Santa Catarina, located in the south of Brazil, is keen to elevate its position in the country’s innovation landscape, leveraging unique factors that set the state apart from others. The epicenter of the state’s innovation scene is its capital Florianópolis, known for having the highest startup density per capita in Brazil. With a population of just 500,000, the city has emerged as the driving force behind the state’s technological surge, focusing predominantly on B2B models where companies design systems for other organizations rather than end consumers.

Florianópolis has been the birthplace of successful ventures that underwent some of Brazil’’s biggest M&A deals such as RD Station, a digital marketing firm acquired by software giant Totvs, and Neoway, a big data company purchased by B3 – both for around $340 million in 2021. Beyond these, the state is home to established tech firms predating the startup boom and also hosts emerging companies and global giants like Mercado Livre, Zoho, and Zucchetti.

“Given its challenges, like the lack of significant oil or mineral reserves and the absence of vast agricultural lands, coupled with natural adversities such as droughts, floods, and hurricanes, Santa Catarina had to pivot towards an alternative economic foundation to ensure growth,” said Marcelo Fett, a veteran of the sector and the first Secretary of Science and Technology for Santa Catarina.

The creation of the secretariat supports the collective aim of the catarinense ecosystem to accelerate the state’s tech industry, which currently consists of 22,125 tech firms with a combined turnover of approximately $4.5 billion, accounting for 6% of the state’s GDP. This positions Santa Catarina as Brazil’s sixth-largest tech hub.

The goal now is to double this contribution by 2026 through measures like credit provision for entrepreneurs, expansion of student loans and financial incentives for research-driven enterprises within the state, with details to be unveiled later this year. “[Santa Catarina] is a state that has a lot going for itself, especially when it comes to tech, and needs modernization to go even further”, said the state governor, Jorginho Mello.

Thriving in scarcity

Iomani Engelmann, president at local technology association ACATE and CEO at health tech Pixeon, attributes the growing appeal of the local tech scene to Santa Catarina’s historic and cultural trajectory, since a significant portion of Santa Catarina’s population has Italian, German or Portuguese heritage.

Inherently risk-takers in their personal lives, immigrants contributed to the local entrepreneurial spirit, Engelmann said, adding that their willingness to take risks, combined with the scarcity of opportunities rooted in the local culture, has catalyzed the creation of numerous startups. “We’re a state formed by immigrants, who relied on mutual assistance for survival. This naturally fosters entrepreneurialism and association, yielding tangible results,” he noted.

Another key reason why the tech ecosystem in Santa Catarina is so significant in comparison to its GDP is scarcity, according to Rafael Assunção, a partner at Florianópolis-based M&A firm Questum.

“The state has a limited number of corporate jobs, especially compared to states like São Paulo or Rio. Moreover, there are top-tier universities that churn out a pool of talent, which isn’t necessarily absorbed by major corporations” Assunção said, adding this scenario results in a unique situation: with limited opportunities, entrepreneurship becomes one of the few viable paths.

Assunção draws a parallel between Santa Catarina and Israel, emphasizing how constraints can drive innovation. “Both places, while distinct in nature, are marked by a shortage in resources, compelling individuals to think outside the box”, the investor pointed out.

This scarcity-driven ecosystem in Santa Catarina and the lack of a large consumer market has fostered a proliferation of B2B startups. These businesses tend to be more capital-efficient and customer-centric: rather than relying on vast sums of external capital, these startups focus on creating real value for customers. “This set of features makes [local startups] particularly attractive to investors and strategic partners, as they bring solutions that have been tested and validated in the market”, Assunção noted.

When asked about specific sectors with high growth potential, Assunção pointed to fintechs and retail techs. “These sectors are primed to benefit from new technologies, especially with the current wave of innovation around artificial intelligence. They handle vast transactional volumes and data, catering to consumers increasingly hungry for personalized experiences”, he said.

Gearing up for a global marketplace

The next frontier for Santa Catarina’s tech sector, as per ACATE’s Engelmann, is global outreach. “We’re well-positioned, and it’s time to wave our flag internationally, showing that global expansion is an integral part of the journey of local entrepreneurs,” he pointed out.

Santa Catarina’s startups have already begun making a mark globally. Among them is Decora, a company providing 3D decor scenarios for retailers, as a success story. Sold to US firm Creative Drive (a company now owned by Accenture) in 2018, the firm’s technology is now utilized by some of the world’s largest retailers, like Apple and Walmart. “The large and complex Brazilian market pushes entrepreneurs to come up with world-class solutions”, said Assunção.

One of the barriers for this Brazilian ecosystem is nurturing talent to meet the ecosystem’s demands. Despite being Brazil’s fourth-largest state in terms of tech professionals, Santa Catarina still faces a skills gap. As per ACATE, the state had 76,700 tech professionals in 2022 and created over 16,700 jobs in the last two years. With the demand set to grow, over 10,000 current job vacancies need to be filled.

Engelmann is optimistic about initiatives aimed at tackling the issue, like partnerships with the public education system for rapid talent development. Reflecting on Santa Catarina’s potential impact on national innovation environments, the executive believes there’s a lot of best practices to share on a national scale. Collaborative efforts are already underway with regions like Ceará and Pará.

“We hope to share with Brazil the successes of Santa Catarina, where large and small coexist harmoniously, and young entrepreneurs learn from seasoned ones, and vice versa. We want our culture of leadership and collaboration to become a reference for ecosystems nationwide,” Engelmann noted.

Another challenge will be developing the ability to better narrate and promote its success stories, according to Questum’s Assunção. “While the state might not have gigantic success tales like Silicon Valley, it has hundreds of smaller, significant victories worth celebrating”, he concluded.