Santiago — In the context of global downsizing, Chilean unicorn Not Company had to cut its global workforce by almost 6% and postpone some of its product launch plans in the face of the global economic uncertainty. “We never had wet gunpowder from investors, but now we have,” the CEO of the plant-based food company, Matías Muchnick, said in an interview with Bloomberg Línea.
The downturn comes after record financings in 2021, and tech startups in Latin America have witnessed a drastic turnaround this year, with the economic crisis having led large-scale investors to become more austere.
Muchnick says that in this new scenario it will be necessary to become “super rational”, because 2024 is projected to be a better year than 2023.
“The best plan is reality,” he says.
The downturn for NotCo began in January, when the company had to start making some important decisions such as pausing major projects, including geographic expansion into Europe and Asia.
Muchnick sums up the process as “belt-tightening for survival”. The startup had planned to bring to market plant-based imitations of salmon and tuna, and surprised consumers this month with a cheese substitute that, for the time being, is only on sale in Chile.
2024 looks like it has a better outlook, but 2023 could be a very difficult year with little access to capital.Matías Muchnick, CEO of NotCo
“We were thinking about seafood, but we were strategic and asked ourselves, ‘what is the product that people are expecting today from NotCo? And we asked thousands of respondents. Ninety percent said cheese,” he says.
A new reality
Muchnick says that, today, we are in a “new world” compared with 2021.
“We have a new economy, a new hierarchy of priorities. There are a lot of factors that have literally changed the reality. At NotCo, both in the pandemic and in this global crisis, we have adapted very quickly.”
His estimate is that the crisis will not last more than two years: “2024 looks like it has a better outlook, but 2023 could be a very difficult year with little access to capital. Last year was impressive for startups. We had never seen so much foreign investment in Latin American startups, we saw series C and D, valuations of millions of dollars. Today, there is also a reaction to this ‘naïve’ and ‘overexcited’ world we had in 2021″.
And he does not rule out seeing worsening conditions for companies next year.
“If they don’t really take matters into their own hands, the conservation of capital and cash, we will see companies suffering a lot. I wouldn’t be surprised if many go out of business or are bought out by larger companies or at very low prices. We have seen these cycles, it is not the first time. You have to stick with important decision making at important times.”
The following conversation has been edited for clarity and length:
Bloomberg Línea: How can startups survive a recessionary scenario?
Matías Muchnick: Every company has its own way of doing things, but I would recommend first of all to sit down and look at the companies’ financials and ask yourself: How many months of life do we have left?
After asking that question, which always hurts, because the answer is probably not what you think, you have to come down to reality. And if it is 18 months, see the average expenses between now and 18 months to be able to get there; and then see what I can achieve with that capital? Crises lead us to moments where we really need to have a passion for finances.
We have to put ourselves in negative scenarios, it is our turn, we were a generation that had very good moments in the last five years.
We are just over a month away from the end of 2022. On what will NotCo focus in 2023?
We are just getting the 2023 plan ready for the board. It is a more conservative plan in terms of expansion. In general NotCo, grows two to three times every year, and we are proposing to maybe grow two-fold in 2023, with very controlled spending.
We had a plan to make the company profitable in the next five years, and that’s going to happen in the next two. The belt-tightening is now, not in 2023, when we go to the market and there is no liquidity. It is now, we choose and prioritize projects that allow us to grow without too much expense.
We have to prioritize the things that really make sense. Geographic expansion is not [a priority], we are going to stay in the countries we are in, and we are going to penetrate more with innovation, with things that the consumers are waiting for.
Will you launch new products by the end of 2023?
We will reinvent the categories we already have. The joint venture we launched with Kraft Heinz opens a huge opportunity, where there are other companies that want to have their ‘Not’ categories as well; so you will see other alliances, with other very large, mass consumption companies in the world.
We will extend product lines. We just launched a protein milk in Brazil and it did amazingly well, and we will go within that category to explore more, maybe snacks, but with nutritionally high values.
What about the tuna and salmon substitutes?
There are no NotCo breakthroughs that are on the back burner, we’re always going to be on top of it. But they [tuna and salmon] are not a priority right now.
Butter and cheddar cheese is just the beginning of the full category development. Hence we’ll clearly see more stuff coming out of there, or similar products.