BSV - Day 2 - Brazil 2023 Startup Study + AI Trends/Applications

( Marina Mansur )

TL;DR;

- Brazilian startup ecosystem has experienced a roller coaster ride in the past few years with a boom in cycle followed by a down cycle.

- Despite the down cycle, many startups in Latin America continue to grow, thanks to the digitalization of the Brazilian consumer.

- Startups face the dilemma of balancing growth and profitability. The path to breakeven is longer than expected, and even after nine years, 1/3 of startups have not broken even.

- Startups need to find cost efficiency through decreasing lifetime value of customers, being efficient with IT costs, and layoffs.

- Startups face challenges in hiring and retaining employees, especially in tech and product-related roles, as well as strategic roles for "rock stars".

Navigating the Brazilian Startup Ecosystem: Insights and Challenges

The Brazilian startup ecosystem has seen its fair share of ups and downs in recent years, and the current economic downturn presents new challenges for startups and investors alike. Marina Mansur, a partner at McKinsey and Company, shared highlights of a proprietary study on the Brazilian startup ecosystem. Her insights shed light on the dilemmas facing startups as they balance growth and profitability, and the challenges they face in attracting and retaining talent.

One of the key takeaways from the study is that startups in Latin America continue to grow, thanks to the digitalization of the Brazilian consumer. New client acquisition is the main source of growth, and the average cycle from launch to monetization takes less than a year. However, the path to breakeven for startups is longer than expected, and even after nine years, 1/3 of startups have not broken even. This pressure to accelerate profitability means startups need to find cost efficiency, with three main levers being cost of acquisition, IT costs, and layoffs.

The study revealed that startups need to decrease their lifetime value of customers on top of the cost of acquiring them, especially in industries like fintech, where the ratio is high. They also need to be efficient with their IT costs, and the usage of FinOps and DevOps tools can help with that. Layoffs have become a tool to reduce costs, and talent remains a challenge for startups, especially during times of crisis. The competition for digital talent will get even stiffer, and startups need to find new ways to attract and retain tech talent.

The survey found that the main challenges for startups in hiring and retaining employees are in tech and product-related roles, as well as strategic roles for "rock stars". The survey also revealed that 25% of employees are considering changing jobs within the next 6-12 months, with salary and financial reasons being the main concern. Despite this, there is still a high level of interest in working for startups, particularly among students. However, there is a mismatch between what founders think is important in the employee value proposition (learning, purpose, and culture) and what employees and students value (salary, financial reasons, and working model).

The study also shed light on the state of funding in Brazil. One-third of startups reported not having cash for more than 18 months, but 70% do have cash for the next 18 months. The VC market in Brazil is becoming more mature, with new local VCs accounting for more diversity in deals. There is also a growing opportunity for CVCs in Brazil, but many need to adjust their operating models to be more independent, agile, and focused on profitability.

Despite the challenges, the speaker believes that there is a big opportunity for investment in the tech industry, but adjustments need to be made due to the current economic downturn. The relationship between investors and founders has become more mature, with founders prioritizing quality of network and mentorship over funding. The speaker predicts an increase in mergers and acquisitions as a survival tactic for companies. However, there is a silver lining to the downturn, as it can lead to the emergence of new talent and innovation in the future.

In conclusion, the Brazilian startup ecosystem presents both opportunities and challenges for startups and investors alike. Startups need to find ways to balance growth and profitability, and attract and retain top talent in the face of competition. Investors need to adjust their operating models to be more independent, agile, and focused on profitability. With the right adjustments, the Brazilian startup ecosystem has the potential to continue thriving and producing innovative solutions for years to come.

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