Over the past two years, as commerce has stalled and the stock markets have melted, startups have broken investment records. But input data from 2022 shows that the pandemic bill may have finally reached the sector.
As of May this year, investors have funneled $2.6 billion into startups, up from $3.2 billion in the same period last year. The average value of investments increased from US$ 9.2 million to US$ 12.5 million, which shows concentration.
In all, last year, US$ 9.4 billion were injected into Brazilian innovation, almost 2.6 times what was raised by companies in the segment in 2020 — US$ 3.5 billion, which had already been a record.
The most recent cycle of falling investments has adjusted market values ​​of startups, previously inflated by the volume of investments, and caused mass layoffs.
In April, QuintoAndar, Loft and Facily laid off more than 400 employees in a week, a story that has been repeated in other companies in the sector since then. Last Tuesday (21), 340 people were notified of termination at Ebanx, a cut that represents 20% of the group’s more than 1,700 employees in Brazil.
The enthusiasm for startups in the last two years is explained by the monetary policy of almost all central banks in the world, which saw activities paralyze in the pandemic. The standard measure was to lower interest rates to encourage capital injection into the economy.
In addition, the forced digitization of the population, which became bankable, boosted from distance classes to online shopping – segments of activity of many startups.
Now the two factors have changed.
The return of face-to-face activities casts doubt on the future performance of technology companies. It is not known whether online habits that people adopted in the pandemic, such as the use of ecommerce, will be maintained.
Interest rates, on the other hand, have been adjusted in an attempt to curb global inflation, which shows no signs of letting up. High fees make less risky applications more profitable than startups — fast-growing companies that, in many cases, burn cash to expand and outperform competitors.
The result is a shortage of money for investments, pressure from investors for profit and, on the other hand, business opportunities for companies that want to acquire startups at lower prices.
“Before, it was growth at any cost. Today, investors want startups that produce results”, says Roberto Pina, executive president of the investment fund SevenSete. “The time is to reduce the risks and the size of the check.”
It is common for startups to prioritize accelerated growth over results to conquer the market. Nubank, for example, registered a profit for the first time only in the first half of 2021, eight years after its foundation.
Large companies that want to incorporate innovations from startups will benefit from the adjustment of market values.
SevenSete’s umbrella startups are getting more bids, according to Pina. If in recent years 90% of proposals were for funds, today more than half of business attempts come from large companies.
“Some investors were reluctant to participate in purchases last year because they thought the prices were too high,” says Carlos Lobo, a mergers and acquisitions attorney partner at Hughes, Hubbard & Reed LLP.
The trend is for the market to return to more sustainable levels, according to him.
“When there is excess liquidity, there is money left for everyone: the competent and the not so competent. When money becomes less available, fund managers select more”, he says.​
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