Scarcity of IPOs: Brazil’s Biggest Startups Aim for Breakeven Before Going Public

Focus on profitable businesses, cost-cutting, and layoffs: founders tell Bloomberg Línea the recipe for achieving balance, and from which going public will follow

Startuos must reach profitability before launching an IPO.
April 10, 2023 | 12:33 PM

Bloomberg Línea — The second year of the high interest rate environment, scarce venture capital and economic slowdown have forced Brazil’s largest startups to adapt their business models to the new reality. Brazilian unicorns Creditas, Facily, and Loft, for example, have set 2023 as the deadline to reach breakeven so that it will no longer be necessary to take money from the cash flow because the generation of revenue in the operation will be sufficient to pay the bills.

To get there, these companies have been cutting costs, including employees. Startups generally do not operate at a profit because they invest resources in growth, with entry costs such as product development, and customer acquisition via marketing and hiring. Nubank (NU), for example, founded in 2013, did not report its first profit until 2021, just before its IPO.

“When central banks were pouring money into the market, investors and startups followed a ‘growth at any cost’ strategy. Today, both investors and startups need to think more about profitability,” said Alex Zaytsev, CEO and co-founder of Raison Asset Management, a European pre-IPO fund that invested in delivery startup Rappi.

“However it is not mandatory that late-stage companies are profitable. It depends on the sector, the technology, and the age of the company, among other things,” Zaytsev told Bloomberg Línea.


Renato Abissamra is a senior partner at Spectra, an alternative asset manager that works in areas ranging from venture capital to distressed assets and buys fund shares from investors who want to divest for some reason. He explained that companies have to model how much they can grow in terms of revenue based on a given amount of capital.

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“This is the ‘reality rain’ that the VC market has seen, and this is positive, is going to make companies look more at that cash burn perspective, knowing that tomorrow may not be as colorful as the day before. There’s going to be a scaling back of the relationship between cash burn and growth from here on out,” Abissamra said in an interview with Bloomberg Línea.

For early-stage startups, plans for profitability precede those for an initial public offering (IPO), Creditas founder and CEO Sergio Furio said in a recent interview with Bloomberg Línea. Creditas, which focuses on secured lending, is one of Latin America’s most valuable startups and a candidate for an IPO in the eyes of capital markets experts.


At Creditas, the plan is to achieve a profit before going public. Furio hopes to take the company to an IPO if the stock market reopens in 2024 and if the company is profitable. If interest rates remain stable, the fintech believes it can reach breakeven by December.

According to Furio, the demand for breakeven did not come from any Creditas investor, but “it is something “100% Sergio Furio.”

Similarly, Igor Senra, cofounder and CEO of fintech Cora, which received $116 million in a Series B with Greenoaks Capital in August 2021, said the breakeven target “is an internal thing”, with no investor involvement in this decision-making.

The digital bank for small and medium-sized businesses aims to reach profitability “sometime late next year”, according to Senra.


“This move we made [of layoffs] is so that we can have more security and room to maneuver so that breakeven is feasible.”

In recent days, Cora has axed 59 people - about 13% of the company - in a reorganization move, “to have more focus,” Senra said in an interview with Bloomberg Línea.

“The cut also didn’t have any kind of pressure from investors, it was something we understood would help us the most to build a solid company, well prepared for this moment in the world.”


Diogo Dzodan, CEO of Facily, a social commerce startup that areached unicorn status at the end of 2021, said the company cut costs, made layoffs, and closed distribution centers last year as part of its strategy to reach breakeven and dispense with new fundraising.é Cazotto, said he is evaluating the ideal window for the offering, but which still seems distant to him.

Diogo Dzodan, CEO of Facily, a social commerce startup that achieved unicorn status at the end of 2021, said the company cut costs, made layoffs and closed distribution centers last year as part of its strategy to reach breakeven and dispense with new fundraising.

Loft, meanwhile, which reached the status of one of Latin America’s most valuable startups when it completed its last announced round in 2021, has been one of the most aggressive in terms of trimming staff, carrying out four rounds of layoffs in a year, totaling around 1,200 job cuts. The goal, according to the company, is to reach breakeven by the end of this year.

At the beginning of the restructuring, last June, Loft brought in Marcel Regis to lead the operation, an executive with 25 years of experience and leadership positions at Ambev and AB InBev, groups known for their focus on cutting expenses and seeking efficiency.


In an interview with Bloomberg News, Juan Franck, SoftBank’s managing partner for Latin America, said that “some of our portfolio companies that are in more mature stages may benefit from an upcoming IPO window, a possibility that, according to market experts, could occur at the end of this year or in early 2024″.

Zaytsev pointed out that while there are examples of successful IPOs of companies that were not profitable at the time of the IPO, “they should certainly present a clear path to profitability in the future”.

Focus on what brings results

But not every mature startup has put a deadline on reaching breakeven. This is the case of Nuvemshop, also known as Tiendanube in Latin America. The company operates the same model as Canada’s Shopify, offering tools for small and medium-sized companies to manage online businesses.


According to PitchBook data, the company raised $500 million in Series E venture funding in a deal led by Tiger Global Management and Insight Partners in August 2021. The investment raised the company’s valuation to $3.1 billion.

“Today we have a lot of control over our costs and a cash availability that allows us to continue investing in long-term strategies,” the company said in a statement.

Tiendanube said it will continue with a strategy of reducing cash burn without giving up strategic investments. The company reported that it has reduced its cash burn by approximately half this year.


SoftBank-backed unicorn MadeiraMadeira, meanwhile, which was also poised for an IPO while waiting for the window, has made its second round of layoffs in recent weeks.

Meanwhile, Cora is removing projects and actions that would have a longer timeframe for maturation and returning to focus on “closer practices in which we would have a more immediate return,” as Senra explained. “We are reorganizing everything, not just people but budget, teams, even suppliers [...] We knew that this business of ‘free money’ would one day end and we would have to have a business model that would stand on its own two feet,” he said.

Instead of trying to raise money in the market - more restricted to Series B onwards -, Senra said he chose to deal with what he can control, such as when the company will be profitable and the size of the fintech’s spending, “so that we take control and not leave it in the hands of investors, who today may be in one mood, and tomorrow in another. We didn’t want to be at their discretion”.


To achieve profitability, Cora plans to reduce the burn rate, while seeking to increase revenue generation. The fintech did not disclose its cash burn rate, but said it is “in line with a company of Cora’s size”.

“We have positive unit economics, but we needed to have enough size and scale to cover all our costs. That is what we are doing. We want to continue to grow within positive unit economics,” Senra said, explaining that Cora’s margin per customer is positive. If that is multiplied by many customers paying the internal cost, the company reaches breakeven.

“Before these cuts, we were spread out in many exploratory tests of segments and products and we saw that for that particular revenue line or test to come to fruition would take a long time and with a very high degree of uncertainty,” the entrepreneur said.


“We left those explorations for later to focus right now on what gives results in the short term. And that goes for both revenue and cost,” he explained.

Turn a profit first before going public

Last year was a year of few IPOs, with the lowest number of offerings in the last decade. No Brazilian startup went public. “It was an impressive drop after the record amount of listings in 2021. Today we see that the market is recovering a bit and we expect a more vibrant IPO market in 2023″, said Zaytsev, who points out that the IPO market is sensitive to investors’ risk appetite.

“When risk tolerance decreases, the IPO market is one of the first to react negatively and vice versa: it grows faster than the S&P 500 and other indices when there is optimistic investor sentiment.”

But when risk appetite returns to the market, there could be a pent-up demand effect that results in “impressive IPO growth,” according to the investor.

“Many companies that had announced plans to go public have had to revise their strategies due to market conditions,” he said. Among the companies that have reportedly postponed IPO plans since 2021 are the fintechs Ebanx and PicPay.

According to Zaytsev, companies that have postponed plans are ready to get back in the game when the window reopens “because an IPO remains the most efficient way for a company to raise funds”.

Asked about possible events that offer investors an exit, Tiendanube told Bloomberg Línea that it is not worried about an eventual IPO, “but rather about customers”.

Senra, meanwhile, said that from the moment Cora accepted venture investors into the business, the company has agreed that at some point they will have events that allow for an exit. “Perhaps the best way for them to have that exit is an IPO. That’s what we see in the future. We’ve built the company to get there at some point.”

The challenge of valuations

Investments in Brazilian startups fell 86% in the first quarter of 2023 in comparison with the same period last year, according to a survey released by the Distrito platform. The first three months of the year totaled 91 rounds, which moved about $247.02 million. In the same quarter of 2022, there had been 306 rounds, implying $1.7 billion in investments for startups in the country.

One of the startups that managed to raise this year was Barte, which focuses on facilitating payments between companies. The fintech received in March a contribution of $16 million, six months after announcing the first round of funding, worth $6.5 million. “It’s time to do the beans and rice right,” Caetano Lacerda, CEO of the startup, said in a statement.

Startups’ valuations are falling around the world and one of the latest notable victims is Stripe, a payments fintech whose valuation has almost halved.

According to Zaytsev, there are a few tech companies that are somehow “protected” from this downward trend in valuations, including those owned by Elon Musk (SpaceX and Neuralink) and those in booming segments such as generative artificial intelligence.

“Falling valuations are not good for current investors in these companies, but they are for new ones, who have the chance to buy shares at a big discount,” Zaytsev said.

Senra jokes that he would prefer Cora’s valuation to be measured in real-time as is the case with the market capitalization of listed companies. “Today we have no idea [of the valuation] and we are kind of in the dark in that sense. The one from the last round is the best reference we have so far.”

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