Investments in startups fall 86% in the 1st quarter
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The first quarter, marked by the bankruptcy of Silicon Valley Bank, came to an end with an 86% drop in new investments in Brazilian companies compared to the same period in 2022. The flight of venture capital from the Brazilian market is once again evident in the recent edition of the Inside Venture Capital Report, a District report that monitors the performance of investment funds in startups in Brazil.
The survey pointed out that 91 rounds were held this year, which moved the market with an injection of US$ 247.02 million. In the same quarter of last year, the sector accounted for 306 rounds and US$ 1.7 billion in investments.
“This quarter’s numbers were affected both by the global macroeconomic context and by episodes such as the bankruptcy of Silicon Valley Bank (SVB) and the fear of a banking crisis on a scale similar to the one we experienced in 2008. investors to hold their cash even more, especially in March”, analyzes the CEO of the District, Gustavo Gierun.
According to him, it is worth mentioning that the massive numbers we saw in 2020 and 2021 should not reappear on the horizon, “but it is important to highlight that we should not continue with a scenario of capital shortage for a long time”, he explains.
In the sectoral comparison, fintechs once again stand out, receiving the highest volume of funds (US$ 112 million) and the highest number of rounds (28). Next comes the Supply Chain sector, boosted by the investment round at Daki, which announced a check of US$ 50 million in February, and EnergyTech, each segment raising US$ 51.1 million and US$ 48.6 million in capital amount, respectively.
Gierun, comments that, despite the scenario of accentuated crisis, the survey indicates that the market has been looking for new means of funding.
“The data now shows more founders increasing their cash with debt operations and M&A structuring. This trend already appeared at the end of 2022 and continued to expand this quarter. These are numbers that end up showing the resilience of startups in a moment of instability of market that many of them had not experienced”, he analyzes.
According to the executive, this movement has positive and negative points for the market. Among the benefits for those seeking debt financing are the expansion of undiluted cash flows, maintenance of control of the company. Not to mention avoiding a possible down-round (when companies raise money at a lower valuation than previous rounds).
On the other hand, raising capital through this means also requires greater financial diligence from founders, in addition to obligations to repay the principal amount of the loan in a specific period of time.
The Inside Venture Capital Report points out that in the first three months of 2023, debt transactions had already registered an increase of 14% more in number of transactions compared to the equivalent period of 2022 (8 in 1Q23 vs 7 in 1Q22).
Compared to the last quarter of 2022, the percentage also grew: there were 8 in 1Q23 vs 5 in 4Q22, an increase of 60%. Now, between January and March of this year, the survey shows that this same number grew 23% compared to the first quarter of last year, with deals totaling US$ 317 million.
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In the variation between investment stages, the seed-stage registered a drop of 74.2% in contrast to 2022 and a drop of 19.91% compared to the same period of 2021.
In the early-stage, the volume of capital invested in startups showed a negative variation of 92.6% compared to last year and a reduction of 84.16% in comparison with the numbers of contributions from the first quarter of 2021.
The rounds aimed at more mature companies had a significant reduction in the first quarter of 2023. According to the data released, the late-stage raised 99.8% less than in the same period of 2022 and 99.54% less than in 2021.
Meanwhile, the average ticket in seed capital investments showed stability compared to the first quarter of 2022. In the investment rounds in series A, the average ticket had a substantial drop of around 61.93%, while in series B a drop was 51.37%.
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