Investing in startups is always risky. Of course, in times of scarcity of capital in the market or even in times of rising interest rates with economic uncertainties, this good mood of investors so common to the market ends up suffering a little. After all, we are in the second half of 2022 and we still face several challenges with elections and not so encouraging forecasts for the first quarter of 2023, with low growth prospects, according to industry analysts.

In this context, we see companies slowing down their investments in startups, or even selling their stakes, as was the recent case of Softbank with the withdrawal of stakes in Alibaba and Uber, among others. Investors are indeed suffering from instabilities, even with those startups characterized by exponential growth performance. And in the world of technology this is happening more sharply. 

Aggressive investments in companies that were not always well aligned in the value generation equation can bring results that fall short of expectations and are often speculative. Great innovations must transform and generate real value for sectors of the economy and not just promise great changes without in-depth analysis of their potential.

Of course, we cannot ignore the unbalanced economic situation, but within a “beabá” of investments in startups there should be recognition of the values ​​that will be delivered by these companies and not just their promises of financial scalability, since this result will depend on the purposes of these companies. 

The fact is that the innovation ecosystem in the country has gone through a dizzying cycle, as pointed out by the  Brazil Digital Report 2022 , recently published by MCKinsey at the Brazil at Silicon Valley conference. According to the study, in 2021 alone, the equivalent of the sum of all previous years together was invested, doubling the number of businesses and with the presence of international as well as national capital. 

It is not very easy to recognize the startup that will really “take roots” in innovation, but some extra points in the investors’ evaluation need to be considered: less patient investor with the lifetime value (LTV) versus customer acquisition cost (CAC) and the guarantee of a bigger box; growing pressure on the time to test, make mistakes, correct, test again, etc., natural for the development of these companies, but increasingly reduced, so that they can deliver tangible results as soon as possible, with fewer resources and people; demand for an increasingly professional management, as well as the analysis of the engagement and maturity of the partners; and finally the dreaded Death Valley, a stage that defines the space between launch and success in terms of cash.

According to the  CBInsights Report,  there are commonalities in startups that fail. In addition to the lack of capital (in 38% of these companies), among the three main causes are the lack of existence, that is, the inefficiency of their activity in the market, which appears as the second largest cause of bankruptcy in startups, with 35% of the companies and the  got outcompeted , in 20% of the startups, which means that the estimated business itself was surpassed, may be outdated.

In this way, much more than evaluating the  startup valuation  (market value), its differentials or financial scalability, it is essential to understand the profile of its founders and the purposes that led them to create the business. Will the startup really deliver value? This response may also be connected to the company’s time in the market. 

Therefore, more mature startups, with greater experience, including in investment rounds, can be the most interesting because the continuity of the delivery of their values ​​as a business can have more impact on the market. It is worth paying close attention to the new CVM rule on crowdfunding,  Resolution 88 ,  which changes the points of attention in investment rounds. 

When we talk about the proptechs and construtechs market, the investment scenario is optimistic. According to the  6th Map of Construtechs and Proptechs  by  Terracotta Ventures , even with the slowdown in the number of startups, the trend continues to grow. From May 2021 to May 2022, there was a 13.82% increase in active construtechs and proptechs, with investment rounds that moved BRL 5.83 billion. The research shows that of the 955 active companies, 64.58% are proptechs and 35.42% are constructtechs. The big bet is on companies that can really transform the sector, with technologies capable of delivering value by solving latent issues of the market and society. 

The purpose is undoubtedly the engine to leverage the future of investments in startups. I invite the Motley Fool’s Tom Gardner’s reflection, “Find outstanding leaders and a lifelong mission”. That’s what it’s all about: value, efficiency and longevity.

*  Alexandre Quinze  is the co-founder and CEO of TruTec. Graduated in Engineering at the University of São Paulo (USP), with specializations in Supply Chain, at the University of California, in Technological Innovation, at the State University of Campinas, and an MBA in Administration, at Fundação Getúlio Vargas (FGV), institution where he is teacher for over 11 years. He has solid experience, with more than 30 years, in large national and international companies, such as Philips, Rimini Street, PwC Brasil, CBMM and Flextronics Internacional.

By Vanessa Tófano