Startup Deals Plummet In Brazil, Companies Brace For A Tough 2023
As interest rates rise globally and investors grow increasingly cautious, Brazilian startups saw the worst January since 2018 when it comes to raising capital. According to the Inside Venture Capital report released by innovation hub Distrito, the tech-based companies raised $96.6 million last month, an 84% drop compared to the same month in 2022, when investments reached $77,8 million.
The bright spot in terms of VC investments in Brazil last month was the $45.5 million raise secured by energytech Órigo from US fund manager Augment Infrastructure, which accounted for nearly half the total raised by the whole market during January.
According to the report, the number of closed agreements also dropped, with only 25 such deals closing last month, against 117 in January 2022. Mergers and acquisitions (M&A) deals in Brazil are also down, with only eight deals closing in January, against 26 in the same month in 2022. While most M&A deals in 2022 involved startups buying other startups, that type of transaction accounted for only 20% of the deals in 2022, according to the report.
Deals in January focused on less mature startups, according to the Distrito report, and the contributions from investors are also lower. The research noted that 20 investments in the seed stage were closed in January, while four investments supported early-stage startups with only one deal involving a late-stage company taking place.
A complex scenario
It wasn’t long ago that the Brazilian venture capital space reported a positive performance: in 2022, the first quarter saw a 4% increase in investments, totaling $2.04 billion. However, as of April, the VC market in Brazil saw a 5% decline compared to the same month a year earlier.
Gustavo Gierun, CEO and co-founder of Distrito, noted that 2023 will be “a challenging year” for startups and investors alike. According to the executive, factors contributing to this complex scenario include lower liquidity due to the global interest rate hike in 2022.
In addition, January saw various layoffs at large companies and late-stage startups, reflecting the market’s uncertain climate, Gierun noted. He added uncertainties remain about when and how global interest rates will start to ease, which means that resources will remain scarce, so Brazilian startups will have to seek alternative sources of capital and operational sustainability to face what is shaping up to be a tough year ahead.