Venture capital plummets and Brazilian startups raise 60% less in May

Brazilian startups received US$298.5 million in the last month, down 60% from May 2021

A report by the Distrito innovation hub shows that startups Brazilian companies are already feeling the consequences of the global economic downturn. In the wake of rising interest rates, the fall of large technology companies and the lower willingness of funds to inject money into venture companies, investment in small technology companies in Brazil was 60% lower in Maywhen comparing the result in the same month of 2021.

The startups raised, throughout the month, US$ 298.5 million in 40 investment rounds, up from $772.6 million in 74 rounds in May 2021.

Considering the accumulated of the first five months of the year, the total invested was US$ 2.6 billion, in 282 rounds. Last year, at the same time, the market totaled US$ 3.2 billion and was close to 350 deals.

Despite the reduction in the volume invested, the report highlights the greater number of early stage rounds, aimed at smaller companies that also carry smaller checks — according to the District, with an average ticket of R$3.5 million. There were, in all, 37 funding of this type, and only three late stage rounds, for more mature companies.

Fintechs continue to concentrate most of the contributions. Since the beginning of the year, they have already accounted for more than half of all venture capital received by startups in the country, totaling US$ 1.3 billion. Next are retailtechs, with US$281.4 million, and HRTechs, with human resources, with US$219.2 million.

May’s top investments

The largest funding of the month was from fintech Dock, a payments and financial services platform. After receiving a contribution of US$ 110 million, the company reached a market valuation of US$ 1.5 billion and became the newest Brazilian unicorn.

Other highlights of the month were startups Nomad, with funding of US$ 32.1 million; Tractian, with US$ 16 million, and Marvin, of prepayment of receivables, with US$ 15 million.

Delicate moment for startups

The data in the report highlight a reality that is difficult to resolve. Many technology companies, especially the most lacking in external resources, are not able to circumvent the effects of the crisis and, therefore, need to reduce their workforce to burn cash and keep their doors open, since late stage funding will be increasingly rarer.

The low tide of startups also affects Brazilian companies. Startups such as Loft, Facily, QuintoAndar, Liv Up and VTEX have already announced significant staff cuts and, this Thursday, it was Peruvian Favo’s turn to announce that she is leaving Brazil and, therefore, laying off 170 employees.

Far from being a problem restricted to Brazil, the delicate moment for startups also concerns important figures in the international market. And an open letter released to founders of its portfolio of investees, accelerator Y Combinator, one of the most prominent in Silicon Valley, urges caution and preparation “for the worst”.

“Technology companies listed on the stock exchange suffered a brutal price correction in the last 60 days, which directly impacted the appetite of investors in the private market. For investors, the moment is one of caution. For entrepreneurs, the time is right to adjust the operation so as not to be held hostage by new funding”, says Gustavo Gierun, CEO of the District, in a statement.

Source: Exam