Quinto Andar, Loft and Facily: Are layoffs a sign of crisis in startups?

The nearly 500 layoffs carried out by the unicorns – companies worth at least US$ 1 billion – Quinto Andar, Loft and Facily this year raised doubts about the startups’ performance, after years marked by the abundant supply of capital for these projects. Could it be a sign of crisis?

Business and fund professionals consulted by the UOL say that layoffs can be a sign of more difficult times, but discard the word crisis to characterize this moment. According to them, the 76 investment rounds in startups, which received BRL 6.4 billion in the first quarter of this year alone, show that investors are still willing to offer capital for these businesses.

But rising interest rates around the world have made them more selective when it comes to putting money into startups, on the one hand. On the other hand, it makes companies need to focus more on results — sales and profits — than on the pace of growth.

Layoffs to improve profit margin

Startups are using the search for efficiency gains as a tool to improve the profit margin, that is, increase the size of revenues in relation to costs. And, to cut costs, some of them resort to a very traditional method of management: firing employees.

Quinto Andar, Loft and Facily say that layoffs do not mean crisis, but adjustments after acquisitions to avoid overlapping functions, or operational adjustments.

loft: The real estate purchase, renovation and resale platform says it cut 161 people because there was more than one person doing the same thing in the credit area of ​​the Loft Group, which had absorbed the InvestMais team in 2020 and then took over the operation from CrediHome last September.

The layoffs focused on CrediHome by Loft, the new name for Loft’s credit area, the company said in a note sent to UOL. According to her, the total staff continues to grow — it went from 1,010 in September to 1,270 today.

The company says that the partnership program with large real estate agencies, started in São Paulo and Porto Alegre, increased the operation’s portfolio by more than 25% in the last quarter, bringing the total number of apartments offered on the platform to more than 45,000.

And the group’s credit area closed the first quarter of this year with a turnover of R$ 1.6 billion and 5,200 real estate financing contracts, up 75% over the same period last year.

Fifth floor: At the leader in real estate rentals and sales, layoffs reached 4% of the universe of 4,000 jobs, the company said. According to the co-founder and CEO, Gabriel Braga, the move was an anticipation of the signs that the company observed in the market. He states that the increase in inflation, interest rates and uncertainties in Brazil and in the world led to a slowdown in the pace of growth in several markets and greater scarcity of capital.

Given this scenario, despite having a privileged cash position and a consolidated business model, we anticipate adjustments in the dimensioning of our teams, cost structure and project prioritization, seeking more efficient growth and cash preservation.
Gabriel Braga, co-founder and CEO of Quinto Andar

easily: On the platform that acts as a digital hypermarket for collective purchases, the list of layoffs reached 96 people. 900 employees remained. The company’s senior director of human resources, Mariana Adensohn, says that the company’s objective is to serve the public that is located at the base of the pyramid, such as the C classes and especially the D and E classes.

Today, 72% of the Brazilian population is found in this base, and Facily has already managed to serve more than 10 million people and is growing day after day. In other words, the company is just restructuring itself to better serve this niche.
Mariana Adensohn, Human Resources Director at Facily

Has money, but funds are more selective

Venture capital fund managers say the layoffs and adjustments in startups operating in Brazil represent a more difficult time than the years of abundant cash supply. They point out that investment figures this year show that investors continue to put money into businesses, albeit more selectively.

In the first quarter of this year, 76 investment rounds were carried out in startups in the country, totaling R$ 6.4 billion. The amount in reais is lower than that calculated in the same period of 2021, but the number of contributions is greater.

Last year, there was an “explosion of investments”, when the criteria adopted did not follow the standard history, and the evaluations of operational success indicators were less thorough, says the president of the Brazilian Association of Startups (Abstartups), Luiz Othero.

Today, we are experiencing a different scenario. Investors are looking for less risk based on these criteria.
Luiz Othero, Executive Director of Abstartups

The market has changed, and the window is smaller. We became more selective and took longer to invest. But there is money for good companies.
Renato Valente, partner at Iporanga Venture

Search for more efficiency

Rising interest rates make fund managers look to rebalance portfolios, say industry executives.

According to Gustavo Gierun, chief executive of Distrito, a data platform and consultancy for startups, this means directing part of the money available in the market to other assets, slowing the pace of offering capital for new funds and rounds in the technology market.

Entrepreneurs need to prove their ability to grow and execute under capital constrained conditions. These adjustments in teams are natural to adapt companies to the new reality.
Gustavo Gierun, CEO of Distrito

As you have capital going a little more to traditional assets because of high interest rates, the startup needs to find ways to remunerate the investor more.
Amure Pinho, founder of the Investidores.VC platform

How high interest rates hurt startups

To go into operation and, in the future, who knows, become a unicorn, a startup needs to attract money from investors willing to finance the project.

It is a risky operation, because the company may go bankrupt and the project may not work out. Therefore, the investor only puts capital into the startup if the projected rate of return is much higher than the yield given by a risk-free investment, such as fixed income, for example.

If fixed income starts to deliver a higher yield — because of higher interest rates — the startup also needs to increase the promise of return. For this, the company has to obtain greater profits, either by increasing revenues or cutting expenses.

The high interest rate environment impacts more startups that are more leveraged, says Iporanga Venture partner Renato Valente, who has invested in 29 startups, such as Loggi, Buser and Quero Educação.

These are startups that were evaluated very optimistically at a time when interest rates were at historically low levels and there was an abundant supply of capital from investment funds.

Now, with high interest rates, expenses become a challenge for some businesses if they are not delivering an adequate rate of return for the new scenario, he says.

If a company is burning a lot of cash, it needs to make adjustments.
Renato Valente, partner at Iporanga Venture

Source: Uol