Startups facing wave of layoffs in Brazil due to investment cuts

By Alba Santandreu

Sao Paulo, Jul 17 (EFE).- Brazil, the mecca for emerging companies in Latin America, is facing a wave of layoffs and resignations among its startups amid a worldwide investment “crisis” due to global uncertainties and an environment of progressively more restrictive monetary policies.

Brazil, the country with the most so-called “unicorns” in the region, is experiencing a “period of correction” after the boom of the past five years, especially during the coronavirus pandemic, when interest in emerging technology firms skyrocketed.

Nevertheless, the appetite among investors has waned in recent months as interest rates have increased in the world’s main economies to try and put the brakes on rising inflation.

“The increase in interest rates causes investors to migrate from more risky investments to other less risky ones,” the president of the Brazilian Startups Association (Abstartups), Felipe Matos, told EFE in an interview.

According to data gathered by the association, in just the first half of this year there was a reduction of 40 percent in investments in Brazil, where there are more than 20 “unicorns,” as startups valued at more than $1 billion are known.

With less available funds for financing, the value of the emerging companies – Matos said – has fallen, and this had translated into an increase in budget cutbacks with an eye to adapting to the “new scenario.”

According to Abstartups, in recent months about 1,000 workers at unicorns have been laid off or quit, although the true figure is around double that in the entire sector according to the Layoff Brazil Web site.

The payroll cuts have affected the real estate giants QuintoAndar and Loft; Mexico’s Kavak, which buys and sells used vehicles via online apps; the fintech firm Ebanx and the digital business-to-business platform Vtex, among others.

“There’s a paradigm change (under way). Before, companies were seeking to grow as quickly as possible, without generating profits, because in this way they’d be worth more and there were investors ready to pay for that growth,” Matos said.

“Today, with the changes, the companies need to give priority to profits above growth. They can’t just grow at any price,” he added.

Despite the reduction in investment and the increase in worker departures, Abstartups says that the sector will continue to grow, although at a slower pace than in years past.

“Brazil … (has) a low volume of risk capital compared with other Latin American countries. There was and still is room to grow,” Matos emphasized.

To do that, given the size of its market and the development that its startups have achieved, Brazil remains the focus of foreign investors, including Colombians, according to experts consulted by EFE.

To begin internationalizing and continue growing, the official ProColombia agency and representatives from 16 startups in different sectors – including fintech, retailtech and healthtech – traveled to Sao Paulo with the KPMG Colombia consulting firm last month to meet with 30 Brazilian venture capital funds.

“In Colombia, we have an ecosystem of business and technological innovation with more than 1,110 startups. Each day that we contribute another grain of sand to this exponential growth and have the support of an innovation and entrepreneurial giant like Brazil, it gives us the opportunity to keep growing,” the private enterprise chief for KPMG Colombia, Martin Escobar, said.

EFE

ass-joc/eat/bp