In Brazil, VC became picky

Crisis leaves more selective investor in Brazilian startups

The year 2020 promised record investments, after the performance of the last three years in the country, boosted the last year by Softbank.

However, the outbreak of COVID-19 gave us a different story. Venture capital funds, which invest in startups, are more selective in putting their money into new projects by startups and fintechs.

In the midst of the pandemic, entrepreneurs will have to do more with fewer resources if they want to stay alive after the most critical period of the crisis.

A year of skinny cows

The year 2020 promised record investments, after the performance of the last three years in the country, exceeding the US $ 3 billion obtained last year.

However, the market expectation is that investments will slow down. Created three years ago, the Canario fund has been telling its companies to prepare to go without funds, as it is difficult to know how active and liquid the market will be in this turbulent period. “We believe that the most important thing is to get to the other side of the crisis alive. More than growing, it is important to survive,” said Marcos Toledo Leite, fund manager.

“On the other hand, whoever survives will be welcome in the future.” The giant Kaszek, founded by two co-founders of Mercado Libre, must also keep its investments, but with caution, says Santiago Fossati, who runs businesses here in Brazil. With $ 1 billion under management, the fund, which includes Nubank, logistics company Loggi and the Fifth Floor, among its investments, should not spend money on projects at the same rate as before the pandemic.

“We are talking to startups to understand the scenario and if they have cash on hand,” said Michael Nicklas, a partner at Valor Capital Group, a fund that looks at investment opportunities between the United States and Brazil and includes machine operator Stone and the Gympass gym.

Nicklas continues to evaluate new businesses during the pandemic, but with more discretion. With the crisis, new companies are turning to traditional banks’ lines of credit, according to Mathias Teixeira, corporate adviser to technology companies at Itaú BBA. And this move is a learning experience for both parties. “Traditional companies have a past, which makes it easier for banks to measure business risk. For new companies, that past doesn’t exist.”

Waiting better times

With the Covid-19 crisis, Pier, a cell phone insurance startup operating since September 2018, had to review its financing plans. “We have a less favorable outlook for raising funds due to the difficulty of accessing venture capital funds,” said Igor Mascarenhas, president and business partner. “But we are going to expand with what we have.” At InoveBanco, a financial technology operating in the machine market, the funding source has also been exhausted. The company was in contact with three venture capital funds to raise R $ 7 million, says Patrick Burnett, a partner in the company. Still, Burnett decided to use his own cash to set up the QR code and facial recognition instant payment service through partnerships with Chinese.

Sports should decrease

Venture capital fund investments in startups totaled US $ 516 million from January to May this year, 19.7% more than in the same period in 2019, according to the innovation company Distrito. In total, 116 investment rounds have already been mapped. Although 2020 has already managed more than half a trillion dollars, it is unlikely that the first semester will end with a greater investment than the same period in 2019. Last June, Gympass, Loggi, and Creditas received a total of US $ 681 million. The information is from the newspaper O Estado de S. Paulo.