Brazil startups expected to reduce cash burn as available capital shrinks – survey

By Tatiana Bautzer

SAO PAULO (Reuters) – Founders of Brazilian unicorns, startups valued above $1 billion, believe most startups will adjust their businesses to reduce cash burn amid a drop in venture capital investment, a survey by venture capital fund Atlantico found.

Venture capital investments in Latin America fell to $2.4 billion in the second quarter of the year from $5 billion in the same period a year ago, according to industry group Lavca data.

The unicorn founders agree that their peers will have to adjust to reduce cash burn – 37% say their own companies will do that, and 50% think that will happen to peers. Although only 5% of the founders think their own company may have to shut down or end up in a fire sale, 33% of them think that will happen to peers.

The most common measures to reduce cash burn are hiring freezes, reduction of marketing expenses and lay offs, the survey showed. Around 80% of the startups that fired staff reduced their headcount by 10% or less.

Although raising capital is more difficult, Latin America still presents good opportunities, Atlantico managing partner Julio Vasconcellos said.

Internet penetration in Latin American countries has risen with the pandemic, reaching 78%, and is now above China’s 69% and closer to developed countries levels. The United States has 92% penetration.

The rise in e-commerce’s share in Brazil sales to around 7% seems to be permanent, whereas in the United States e-commerce market share has reversed to pre-pandemic levels. Dynamics changed in healthcare, banking and delivery services.

Despite the drop in tech stock prices in developed markets, investors are optimistic about potential profits with tech companies in Latin America, Vasconcellos added.

Only 1.5% of total market capitalization of Latin American companies tech-related, a share that reaches 20% in China and 52% in the United States.

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