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: firstname.lastname@example.org 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: email@example.com Phone: +55 11 3040 7050