For the last 20 years, scientist-entrepreneurs ready to launch innovative startups in Brazil have enjoyed over US$115 million worth of support from an “angel investor” with a difference – this one expects no return on risk capital.
Since starting operations in São Paulo state, the PIPE programme (acronym of Pesquisa Inovativa em Pequenas Empresas or Innovative Research by Small Companies) has distributed more than R$360 million of public funds for 1,788 different projects. Last year the pace of funding rose to R$56 million for 228 projects — almost one new grant per working day.
Across São Paulo state – Brazil’s economic heartland – companies in more than 120 towns and cities have received grants. As well as the state capital, beneficiaries are located in industrial clusters around the university towns of Campinas, São Carlos, and São José dos Campos. Some companies, like Chemyunion Química, have received up to 10 grants.
PIPE, which commenced operations seven years before Brazil’s 2004 Innovations law made it easier for other public institutions to follow suit, is both Brazil’s pioneering startup fund and still its largest. “PIPE is the largest programme supporting startups in Brazil,” said FAPESP president Prof. José Goldemberg.
In a series of articles accompanying this introduction to PIPE, Science for Brazil profiles a gallery of startups whose technology has gained market acceptance in Brazil and around the world. This illustrates the role played by FAPESP in transferring innovative research from the academic world into the business environment.
Some companies, like In Vitro Brasil – recently sold to a US multinational for an estimated US$22 million – contribute significantly to national wealth creation. Others deliver social as well as economic benefit. These include Altave, which provides aerial platforms to provide internet in remote or disaster-hit locations, or Phelcom, which makes eye-testing kits suitable for ophthalmologists developing economies. Nanox makes innovative coatings and sprays for the food packaging industry. Griaule develops software and controls for large biometric marker-based identification programmes.
In coming weeks we’ll profile more young companies that are PIPE alumni, to show the depth and breadth of Brazil’s tech scene. For some time, SFB has been investigating whether biotech – particularly activities supporting agribusiness – will be Brazil’s big “moonshot.” Here’s an industry survey of what’s happening in this field. Look out for more soon.
PIPE investments in the development of technologies and new knowledge are provided by FAPESP (São Paulo Research Foundation). The programme was created in 1997, and at first compensated for the absence of any venture capital industry in Latin America’s largest regional economy. The Brazilian programme was modelled on SBIR, the US federal government’s seed fund that since 1982 has produced hundreds of success stories.
Today it provides the kind of early-stage development capital that a growing local ecosystem of commercial investors still deem too risky. In fact, said Prof. Goldemberg, PIPE has become “the favoured fishing-ground of investors when they come looking for opportunities.”
In a challenging business environment where over 70% of startups fail, PIPE’s assessment and oversight procedures have led to extraordinary success. According to a 2011 assessment published in Research Evaluation, just 8% of PIPE-funded startups failed, while each real of investment was calculated to have generated R$10.50 in return. It found a success rate comparable with that of beneficiaries of state-sponsored incubator programmes in the US, Japan and France.
This assessment by University of Campinas innovation study group GEOPI under coordinator Sérgio Salles-Filho studied 214 sample projects funded by PIPE. It found that 111 of these companies were innovative, with 59 providing firsts for the Brazilian market and 17 generating globally significant breakthroughs.
PIPE funding relies on the concept of the “virtuous circle.” FAPESP’s funding comes from a grant of 1% of São Paulo state tax revenues, so PIPE-funded companies that go on to make profits and pay taxes, will play their part by returning cash for future generations of startups.
In addition to providing tax revenues, PIPE-funded programmes have generated skilled employment too. The study showed 90% of these companies had PhD level employees, while 60% employed graduates.
Every three months, FAPESP issues calls for proposals under PIPE’s three categories. Companies and their Principal Investigators (PI) can submit proposals for:
Phase One grants are for early stage research and pre-prototype proof of concept. They are limited to R$200,000 (US$63,750) over nine months.
Phase Two grants are for prototype development and detailed research. The financing limit is R$1 million over two years.
Phase Three projectsare to fund commercial development and full product or service launch. Because FAPESP’s charter is for research only it cannot support for-profit ventures, but does provide matching funds. This segment operated in partnership with FINEP (Financiadora de Estudos e Projetos), a unit of the Communications, Science and Technology Ministry, under the terms of its PAPPE programme.
FAPESP keeps a publicly available database of all PIPE grants that can be accessed by clicking here.
Brazil’s tech innovation scene is now changing fast, with the advent of a lively infrastructure of private sector venture capital businesses, and early-stage seed investors, all hunting for the next killer app. Much of the activity, however, has been limited to fintech, IT and mobile cellular applications.