From Europe to LatAm, Startups Lay Off Staff Amid Belt-Tightening

Unicorns Klarna and Olist announced layoffs this week amid tech market turmoil

A statue of a unicorn stands in a shed at dawn at the company's vineyard in the Yarra Valley region of Greater Melbourne, Australia, on Monday, March 23, 2015.
May 25, 2022 | 04:00 AM

Bloomberg Línea — The week began with more news of layoffs at tech companies. On Monday, Argentine cryptocurrency startup Buenbit said it was laying off half its team because of the “new global context”. Klarna, Europe’s most valuable fintech, said it would lay off 10% of its team. And in Brazil, e-commerce unicorn Olist has cut at least 60 people of its staff, according to people familiar with the matter.

The staff cuts come in the wake of a more challenging macroeconomic situation, with central banks around the world raising interest rates to contain inflation. In the micro scenario, each business model is suffering from its specificities. Klarna, the Swedish Buy Now, Pay Later company, for example, has seen its borrowing costs rise to the highest level ever recorded, with rising rates hitting the valuation of the company’s debt and equity. In Latin America, Colombia’s Addi also operates on this business model.

Experts believe this malady, as was the case of shock waves originating in other lands, will probably reach Latin American shores in the medium term.

According to Jerome Engel, an expert in innovation, entrepreneurship, and venture capital from the University of Berkeley, in California, the effects of the pandemic, together with inflation, problems in the supply chain, and the war in Ukraine that impacted venture capital will be felt in emerging countries with a certain delay in what was seen in Europe and the US. In fact, Engel told Bloomberg Línea, Latin America, being at the end of the rope, will take longer to recover from this collapse as the structures of the developed country markets are stronger.


Engel suggests that entrepreneurs should seek corporate alliances and hold on to their strengths, with the customers that matter and bring strategic value to the business. “Instead of raising Series B, perhaps these entrepreneurs need to focus on two key customers. Interest rates will continue to rise, but if you can start a company now, when the markets come back you will be ready,” he said.

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Olist: Laying off to prepare for a scenario where funding may not come

In Brazil, e-commerce provider Olist reached billion-dollar valuation status late last year after a Series E round led by private equity fund Wellington Management with stakes from Corton Capital, Globo Ventures, Goldman Sachs, Valor Capital, and SoftBank.

Olist CEO, Tiago Dalvi, said the cuts were due to a reorganization so that the company could continue growing efficiently and keep investing in what is strategic for the company, such as the marketplace, logistics, and the e-commerce platform. According to the executive, no project will be discontinued.


Dalvi says Olist does not depend on new funding rounds.

“Right now we have all the capital we need to keep investing and deliver almost double the revenue growth this year,” said Dalvi in an interview with Bloomberg Línea. The strategy of tightening belts came because of what Dalvi defined as “an ultra-challenging macroeconomic scenario, much more uncertain compared to what we saw last year”.

Recently, SoftBank, one of Olist’s main investors, posted a $20 billion loss on its Vision Fund, which adds up to Vision Fund 1, 2, and the Latin America Fund. “This year is totally different, there is no visibility as to the availability of funds in the future. All this catalyzed the movement [of cuts] that we were already planning to make and had been discussing with the board since last year,” said the executive.

According to Dalvi, the cuts are part of a movement of readjustment of the company for the growth stage in which it finds itself. “In any shutdown, we take great care of people. Each employee who left at this moment was communicated individually and we extended benefits such as the health plan”, he said.


One person directly affected by the terminations at Olist, and who preferred not to be identified because discussions are private, said the cuts came as a surprise as the company had been expanding for a month. Olist recently bought startups Clickspace, PAX, Tiny, and Vnda and announced its expansion into Mexico.

“Olist’s agenda continues to be very positive, we are fresh capital, with controlled investment and with discipline. We remain very strong and we have more than 100 open positions, we keep hiring,” Dalvi said. “It is our role to be responsible in this time of market uncertainty and recondition the company for the growth we expect to generate this year and in the coming years, being the master of our own destiny.”

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Creditas says cuts are for performance

Collateral credit provider fintech Creditas received its Series F check in January, $260 million from Fidelity Management, with participation from Actyus, Greentrail Capital, QED Investors, VEF, SoftBank, Kaszek, Lightrock, Headline, Wellington Management, and Advent International.


After Bloomberg Línea published a story about recent layoffs at Brazilian unicorns, three people familiar with the matter said the cuts were much larger than the 11 terminations that Creditas reported. According to these people, vacancies and promotions would have been frozen and about 9% of the company - from 300 to 400 people - would have been sent away.

But a person familiar with the matter, who preferred not to be identified, said that from January to April the Creditas team remained constant, although with no growth in staff, and that compared to last year, the team has grown. He claims that the hirings in the last four months have compensated for the departures.

According to this person, since the beginning of 2022, more than 100 people have left the company, either by their own decision or due to poor results in performance reviews. “There are new hirings, including some happening before the dismissals, as Creditas anticipates the people who will leave,” he said.

The person also said that February and March were record months for hiring at Creditas, with almost 600 new employees. In April and May, there were fewer hirings because the company had already made the replacements for those who would leave due to poor performance.


According to this person, the layoff movements are unrelated to fundraising, as the company was capitalized after the January round that placed Creditas among the five most valuable privately-held startups in the region, with a valuation of $4.8 billion. Kavak is valued at $8.7 billion, Rappi at $5.25 billion, and QuintoAndar at $5.1 billion. QuintoAndar also recently made layoffs, but hired American ex-Google Larissa Fontaine to be the new Chief Product Officer, and also announced a marketplace.

Still, with higher interest rates, Creditas will be more conservative with credit quality in 2022 and expects to double its revenue from last year.

According to Creditas, the performance review process has been the same for two years and employees are measured by performance and adherence to culture. If these employees spend three months performing below 80%, they can be terminated.


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Even if the timing of the impact of behemoths like Carvana or Klarna on Latin America’s startups takes a while, regional firms are following any developments abroad while strictly adhering to a common credo: it’s business as usual.

That is the case, for instance, of Kavak. Mexico’s first unicorn opened shop last year in Brazil, Latin America’s largest market, with big ambitions. One of them was the expansion to Rio de Janeiro, announced earlier this year.

Kavak said in 2021 that it would invest R$ 2.5 billion in Brazil (more than half a billion dollars). Of that amount, the company initially earmarked R$550 million for the state of Rio, which would be used to establish the operation and buy used cars.


At Kavak City in São Paulo, every effort is made to present the company not as a competitor in the vehicle sector, but as a big tech. Along the way, consumers have computers available to consult the company’s website. The idea is to show that everything can be done digitally. It is a model similar to that of the US-based Carvana, an online retailer of used cars.

However, for Carvana, the moment is not good. Burning cash, the company has had to make layoffs. Carvana founder Ernie Garcia III has seen a 90% drop in his net worth. In the first quarter, Tiger Global and Maverick opted to increase their holdings in the used car dealership because the stock plummeted.

While selling or buying a car through Carvana can be done online, there are serious limitations to digitizing the work of inspecting and bidding on used vehicles, transporting them for reconditioning, and often moving them back to where they are resold. All of this is expensive and competitive work. Growing significantly faster than the retail chains and family-owned dealers the company competes every day on auction sites, or for consumer exchanges buying online for the best deal, is no trivial task.

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Carvana pursued a growth-at-all-costs strategy to gobble up as much stock as possible at a time when all industry participants were feeling supply pressures and paying too much for used vehicles at auction.

The reckoning came in February when Carvana succumbed to the shortages plaguing the industry and posted its first sequential decline in quarterly retail sales.

Meanwhile, Carvana’s consistently negative free cash flow has worsened: the company has spent nearly $4 billion since the start of last year and issued an updated 53-page operating plan to control expenses and prioritize profitability and positive cash flow.


JPMorgan analysts said in a report on Carvana that “we don’t necessarily see the company’s business model as very superior or disruptive to the market,” Rajat Gupta wrote.

Today, Kavak is one of the highest-valued startups in Latin America and has built a business that is capital intensive and requires infrastructure. Kavak was able to sell its idea to correct the information asymmetry of used car sales -- the seller knows what they are selling, but the buyer doesn’t know what they are buying -- to some of the world’s largest venture capitalists, such as Tiger Global, D1 and SoftBank.

Kavak is still unprofitable because it finances its growth and expansion. Before generating liquidity for its investors with an IPO (which is not expected to happen this year, as co-founder Roger Laughlin told Bloomberg Línea earlier this year), Kavak had a strategy to grow not only in Latin America but also outside the region.

“We always saw Kavak as a global solution,” Laughlin said earlier this year. Speaking to Bloomberg News, a person familiar with the matter said the startup was eyeing Turkey as its next target. “We’re looking for large, complex markets where the experience of buying and selling a car is very problematic,” the executive said at the time.

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In an interview with Bloomberg Línea, the president of Fenauto (Brazilian National Federation of Associations of Motor Vehicle Dealers), Enilson Sales, said that no matter how innovative Carvana’s business is, at some point the company would be faced with the reality of the cost of money.

“If I have a vehicle buying and selling business that I opened with my capital, I know the cost of capital and the maturity that I have to pay for that capital that I invested. It is much more flexible because as I opened the business, the interest (recovery rate) and terms of when that capital will be recovered, I negotiate with myself”, he explains.

However, Sales recalls that Carvana’s model uses third-party capital, either through private rounds with investors, such as Kavak, or from shareholders on the stock exchange.

“In these cases, companies have to meet a pre-set deadline with market interest rates, which fluctuate. These companies leveraged by third-party capital will have to be more efficient than companies working with their capital,” he said.

In addition, in Brazil, the price of used vehicles has fallen 0.5% since the beginning of the year. For companies that used external capital to buy cars at the beginning of the year, the problem may be even bigger having to sell this vehicle cheaper and at the same time remunerating the investor, according to Sales.

“I think the price of used vehicles can still subtly fall for another three months. Whether it will remain the same or accelerate depends on the number of new vehicles on the market. This market has been establishing itself at levels that are still not the ones we would like, but it has been recovering,” he said.

Data from Fenauto shows that Brazil began the year selling an average of 40,000 used cars per working day, well below the average of January 2021, which was 58,000, and lower than in 2019, when the daily average was 52,000.

In February, sales per working day averaged 41,000, down from 62,000 in 2021 and 56,000 in February 2019. In March this year, the average was almost 51 thousand, April 52 thousand, and May also 52,000, still at lower levels than last year.

“We are stabilizing used car sales at a reasonable level against the first two months which were very bad. My perspective is that in the second half of the year we will have a spike because the economy will be more irrigated with the capitalized states,” opines Sales. This happens because the Brazilian states in general had a surplus because of the freezing of expenditures during the pandemic. According to Sales, the Brazilian economy may have more movement in the second half with the electoral campaigns.

Sought to talk about the situation of Carvana and its impacts on the business model in Latin America, Kavak declined to comment.

-- With information from Bloomberg News