Brazil's Best Counsel 2020 - Chapter Opening: Startups & Innovation

Towards an Institutional Reform for High-impact Entrepreneurship in Brazil

The high-impact entrepreneur is the role model of our time. Technical progress and innovation were not always signi­ficant macroeconomic goals in earlier centuries. This view has changed drasti­cally in recent decades, and most coun­tries now understand that startups can dramatically influence national levels of competitiveness as well as social and economic development.

Nonetheless, how startups thrive at a given time and place depends heavily on regulation. Disruptive technolo­gies commonly challenge incumbents which have influence over legislators but innovation must be spurred in or­der to create benefits for the population in general. A stable, predictive and sup­portive regulatory framework towards innovation is necessary.

A successful entrepreneurial regulato­ry framework should ease the burden of starting, expanding and financing a business, reward productive and inno­vative activity, foster competition and discourage rent-seeking and unpro­ductive activities. That is an ambitious endeavor, but if Brazil has been able to produce internationally successful star­tups with a legal environment which is quite hostile to entrepreneurial activity, imagine what the country could achieve with a proper legal framework.

And this is the right time to discuss a new regulatory framework in Brazil. Af­ter decades of governments ravaged by corruption and unprecedented levels of unemployment, a substantial por­tion of the population now sees entre­preneurship as a reliable alternative for their own survival, and tend to favor startups over large, traditional corpora­tions often associated with some of the corruption scandals of recent years.

Politicians have taken note. Govern­ment agencies have been setting up task forces to understand major innovations and their legal impacts. In 2018, the Fe­deral Government created the Committee for Digital Transformation, an advi­sory board whose objec­tive is to propose regula­tions to foster innovation in the country. Some of the proposed regulatory changes are starting to blossom.

The “Economic Freedom Act” (Medida Provisoria 881), which has been appro­ved by the Brazilian congress but still re­quires presidential sanction, introduces never before seen foundations for the li­beralization of the economy. Among the most relevant new rules, government intervention in the economy must now be subsidiary, minimal and exceptio­nal. The Economic Freedom Act also brings long-awaited protections for the shareholders of Brazilian compa­nies, reverting the infamous vulnera­bility of the corporate veil in Brazil which greatly impaired Brazilian en­trepreneurs for decades.

The second regulatory initiative is the “Startup Act”. The idea behind it was incubated by civil society organizations in 2016 and the Committee for Digi­tal Transformation worked on it over the last two years. The overall goal is to streamline administrative processes, address a corporate law reform, create incentives for corporate innovation and venture capital, including tax reliefs, and introduce a framework for sandboxes in regulated sectors. The Startup Act was recently sub­mitted to public consultation and a final bill is expec­ted before the end of the year.

With the Eco­nomic Freedom Act and the proposed Startup Act, the high-impact entrepreneur may finally have the upper hand. Legisla­tors must be assertive and direct their efforts towards changing regulations to give innovation a definitive push forward.

Community engagement is essential in any advocacy strategy. The Brazi­lian startup ecosystem has shown its strength and willingness to fight for better conditions. We are positive that productive entrepreneurship will play a key role in the Brazilian econo­mic development of the coming years.

ABOUT THE AUTHORS

Pedro H. Ramos: Partner at Baptista Luz Advogados, Pedro graduated from Universidade de São Paulo (USP), holds a Master’s of Laws from Fundação Getulio Vargas (FGV) and is a former Stanford Law School researcher. He has been representing clients from the technology sector since 2009, while maintaining his acknowledged work in the academic and public policy spheres. He is also an advisor to the Interministerial Committee for Digital Transformation and a board member at ABStartups (Brazilian Startups Association).

E-mail: pedro@baptistaluz.com.br  Phone: +55 11 3040 7050

Luis Felipe Baptista Luz: Luis Felipe is the managing and founding partner of Baptista Luz Advogados which he established in 2004. As head of the firm’s Corporate and M&A practice, he has personally led more than eighty successful M&A transactions and an even larger number of venture capital investments, both domestic and international. In recent years, Luis Felipe has served as special innovation advisor to major Brazilian corporations. His entrepreneurial activities include acting as an angel investor, a mentor and a lecturer at different startup acceleration programs in Brazil.

E-mail: luisfelipe@baptistaluz.com.br  Phone: +55 11 3040 7050