The Future of Startups in Brazil

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I’ve already written about Brazil as an emerging power in the area of science. A remaining challenge for the country is to move from science to industry in major areas, including biotech. I’ve also written about the laws surrounding biotech, but these laws mostly affect medium and large-size companies, because those can demonstrate incomes from which fiscal incentives can be applied and deducted from income tax.

But what happens to small, start-up biotech companies? Do they have a future? Brazil has launched a system called “subvenção economica,” which is inserted in the law previously mentioned.

Since 2006, there has been an annual call for proposals, inviting companies to apply for funds that don’t need to be paid back. Last year the “subvenção” offered about $300 million in reais (US$190 million) and the demand was four times that amount. Two hundred and fifty-two companies qualified for funds, and a majority will receive some. Biotechnology and health together totaled 25% (67 companies). Overall, small companies asked for 72% of the funds, which is remarkable.

Still, these small startups get an initial push but do not have a mechanism to scale up their business later. The two laws mentioned previously do not apply to small biotech companies because they do not have incomes from which to deduct incentives, and also they cannot offer guarantees to back up bank loans. One component of the Innovation Law provides tax deduction for entrepreneurs that invest in technological innovation and as such could give rise to funds from entrepreneurs to small business companies.

However, biotech does not stimulate the immediate economy because the projects are long term. So the only attractive factor coming from these small companies is IPR to be offered to larger companies as a means to assure that investments can be made under the protection of the Brazilian Patent Law – Law No 9726/96. The Patent Law in Brazil is restrictive to innovations related to biology, but I’ll talk about that later.

In order to establish an innovation center in the northeast of Brazil, we concluded that a non-profit association should be established, much like the Wisconsin Alumni Association, to deal with patents generated by the biotechnology network called RENORBIO.

RENORBIO in four short years accumulated more than 60 patents, deposited in Brazil and abroad. Funds are needed to assure that these patents will be of use for the industry, so we invited six entrepreneurs to be part of a management council in hopes of bringing together the private and the public sectors.

It’s too early to say if they will advance risk capital. If it doesn’t work, Brazil will attempt a tax deduction from Northern States and Counties. Nine Northern States in Brazil will collect an estimated US$25 billion in taxes in 2011. If that holds, 0.1% would be enough to establish an Innovation Pole in the Northeast of Brazil and small startup biotech companies would then have a future.

Luiz Antonio Barreto de Castro

Luiz Antonio Barreto de Castro

CEO, ABCP Agriculture Biotechnology Consultorias e Projetos

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