Analysis: Why 5 startups have said goodbye to Brazil in the past year

RIO DE JANEIRO, BRAZIL – The market for startups is booming: Brazil has gone from 10,000 companies in 2018 to 13,211 by the end of 2020, which represents a 32.11% increase, according to data from Abstartups (Brazilian Startups Association).

Worldwide, the trend is not much different: the success of companies like Airbnb, Nubank, WeWork, Stripe, and Epic Games continue to create opportunities for innovative and disruptive businesses to consolidate.

However, the path to getting to the top is not simple, and some early-stage companies fail to stay in business. According to a survey released in 2018 by SEBRAE (Brazilian Micro and Small Business Support Service) and the Ministry of Industry, Foreign Trade and Services, 30% of startups do not survive.

The survey was conducted with companies taking part in the Inovativa Brasil training program, and analyzed 1,044 startups, with special focus on the sectors of information and communication technology (31%), software development (21%), and services (18%). According to the survey, the main reasons for closing operations are the difficulty in accessing capital (40%), obstacles to enter the market (16%) and disagreements among partners (12%).

Last year, the scenario became even more delicate: the socioeconomic crisis resulting from the Covid-19 pandemic led 13.3% of startups operating in Brazil to see their revenues drop by over 50%, according to the “Mapping Communities 2020” released by Abstartups.

The document reveals that the greatest impacts of the pandemic on business were in customer acquisition and sales (51.3%), billing (16.4%), investment negotiations (15.4%) and operating costs (10.7%). “Early in the year, the startups market suffered the impacts and surprise of a global pandemic, just like other markets and economic activities,” says José Muritiba, executive director of Abstartups.

Although the association’s projections are positive for the growth of the entrepreneurial market, analyzing the failures can be a useful strategy to avoid making the same mistakes and understand what really needs to be done to leverage the business.

Below are five cases of startups that failed to overcome the challenges and closed down operations in Brazil

Cabify

Last month, mobility app Cabify announced that it will shut down operations in Brazil on June 14. In a statement, the startup said it is “strongly committed to profitability” and justified the decision by the health and socioeconomic crises leveraged by Covid-19 in the country, which make it difficult to “create value.”

The app competed with Uber and 99 in the segment of trips with private drivers, and operated in the cities of Belo Horizonte, Brasilia, Campinas, Curitiba, Porto Alegre, Rio de Janeiro, Santos and São Paulo.

Founded in 2011 in Spain, the company continues to operate in over 80 cities in 8 countries, including Argentina, Chile, Colombia, Ecuador, Mexico, Peru and Uruguay. In Brazil, the startup had been operating since 2016, and was boosted by a US$160 (US$30) million investment in Maxi Mobility, parent company of Cabify and Easy Taxi – a Brazilian service sold to the competitor in 2017 in a transaction estimated at R$600 million. At the time of the investment, the group said that the money would be used to expand operations in Latin America, Portugal and Spain.

Glovo

In March 2019, a year after landing in Brazil, Spanish parcel delivery startup Glovo announced that it would discontinue its operations in the country. The app, now present in Europe, Africa, and the Middle East, delivers to restaurants, grocery and convenience stores.

Two months before the announcement, the startup’s CEO at the time, Bruno Raposo, had told the press that he intended to double its presence in the country during the year. Brazil was expected to become the main market in number of orders, and operations were to be expanded from 21 to 50 cities. However, the plans did not materialize.

In a statement, Glovo – which competed with Rappi and James Delivery – reported that the decision to leave the country was a result of strong competition, which was hurting the company’s leadership and profitability. “This is the reason why we decided to focus on other Latin American regions, where there is demand for Glovo’s services and we can get better results for our partners, deliverers and company,” the executive said.

In September 2020, the company issued another statement, this time confirming the sale of all Latin American operations to Delivery Hero. “Glovo will seek to strengthen its presence in its core markets, and will continue to expand into new places as it grows its presence in EEMEA (Europe, Middle East and Africa).”

Lime

In January 2020, the North American scooter rental startup announced the end of its activities in Brazil. The venture lasted only 6 months since its introduction. According to the company, the decision to leave the country was made based on a survey that showed the cities where micro-mobility evolved more slowly.

“While the vast majority of our 120+ markets are profitable and have rapidly adopted micro-mobility transportation solutions, there are communities around the world where the market has evolved more slowly,” said Lime founder Brad Bao.

In addition to São Paulo and Rio de Janeiro, the company has also shut down operations in Bogotá, Buenos Aires, Montevideo, Lima, Puerto Vallarta, Atlanta, Phoenix, San Diego, San Antonio and Linz. “We look forward to returning the Lime operation [in Brazil] at a more opportune time,” the company added.

Founded in 2017 in California, Lime raised US$335 million from tech giants Uber and Alphabet in an investment round in July 2018. The following year, the startup raised another US$310 million, in a deal that again featured participation from Alphabet and funds Andreessen Horowitz, Bain Capital Ventures, Fidelity Investments, GV and IVP. The transaction raised the company’s valuation to US$2.4 billion.

Eventbrite

After ending 2019 with a 12% leap in revenue – US$327 million – Eventbrite anticipated its expectations of increasing revenue by somewhere around 3% to 8% in the first quarter of 2020, invoicing between US$84 million and US$88 million.

However, expectations have not been confirmed. Because of the pandemic outbreak in Brazil and in the world and the preventive measures to contain crowds, the events business sector suffered dramatically. A survey conducted by SEBRAE in April 2020 showed that the pandemic affected 98% of the sector, and it was no different with Eventbrite.

In April, the North American startup, specialized in organizing events and selling tickets, decided to shut down operations in Brazil, at the very start of the health crisis. In a text published on LinkedIn, the director of operations in the country, Beatriz Oliveira, explained that “the events market was severely impacted by the crisis and social distancing, and the day-by-day dream is over.”

Covid-19’s impacts on business was not exactly a surprise: before the pandemic was declared by the World Health Organization, Eventbrite had estimated that 10% of events on its platform attracted people located over 160 kilometers away, who would not be able to travel if Brazil implemented travel and crowding restrictions.

Oyo

Oyo has not officially left the country, but its situation in Brazil is not at all comfortable. In 2020, the Indian startup virtually closed its doors by reducing its team from 1,700 employees to 150 because of the effects of the pandemic.

This year, according to sources familiar with the matter, the startup is trimming its team even further, shutting down the entire local operations team and keeping the legal and human resources departments under a minimal structure. The startup is expected to conclude all the required legal procedures to close the Brazilian operation by the end of the year.

In a note released to the market, Oyo announced that the service structure for partners and guests in the region will be exclusively digital. “Unfortunately, we will have to say goodbye to most of our teammates that we admire and value.”

Founded in 2013, the lodging startup landed in Brazil in the first half of 2019, and in the same year received a US$1.5 billion investment in a round led by SoftBank, which raised the company’s valuation to US$10 billion. However, the partnership came to an end in February 2021, when the Japanese conglomerate said it would leave Oyo’s commercial operations in Latin America.

Source: Forbes Brasil

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