helped almost 60 global corporate venture capital leaders to connect with the Brazilian ecosystem, leading to investments in the range of USD 300 million through open innovation and corporate acceleration programmes.

Private sector open innovation initiatives

Brazil’s entrepreneurial ecosystem also includes privately-owned open innovation initiatives   
        

Brazil’s entrepreneurial ecosystem also includes interesting open innovation initiatives run by private sector companies with little, if any, involvement of the government.

The Korean conglomerate Samsung launched its open innovation programme in 2015 (Samsung Creative Start-ups) in partnership with Korea’s Centre for Creative Economy and Innovation and ANPROTEC. Samsung has committed USD 5 million to the programme leveraging existing tax benefits purveyed under Lei da Informática. The programme follows an innovative approach, through which start-ups use the host company’s resources and technologies to build new products. Between 2016 and 2017, 18 companies completed the programme.13

Inovabra is an open innovation programme created in 2017 by Bradesco, a Brazilian commercial bank.14 It focuses on fin-tech start-ups, in line with the bank’s development strategy, but also delves in unrelated fields such as healthcare. The programme, which is based in São Paulo, looks for innovative ideas using artificial intelligence, big data, cognitive computing, and machine learning. These ideas are then incubated and accelerated to leverage Brasdesco’s strategy in digital banking, cybersecurity and other related banking activities. Inovabra is currently in its fourth edition. About 3 000 start-ups have signed up for the programme and 8 investments worth BRL 6 million have been made.

Votorantim Cimentos, the world’s 5th largest producer of cement, set up its open innovation programme in 2017, which specifically addresses cement production and related technologies. Under its first edition, the company focused on seven Industry 4.0 challenges. Back then, 107 start-ups applied for the programme, 12 were pre-selected and 7 went through the programme.15

copy the linklink copied!Conclusions and policy recommendations

This chapter has shown that there are many aspects to the innovative start-up ecosystem of Brazil that work well, although there is also room for improvements in some areas. For example, publicly supported incubator programmes are widely available, entrepreneurial attitudes are high on the priority list, and open innovation programmes look promising. On the downside, there are some weaknesses in the digital infrastructure, IP protection, and R&D tax benefits.

Risk sharing and matching funds between public and private players are generally good practices. However, public-private partnerships also pose challenges, with many of them related to typical agency costs: Are resources adequately allocated between and within programmes? Are outcomes clearly defined and really achieved? Are risks properly shared? These are issues that need to be addressed whenever the government interacts with the private sector, especially when there are monetary incentives involved. In turn, this calls for audit oversight and transparent reporting.

Sectorial ministries could be more closely involved at the stage of start-up policy design, which at the moment is mostly led by the Ministry of Economy and MCTIC. A good example is EMBRAPA, which operates under the Ministry of Agriculture and is a leading force in agricultural innovation in Brazil (De Negri, 2018). Brazil could also build on international examples such as the US Small Business Innovation Research programme or the UK’s Small Business Research Initiative, both of which supports public procurement for innovation with a focus on small firms.

Finally, screening and selection of innovative start-ups could become faster and less burdensome if it were made more digital. Programmes could also be scaled up if digital technologies were employed, especially at the initial screening phase. Expected outcomes should also be more clearly defined, measured and evaluated. This includes producing impact assessment reports and benchmarking some of the programmes against each other, especially when there are redundancies.

copy the linklink copied!
Policy recommendations on the innovative start-up ecosystem
  • Focus policies for innovative start-ups on observable data on intellectual property, R&D spending and revenue growth rates, rather than strictly enforced administrative definitions.

  • Strengthen the role of research agencies operating under sectorial ministries, such as EMBRAPA and EMPRAPII, in policy design to leverage ministerial priorities and sector-specific know-how.

  • Strengthen SEBRAE’s partnerships with research and innovation institutions at the local level to combine SEBRAE’s geographical outreach with local technological knowledge and expertise.

  • Focus part of a future pilot project on public procurement for innovation on newly born companies to encourage the emergence of innovative start-ups.

  • Introduce carry-forward or cash-refund provisions in existing R&D tax credits to make them more appealing to innovative start-ups operating under the real-profit corporate income tax regime.

  • Address the patent backlog at INPI by modernising and digitalising the patent application and review process, in line with the recently launched restructuring plan. As part of this plan, consider contracting out the first stages of the patent review process to external accredited institutions (as done in Japan).

  • Monitor the effectiveness of the Technological Innovation Nuclei (Núcleos de Inovação Tecnológica, NIT) in boosting university start-ups and increasing the supply and marketability of intellectual property.

References

ABDI (2017), Programa Nacional Conexão Startup Indústria, Brasília.

Bergmann, H., C. Hundt and R. Sternberg (2016), “What makes student entrepreneurs? On the relevance (and irrelevance) of the university and the regional context for student start-ups”, Small Business Economics, Vol. 47(1), pp. 53-76, https://doi.org/10.1007/s11187-016-9700-6.

De Negri, F. (2018), Novos Caminhos para a Inovação no Brasil, IPEA, Rio de Janeiro.

INPI (2018), Relatório de atividades 2018, Rio de Janeiro, http://www.inpi.gov.br/sobre/arquivos/relatorio-de-atividades-inpi-2018.pdf/view.

Menon, C., T. DeStefano, F. Manaresi, G. Soggia and P. Santoleri (2018), “The evaluation of the Italian Start-up Act”, OECD Science, Technology and Industry Policy Papers, No. 54, OECD Publishing, Paris, https://doi.org/10.1787/02ab0eb7-en.

MCTIC (2018a), Estratégia Brasileira para a Transformação Digital (E-Digital), Brasília.

MCTIC (2018b), Plano de Ação para a Promoção da Inovação Tecnológica 2018-2022, Brasília.

MCTIC (2018c), Novo Marco Legal da Ciência, Tecnologia e Inovação, Brasília.

MCTIC (2015), Estudos de impactos do PNI, Brasília.

OECD (2017), OECD Science, Technology and Industry Scoreboard 2017: The Digital Transformation, OECD Publishing, Paris, https://doi.org/10.1787/9789264268821-en.

Turchi, L. and J. de Morais (2017), Políticas de Apoio à Inovação Tecnológica no Brasil: Avanços Recentes, Limitações e Propostas de Ações, IPEA, Rio de Janeiro.

Notes

← 1. In 2018, there were 208 341 patents waiting for approval by the national industrial property office (INPI), a 14.6% drop compared to the historic high of 2016.

← 2. However, as of mid-2019, applications submitted during Phase III were still being processed. Out of a total 107 applications, 71 had gone through an initial analysis, 24 of these had been considered eligible to join the programme, 8 decisions had been issued, and 4 patents had been granted. Additional information on Patentes MPEs is available at the following website: www.inpi.gov.br/menu-servicos/patente/exame-prioritario-me-epp.

← 3. SEBRAE presentation, Actuação do Sistema Sebrae na promoção da inovação para os pequenos negócios, p. 35.

← 4. SEBRAE presentation, Actuação do Sistema Sebrae na promoção da inovação para os pequenos negócios, p. 28.

← 5. SEBRAE presentation, Actuação do Sistema Sebrae na promoção da inovação para os pequenos negócios, p. 23.

← 6. Further information on the NEXOS programme is available at the following webpage: www.sebrae.com.br/sites/PortalSebrae/artigos/programmea-nexos-conexoes-corporativas,ea81f631e24e6610VgnVCM1000004c00210aRCRD.

← 7. For further information on ABDI’s Start-up Connection Programme, please see: https://www.abdi.com.br/postagem/abdi-seleciona-30-empresas-de-grande-porte-para-conexao-com-startups.

← 8. For further information on FINEP Centelha, please see: www.mctic.gov.br/mctic/opencms/inovacao/paginas/empreendedorismo_inovador/projeto_centelha.html and www.anprotec.org.br/site/2018/12/mctic-lanca-programmea-centelha-para-estimular-a-inovacao-e-o-empreendedorismo/.

← 9. For further information on FINEP Tecnova, please see: www.finep.gov.br/apoio-e-financiamento-externa/programmeas-e-linhas/descentralizacao/tecnova.

← 10. As seen in chapter 5, BNDESPAR is the main source of equity finance in Brazil.

← 11. Priority sectors in FINEP Start-up include: agro-tech, sustainable and smart cities, construction technologies, circular economy, defence, education, energy, fin-tech, health-tech, mining, oil and gas, chemicals, and biomaterials. Priority technologies include: biotechnology, block-chain, artificial intelligence, Internet of Things, advanced manufacturing, microelectronics, nanotechnology, and augmented and virtual reality technologies.

← 12. For further information on FINEP Start-up, please see the following webpage: www.finep.gov.br/apoio-e-financiamento-externa/programmeas-e-linhas/finep-startup.

← 13. Further information on the Samsung’s initiative is available at the following webpage: http://anprotec.org.br/samsung/.

← 14. Further information on the Bradesco’s initiative is available at the following webpage: www.inovabra.com.br (accessed on 08/02/2019).

← 15. Further information on the Votorantim Cimentos’s open innovation programme is available at the following webpages: https://www.votorantimcimentos.com.br/open-innovation/ and https://startupi.com.br/2018/07/open-innovation-brasil-muito-mais-que-eventos-um-verdadeiro-movimento-em-prol-da-inovacao-por-todo-pais/.

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