Small and medium startups should raise money again – 05/29/2023 – Mpme

The investment market in startups is still in a hangover. There were consecutive records in 2020 and 2021, but strong lows in 2022. Now, small and medium-sized companies should be the first to heal, even if the deadline is uncertain.

A Sheet heard from 14 market agents, including VC (venture capital) fund managers and startup founders, to understand forecasts for the coming months. VC is an investment vehicle focused on medium-sized companies with high growth expectations.

A survey by the KPMG consultancy pointed out that these funds invested US$ 164 million (R$ 819.7 million) in Brazilian startups in the first quarter of 2023 – the amount is the lowest since the beginning of 2019, on the eve of the Covid-19 pandemic and of the sector’s growth.

The study, on the other hand, pointed out that 6 out of 10 companies that managed to raise money this year participated in rounds of initial stages of investments (the so-called angel, pre-seed and seed). This means that these startups are still in the maturing stage.

The justification goes through the fear of investors. According to the Pitchbook database, VC funds continued to raise hundreds of millions of dollars in recent quarters, but did not invest such resources. That is, managers would have a lot of money in their hands, but waiting for a better moment to release them.

In 2022, VC funds that operate only in Brazil raised US$ 639 million (R$ 3.2 billion) – a 20% decrease compared to the previous year. In the same period, startups in the country received investments of US$ 3.9 billion (R$ 19.5 billion), 51% less than the previous year. That is, the decline in the investment volume of the funds was greater than that of funding.

“Although venture capital investment is long-term, there are several uncertainties in the scenario: liquidity reduction, geopolitical uncertainties and new technologies emerging, such as artificial intelligence. It is a series of factors that make the VC manager prefer to hold the money”, says Fernando Silva, partner at Crescera Capital.

“In general, when the market is coming back from a crisis, it tends to go through initial rounds. The checks are smaller and they are leaner and more efficient companies. It is more scalable for the current moment.”

This thought is shared by Rodrigo Guedes, managing director of KPMG. “There are many more companies in these stages than in the mature ones, and investment in them is lower than in the larger ones, so it is natural that more rounds take place in the early stages.”

That’s what happened with the startup 77Sol, which helps companies that install solar panels to provide their services, buy equipment and obtain credit with banks. In the middle of last year, the company wanted to raise R$ 50 million in venture capital funds, but had to reduce it to R$ 14 million.

“Many funds denied it, saying that it was not the moment or their thesis. The round has been open since October. We managed to close the first word with the managers in December and we received it at the end of February this year”, says Luca Milani, founder of the company .

77Sol was created in 2020 and today has 56 employees. Another startup that managed to raise money in 2023 was Different Market, which sells organic products outside the aesthetic standard. The company managed to raise BRL 16 million after having already raised BRL 24 million at the beginning of last year — both contributions came from the same managers.

“It’s important to have investors who know and believe in the business model, because bringing new capital is very difficult at the moment”, says Eduardo Petrelli, president of the startup. Different started operations in early 2022 and has 80 employees.

The reality is a little different among funds with more money. The Argentine manager Kaszek, the largest in Latin America, raised between February and March US$ 975 million (R$ 4.87 billion) to invest in startups in the region.

Pitchbook data does not include managers that, despite investing in Brazilian companies, do not have their main headquarters in the country, such as Kaszek.

Of this amount, it is uncertain how much and when Brazilian companies will be able to attract. “There is no deadline, there is no objective; we react to good opportunities that knock on our door”, says Santiago Fossatti, partner of the manager.

Investors and entrepreneurs with whom the Sheet talked about that money will circulate in weight in the market only after the Fed (American central bank) lowers interest rates. This is because, with the high American rate, foreign investors prefer to invest in US fixed income securities instead of seeking emerging markets, such as Brazil.

“What happened in Brazil in the years 2020 and 2021 was what we call helicopter money, when investors arrive in a market, pour a lot of money and, as soon as market conditions change, they leave”, said the fund’s co-founder global Headline Mathias Schilling, during the Web Summit Rio event.

Meanwhile, the BNDES (National Bank for Economic and Social Development) injects billions into the market.

Starting in June, the Criatec 4 fund, launched by the bank, will start investing around BRL 300 million in 25 to 40 startups that earn up to BRL 16 million.

The fund is managed by Crescera and, according to Fernando Silva, the manager should make three contributions by the end of the year, with checks of around R$ 10 million.

In addition, in early May, the BNDES launched a selection notice for six venture capital managers to invest up to R$ 1.45 billion in small and medium-sized companies. The estimate is that the initiative will help to increase private investments in startups, since the bank limited its participation in the funds to up to 25% of the total.

“We hope that these managers start making their first investments in the middle of next year”, says Natalia Dias, director of Capital Markets and Sustainable Finance at the BNDES.

Reporter Artur Búrigo traveled at the invitation of the Web Summit Rio