Brazil Startups

Ricardo Coelho Duarte, Venture Capitalist, Provence Capital

What are some of the major challenges and trends that have been impacting the Startup space lately?

It´s plausible to say that 2020 had been a relevant challenge by itself. Since the beginning of the global pandemics, not only people but also companies have been forced to adapt fast to be able to survive. Almost all the sectors in the Brazilian economy have been severally impacted – a few in a positive perspective, but the vast majority have faced one of the hardest years of all times.

We saw big corporations as XP Inc., one of the biggest and most relevant financial institutions in Brazil, declaring that one hundred percent of its employees would work from home even after the quarantine period. This is only one example among many big corporations making the same decision, which means that now companies and employees are forced to restructure their work dynamics, including human resources practices, sales strategies, I.T infrastructure, etc. Because of that, technology has become the most important tool to make these changes possible without harming companies´ productivity and results, giving way for startups to increase their participation in the economy, especially in the B2B field. On the other side, startups also had to adapt to meet the companies´ needs and increase their scalability through new investment rounds from VC and CVC funds.

One Brazilian startup to highlight in 2020 is Netshow.me, a company that helped many enterprises to migrate from on-site events and in-person meetings to the virtual landscape through its platform, allowing them to manage, distribute and monetize digital content without losing quality and efficiency. Netshow.me grew more than 400% this year, more than doubling the number of active clients compared to the same period in 2019. We can find more startups that also presented great performances during the pandemics due to their capacity to solve severe pain points from corporations in this digital transformation process, such as marketplaces, integration platforms (iPass), omnichannel platforms, CRMs, among others. 

What keeps you up at night when it comes to some of the major predicaments in the Startup space?
Startups are increasingly associated with audacious ideas and unsustainable business models, depending more and more on new investment rounds to finance not only their growth but also their operation (i.e. negative gross margin). This trend became clear in 2020, mainly during the first months of quarantine, when VC funds adopted a more skeptical and conservative posture regarding investing in startups, especially those without a solid perspective of being able to become cash positive soon if needed. The biggest

The consequence was many startups with high potential closing one after another or at least facing pretty severe financial issues (according to a study ran by 3 of the most traditional Brazilian players in the innovation ecosystem, more than 50% of the startups in Brazil faced negative impacts during the Covid-19 pandemics), not being able to raise more money and, therefore, stick with their plans and deliver the projections made in the past. We can say that both entrepreneurs and investors were severely impacted.

Therefore, our sweat dreams will much depend on founders focusing on building sustainable businesses, forgetting about long-term financial projections without profit, yet focusing on growth and market relevance as part of the return consolidation on the Venture Capital class. This is not only to increase the chances of having positive returns on investments but also to provide more stability and secure founders to establish goals that are possible to be accomplished in both optimistic and pessimistic scenarios.

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