Foreign startups step on the brakes in operations in Brazil – Link

With low interest rates, high exchange rates and a mature environment to receive technology, in 2021 Brazil became a major port for foreign startups, receiving names from countries such as Mexico, Colombia and Chile. In 2022, however, the winds have changed, forcing these technology companies to slow down investments in Brazilian territory.

One of the main examples that times are different is the Mexican company Kavak, which specializes in buying and selling used cars. Largest unicorn in Latin America (rated in $8.1 billion in September 2021), the company arrived in Brazil with ambitious dreams — the idea was to invest R$ 2.5 billion in the country. After opening stores in São Paulo, Rio de Janeiro and Belo Horizonte and becoming a sponsor of the Brazilian Football Team, they were let go 300 people since March, according to the Estadão. Sought, the company declined to comment on the matter.

Also a Mexican unicorn, Bitso, from the cryptocurrency market, laid off 80 people globally, including in Brazil, where it has had operations for a year, declared the startup, which does not explain how many of these are Brazilian employees. In March, the American domesticof online courses, reduced operations around the world, resulting in 40 cuts in Brazil (200 worldwide), according to the Estadão.

the Peruvian Honeycomb, which operates as an online supermarket, completely closed its operations in Brazil in early June — 171 people were laid off. In a publication on LinkedIn, co-founder Marina Proença announced that the startup may return to operations in the country, but nothing is signed for now.

The biggest unicorn in Latin America, the Mexican Kavak, buying and selling used cars, laid off 300 employees in Brazil

Hard times

Behind the slowdown are the same factors that haunt Brazilian startups. The global macroeconomic crisis scenario of high prices and consequent increase in interest rates (triggered by the post-covid recovery and the war in Ukraine) scares investors and makes capital more expensive to cash checks at startups. For these companies, growth has become more difficult — and that often means putting a brake on international expansion.

For specialists, in addition to the challenges in the macroeconomic scenario, Brazil presents a challenging scenario for foreign companies that arrive here for the first time. High competition in the innovation environment requires money to gain ground.

“You need to invest a lot of capital here. We are an expensive country to dominate”, observes Pedro Carneiro, a partner at ACE. “With the changes in the global scenario, these startups lose funding capacity and make divestments.”

Felipe Matos, president of the Brazilian Startups Association (Abstartups), notes that other foreign companies have also left Brazil: the American UberEats and the Spanish company Glovo, in the restaurant meal delivery business — both attribute heavy competition with the Brazilian iFood and the Colombian Rappi, which dominate the local market.

In addition to them, Spanish car racing platform Cabify left the country last year, blaming the slow resumption of the pandemic in Brazil, although experts point out that the startup could not compete head-on with Uber and 99.

“These departures say more about the startups than about Brazil, because many that left were not the leaders in their markets. They tried to consolidate and failed”, explains Matos. “At a time when we have a crisis, companies operating globally cut where they are not efficient and can review the operation in Brazil.”

For the Brazilian entrepreneur, maybe this means a breather. In the case of Kavak, for example, the direct competitor is the Brazilian Creditas, while Bitso has a strong rival in the Bitcoin Market (which it also fired last month).

Carneiro points out that “it is easier for Brazilian entrepreneurs to work in Brazil”. According to him, competition from foreign investors and entrepreneurs is less with the scarcity of capital. “Those who undertake in Brazil know the local challenges and it is a competitive advantage for those who are here”, he says. “As a tradition, we are more restrained with money and learn to make do with little.”

attractiveness

The experts are betting that, even with the rough seas, Brazil will continue to be a strategic territory for the expansion of Latin American startups. The market is seen as the right place to conquer the market, test solutions and reach new consumers.

“The fact that Brazil has a low level of productivity and a lot of inefficiency means that we have a lot of space to adopt technology”, explains Matos, from Abstartups. “We are still much better off than before the pandemic. This is just a moment of correction for the sector.”

What no one knows, however, is how long the storm will last.

About Yadunandan Singh

Born in 1992, Yadunandan approaches the world of video games thanks to two sacred monsters like Diablo and above all Sonic, strictly in the Sega Saturn version. Ranging between consoles and PCs, he is particularly fond of platform titles and RPGs, not disdaining all other genres and moving in the constant search for the perfect balance between narration and interactivity.

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