Reality Hits Hard

The startup euphoria is abating. The first time founders who launched their startups on top of the cycle in 2021 are finally coming to the realization that the entrepreneurial journey is not that glamorous at all.

In accordance with recent McKinsey report, today

• 33% of startups had a down round

• -30% value markdown on VC Fund’s portfolio

• -51% in VC funding volume

• 30% of startups have less than 18 months of runway

• $2B+ annual capital shortage for series B+ startups in LatAm

The market is bleeding but very few Brazilian and LatAm tech founders are open to share their experiences of what it takes to survive in downturn publicly.

Why is that?

One of the important reasons is the social stigmatization that occurs after startup closure, pivot, workforce reduction or down round in adverse market environment. The founders who were once comfortably seated on top of the world, glorified by TechCrunch and Forbes, and now are forced to layoff staff and cut costs in every possible way, don’t want to look foolish. They don't want to be perceived as a failure by the societies in which failure is deeply personalized.

Even in the United States, 33% of Americans say fear of failure is holding them back from starting a business. In Brazil the rate is 40%. That’s a lot of people who could be next Andre Street (Stone), David Velez (Nubank) and Sergio Furio (Creditas) sitting on the sidelines, and the emerging entrepreneurial ecosystems simply cannot afford it.

The first step towards de-stigmatizing failure aka the non glorified part of entrepreneurial journey is to be vocal about what It actually takes to be a founder: the good, the bad and the ugly of it. Most of the tech founders especially in the emerging market context are warrior. They start businesses to disrupt the status quo, to do things differently and to make life better for people. When the capital is abundant, they enter the VC-fueled treadmill and double down on growth, product development and new hires. In the downturn, they enter the survival mode. That means cutting costs, laying off people, saving cash and focusing on profitability. When the market is down, you do whatever it takes to keep your endeavor afloat. Tech and VC is a cyclical business. The whole idea that growth has to happen continually is plain wrong. Where there is yin, there's always yang.

Accepting that initial business model assumptions didn’t work is not a failure. Laying off people and prioritizing an economic health of a company is not a failure. Raising a down round, diluting the early investors when company is running out of cash is not a failure either.

The big risk that immature entrepreneurial ecosystems face is not knowing how to handle tech downturn and not being able to talk about it and ask questions openly. Share your near death experience and strategies to find a way out. That’s the best way to learn and grow together as a VC & tech community.

Thanks for reading,

Olga