In 2022, there was a major global downturn in Venture Capital activity. Earlier this year, an emblematic symbol of the Venture Capital crisis was the bankruptcy of Silicon Valley Bank. This crisis was immediately felt here in Brazil. According to data from Sling Hub, investments in national ventures fell by half in 2022, moving from the US? 10.5 billion registered in 2021 for US? 5.2 billion. In 2023, the first quarter showed a drop of 86% compared to the same period of the previous year, according to data from the District.
Throughout 2022, we had no IPO (Initial Public Offering) in the technology sector and, although some startups consolidated in the market, this occurred at a pace far from expected. Looking ahead to 2023, with a turbulent start to the year in the capital markets and a major downturn in the market value of technology companies, we cannot expect IPOs of this nature either.
Data recently released by the Brazilian Securities and Exchange Commission (CVM) indicate that fundraising for Equity crowdfunding grew 61% in 2022, rising from R? 130 million, in 2021, for R? 210 million last year. The growth may seem impressive, but it should be noted that the volume is still quite low as an impactful alternative for the ecosystem. It is worth remembering that the expectation of growth in this modality was much more significant. As an example, Captable, the leading platform in the segment, captured, in 2021, R? 49 million and by 2022 it has dropped to R? 28 million, and earlier that year it announced a projection of R? 250 million.
Many have pointed to Corporate Venture Capital (CVC) as a potential support mechanism for the startup market. ABVCap considers that 2022 was a good year for the CVC market, going against the grain of the startup investment market. Analysts point out that there has been an increase in the interest of companies in this type of business, with 13 companies listed on the Stock Exchange launching their own funds, adding up to more than R? 3 billion in investment capital. Among the names that moved — and are moving — this scenario are TOTVS, Locaweb, Anima, B3, Suzano and Vivo. The expectation is that 150 companies make direct investments in Brazilian startups.
It so happens that, in practice, the Corporate Venture Capital activity is still gaining traction, and these resources are expected to be invested in the long term, and not necessarily in 2023.
But what will actually sustain the startup market?
According to our assessment, there are three key factors: the focus of startups on seeking the sustainability of their business models in a market with less access to capital, the consolidation of startups based on M&A processes and the adoption of financing models by through Open Innovation partnerships between startups and mature companies.
The law that is dictating the management of startups’ business models in 2023 is to monetize, to have financial sustainability. This focus is a direct action to reverse the drastic situation in which the projects have been in recent years. Layoffs, for example, came as a correction for revenue generation.
The startup market is therefore going through a positive route adjustment, which preaches results. This adjustment encompasses businesses of all sizes, such as Creditas, which, after reporting a new loss of R? 209 million in the fourth quarter of 2002, announced a plan that aims to make it profitable in the third quarter of 2023 and seek an IPO perhaps later this year. In the same vein, virtually all unicorn startups are also planning to show profits, after a period of adjustments and layoffs.
Loft is another example. The startup achieved unicorn status in record time, but after reaching 2600 employees, it had to make four rounds of layoffs. The cuts were part of a new profitability plan, which seeks operational balance.
Another unicorn, Facily, exemplifies a more drastic scenario of the crisis. Startups reduced the number of employees by 90%. Did the startup’s “near crash” come after the company raised US? 385 million, in 2021. Facily closed the year, after funding, behind only Nubank and QuintoAndar. With the cashier full, the startup started a hiring plan. With the crisis, hiring took the form of mass layoffs, cuts even reaching suppliers. Now, the startup is recovering, building a new plan for growth and financial sustainability, which also includes improvements in the tool.
With the capital crisis, many startups postponed the goal of becoming unicorns and have sought in M&A their way to continue their businesses. Entrepreneurs are seeking partnerships with other startups, with medium and large companies. Early exit becomes an increasingly popular strategy. In some recent examples, Vuxx becomes part of Box Delivery, Pulses is now part of Gupy, Comprova was acquired by Nstech, Witseed was just purchased by Exame, cases that illustrate how M&A is on the rise.
This moment of high cost of capital also has an effect on many capital-intensive corporations, which come to see, in open innovation and relationship with startups, a way to optimize their processes and reduce costs, without losing competitiveness. For these corporations, the perception of risk in hiring startups inhibited many opportunities. Today, with data that proves the maturity of startups added to the demand for innovation, the result is the growth of the practice every year.
According to data from the Ranking 100 Open Startups, the projection of financial transactions between startups and corporations this year is R? 5 billion. In 2022, were R? 2.7 billion and the year before, R? 1.7 billion. Year by year, the projection scales exponentially. All this growth is also seen in other metrics that measure the performance of the open innovation practice in Brazil.
In 2021, 3,424 companies hired startups, in 2022 there were 4,449. And the projection for 2023 is that 7 thousand companies will establish open innovation relationships with startups. These indicators demonstrate that the open innovation strategy has become a central point for corporations and that startups are being increasingly prioritized as innovative suppliers, renewing their value chains.
There is no crisis for those who seek, in innovation, the validation of solutions and ideas through collaborative processes. The resumption of investments will happen, but with new rules and with better prepared and open actors. Well, the crisis taught the value of the innovation ecosystem for sustaining business.
Those who live in the innovation ecosystem already notice the positive effects of this route correction. Innovation events came back with everything and reached a record level, with several events and festivals with more than 10,000 participants, such as the South Summit Brazil, Web Summit, Gramado Summit, Startup Summit, Rio Innovation Week and the Open Innovation Week, which will celebrate , in October this year, 15 years of open innovation in Brazil.
These events are bringing together thousands of entrepreneurs and other ecosystem agents. The conversations and debates that are permeating these meetings reinforce the premise: collaboration is the key to healthy and sustainable growth, whatever the business.
Bruno Rondani, CEO and founder of 100 Open Startups.