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In times of volatility, investors trade unicorns for camels; understand

The last few years have been productive for unicorns — that is, those startups and tech companies with the potential to reach more than $1 billion in market value in a short period.

According to data from the Distrito platform, US$ 9.79 billion was invested in innovation and technology in the country in 2021 against US$ 3.59 billion in 2020. Brazil is not the only country that has seen this growth: in the world, more of 546 new unicorns in 2021, against 110 in 2020, indicate data from CBInsights.

The scenario changed its tone in 2022. High inflation, high interest rates and the global political crisis affected these companies: in six months, Brazilian startups raised US$ 2.92 billion in 327 transactions, an amount 44% lower than that registered in 2021, according to District.

the age of the camel

With all the external factors, a new startup model starts to gain relevance in the eyes of investors – the camels .

Camels are animals that resist long periods of drought, and manage to store water and keep moving forward, even in an adverse environment. Companies have a similar behavior: contrasting the term unicorn, although the results are not extravagant, they are consistent startups, especially in periods of volatility and uncertainty such as what the stock market is experiencing today.

“Investors have increasingly sought out these startups with a greater level of resilience to face the needs and challenges of the market. Those who manage to increase or reduce plans according to demands”, says Livia Brando, director of VOX Capital.

When the economy tightens and problems surface, behind these companies and their proposals there needs to be a resilient entrepreneur, who does not deviate from his initial focus. “Investors started to value companies with greater financial sustainability to the detriment of companies with great growth capacity”, says Gustavo Gierun, CEO and co-founder of the District.

For experts, this scenario was a cold shower for investors, who were not used to the risks – especially those who entered the financial market in 2021.

Still, Brando says it was beneficial for companies and investors. “It forces the market to return to a more fundamentalist view: companies and analysts are more selective”, he explains.

In other words, “grow at any cost” has gone out of style. The analyst emphasizes that it is necessary to show the sustainability of the business: for this, there needs to be clarity on what is spent, value generated, benefits for the final consumer. Above all, having a vision of projections – realistic – of growth.

Behavior change

In moments of greater volatility, it is natural for assets to be repriced and for greater capital restrictions to occur, which impact the market values ​​of private companies, explains Gierun.

The first to suffer from these falls in the stock market are technology companies. Brando refers to them as “hype companies”, tech companies especially related to consumer goods.

“These companies had a very accelerated growth, but raised values ​​with a very high projected revenue”, he explains. Values ​​that the specialist sometimes considered unrealistic.

For her, one of the factors that led to this was that 2021 was a year off the curve for Brazil and Latin America in terms of venture capital. Market growth over the last 5 years was on a steady rise, but peaked in the year, with an abundance of capital and risk appetite sparked by the reopening of economies around the world.

That is no longer the case today. As a result, “many investors who invested in these ‘hype startups’ ended up losing money. These companies had been capturing with valuations very high, and short time between rounds. The company was not able to capture what it needed”, points out Brando.

For the future

For 2023 and 2024, experts still do not foresee significant improvements in the market. It is therefore up to new startups and companies in the financial market to be born with this thought in their DNA.

“Entrepreneurship is being a camel”, says Brando. “It’s not easy to capture, grow, get the idea off paper, traction. Regardless of the market condition, there will always be challenges —- which will be even worse this year and next. The most important thing is to be very attentive to market trends, consumer behavior and understand that, in all market volatility, there are challenges, but there are opportunities”.

For Gierun, the entrepreneur and his startups need to be able to adapt quickly to current conditions.

“The world and the economy live in cycles. Today, operational and financial sustainability is more important in relation to growth. At some point, global inflation will subside and interest rates will fall. As a result, investors will once again seek assets with greater return potential and, possibly, a new cycle will begin. With the greater availability of capital, the capacity for growth could become more relevant again”, he explains.

“Adaptability is the word that defines this game”, he concludes. This adaptability, according to specialists, camels have in abundance.

* Under the supervision of Thâmara Kaoru

Source: CNN Brasil

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