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Foreign startups have a tough time, but recovery is in sight

After the “funding winter for startups”, the sun will shine again

inverno startup

The current political situation has affected the most diverse fronts of the economy. As the world has barely recovered from the post-pandemic impacts, we are dealing with a war between Ukraine and Russia, major exporters of wheat, oil, and natural gas, to cite just a few. Therefore, lack of inputs, high-interest rates, and inflation are more present than ever.

Therefore, it is no wonder that foreign companies established in Brazil are going through a difficult time. Especially startups are experiencing waves of layoffs, considering the unfavorable scenario for growth. This was the case of the Mexican company Kavak, for example, which dismissed at least 300 people this year from its offices in São Paulo and Rio de Janeiro.

More than 5,000 people were fired from startups established in Brazil in the first half of this year, according to the Layoffs Brasil report. The situation also occurs in other countries, such as India and the United States. More than 40 thousand employees would have been dismissed from their functions in these countries.

That investors have sought to invest in companies with more established business models was to be expected. After all, the current economic scenario requires caution. However, startups continue to raise capital, despite the crisis.

Although the total volume of investment fell dramatically between the first half of 2021 and the same period this year, investments in “early stage” startups increased. In this regard, the increase was 21.5%, according to information from Distrito.

inverno startup

It is worth noting that most of the past investments were made in unicorn startups, valued at more than US$1 billion. This is the case with Kavak, which we mentioned above, whose valuation was at US$8.7 billion in September 2021. These companies have felt the effects of the economic scenario more drastically.

It seems urgent that unicorn and later-stage startups change strategies and behavior, including cutting expenses and postponing projects and investments. Some have already done so, as have several startups that have sought more sustainable growth models.

After the “funding winter for startups”, the sun will shine again. The IMF (International Monetary Fund), for example, has improved Brazil’s growth projection. The GDP (Gross Domestic Product) went from 0.8% in April to 1.7%. There is also the end of the rise in the basic interest rate. This is an optimistic scenario for investors.

For establishing your business in Brazil, you can count on Pryor Global, which has been in the market for over 26 years. With professionals highly specialized in local legislation and a portfolio that includes relevant players in the international market, we can serve your company with excellence. Contact us!

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