Wave of layoffs at startups in Brazil as sign of healthy consolidation after frenetic growth

Brazil, the undisputed center for startups in Latin America, is experiencing a wave of layoffs in its high-tech universe in the face of global uncertainty and increasingly restrictive monetary policies.

The South American country, which has the most “unicorns” in the region, is experiencing a “moment of correction” after the boom of the last five years, especially during the coronavirus pandemic, when interest in technology startups multiplied.

However, against a backdrop of rising interest rates in the world’s major economies to curb rising inflation, investor appetite has waned in recent months.

“Rising interest rates are causing investors to shift from riskier to less risky investments,” Felipe Matos, president of the Brazilian Startup Association (Abstartups), told EFE in an interview.

According to the association, in the first half of the year alone, there was a 40% drop in investments in Brazil, with more than 26 “unicorns,” as startups valued at more than US$1 billion are called.

With less money available for funding, the value of startups has decreased, Matos said, leading to increased cutbacks to adapt to the “new scenario.”

According to AbsStartups, around 1,000 layoffs have been recorded at unicorns in recent months, although the number has more than doubled across the industry, according to the portal Layoff Brazil.

Among those affected by the cuts are real estate giants QuintoAndar and Loft, Mexican company Kavak, which specializes in buying and selling used cars through apps, fintech company Ebanx, crypto firm Bitso and digital commerce platform for businesses Vtex.

“There is a paradigm shift. Before, companies were trying to grow as fast as possible without generating profits because they were worth more that way, and investors were willing to pay for that growth,” Matos says.

“Given the changes, companies today have to prioritize profits over growth. You can’t grow at any cost,” he adds.

Despite the drop in investment and the increase in layoffs, the Brazilian Association of Startups stresses that the sector continues to grow but at a slower pace than in previous years.

For this reason, according to experts interviewed by EFE, Brazil continues to be the target of foreign investors, including Colombians, given the size of its market and the development of its startups.

To start internationalizing and continue growing, the official agency ProColombia and 16 startups from different sectors such as fintech, retail tech, and health tech traveled to Sao Paulo last month to meet with 30 Brazilian venture capital funds, with advice from KPMG Colombia.

“Colombia has an entrepreneurial and technological innovation ecosystem with more than 1,110 startups. Every day we put one more grain of sand on this exponential growth, and the support of a giant of innovation and entrepreneurship like Brazil allows us to continue growing,” said the head of Private Enterprise at KPMG Colombia, Martin Escobar.

SÃO PAULO IS BEST STARTUP ECOSYSTEM IN LATIN AMERICA

Almost on par with Tokyo and ahead of Mumbai, Shenzhen, Washington, and Austin, São Paulo’s startup ecosystem is ranked 16th globally in 2022, showing positive momentum by moving up 4 places since 2021.

As every year, Israeli StartupBlink has prepared the global startup ecosystem index report, which is considered a benchmark in the industry.

The Brazilian megacity, the largest in the Southern Hemisphere, is also the No. 1 in Brazil and Latin America.

São Paulo is ideal for Fintech, eCommerce & Retail, and Transportation startups. As the most popular industries in São Paulo, there is a sample of 175 Fintech startups, 144 Ecommerce & Retail startups, and 81 Transportation startups on the StartupBlink Map.

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