Hello, this is Igor from Zancan Partners, a Multi-Investment and Venture Capital Platform - Startup Service, for pre-seed, seed, and Series A investments, mentoring, and management for companies in the new economy.
InvestingflowBR is my personal newsletter, with collaborators' support, sent every two weeks on Startups, Venture Capital and Investments, new business, and technology in Brazil. Of what I write here, 80% is a curation of the content of what I have read and 20% are analysis, insights, and opinions of their own. Why startups fail
Did you know that 74% of Brazilian startups can't turn 5 years old? Well, we know how difficult it is to scale a startup in Brazil. There are several barriers and challenges, but in the end, we are all together in the same boat.
An American study thoroughly analyzed more than 110 startups that failed, in order to understand the main reasons that caused the failure. This graph summarizes the study and points out the main reasons why startups fail:
For some time now, technology has been transforming our way of living, communicating, working, and of course, dealing with money. And since the advances do not stop, one of them promises to cause an even greater revolution, both economically and socially:
1. Ran out of money / couldn't raise a new capital Money and time are finite and need to be allocated carefully. For startups, running out of money - linked to the inability to guarantee financing/interest of the investor - was the main reason for the failure of startups.
2. No need from the market Facing problems that are more interesting to solve than those that meet a market need was cited as the number 2 reason for failure, observed in 35% of cases.
3. Couldn't compete with the competition Despite the buzzword that startups should not pay attention to the competition, the reality is that, once an idea becomes hot or is validated by the market, others try to capitalize on the opportunity. And although the obsession with competition is not healthy, ignoring it was also a recipe for the failure of 20% of startup failures. 4. Faulty business model Most founders agree that a business model is important to remain linked to a single channel or not finding ways to make money at scale has left investors and founders unable to capitalize on any traction obtained..
5. Regulatory/legal challenges Sometimes a startup can evolve from a simple idea and enter a world of legal complexities that can ultimately end it.
6. Pricing/cost problems Price is a dark art when it comes to the success of a startup, and highlights the difficulty of pricing a product high enough to cover costs,but low enough to attract customers.
7. Difficulties in assembling the right team A diverse team with different skill sets was often cited as critical for the success of a company.
8. Product launched at the wrong time If you launch your product too early, users may consider it insufficient,it may be difficult to recover them if the first impression you have is negative. And if you launch your product too late, you may have lost your window of opportunity in the market. 9. Bad product
Sometimes it all comes down to the product and one defect was enough to sink companies in 8% of cases.
10. Disharmony between the team/investors Discord between employees is a danger present in all business models. Startups, however, have an aggravating factor with regard to disharmony between founders and investors..
Update on the VC market and investments in technology
A strong correction came after moments of abnormality last year. Looking back, it's clear to see. Just as there are the moments of "Panic Sell", where they all sell-by collective panic, I think the market last year it was clearly in a "Panic Buy", where everyone buys for FOMO. This correction was already something expected by many investors, but not so brief.
Volition Capital did an interesting study analyzing how far the corrections of the multiples of the emerging technology empresses in the last two bubbles were. In fact, in the bursts of the bubbles, the revenue multiples of these companies go to 2x and the multiple of EBITDA to 8x, then reverting to a historical median for about two or three years.
In this analysis, as expected, the multiples of the open technology presses, of SaaS, in this case, returned to a historical pre-pandemic average. This should be the new normal: It is complicated to make predictions, and I still think it's too early to look at the valuation data because many deals that were recently announced were negotiated or even closed last year. However, in my position and talking to people, I feel that investments are still happening, but not with that impetus and FOMO that there was until the middle of last year. In the end, I believe that a good company - faster, of great potential, and with models of a clear and sustainable logic - will continue to receive funding normally.
As an investor, this is seen to me as positivity for the VC industry, mainly due to the reduction of market noise that has been created. The process of building the market and companies becomes clearer, this presents the most solid and sustainable models (as it should be) since there is no other way.
The "average reversal" of Startups in early-stage should be to turn to the fundamentals that at this stage is basically finding the Product-Market Fit and having an efficient Go-To-Market model.
Atomic Network and how to build the network effect
Recently in my research, I have found many approaches to new market theories and concepts outside our reality, by the way, all of them very interesting, in a concept text I saw after a presentation by Andrew Chen (al6z, ex-Uber) about his latest book: Cold Start Problem.
When I heard this concept of it, it brought me a light in my head to build Go-To-Market mental models of marketplaces. The book brings several cases and insights for building a network effect. I recommend it.
Atomic Network is a new term but I think it should soon be in more discussion VC x Founder. So, it's important that you get ready when they ask, "What's your Atomic Network?" Igor Zancan - Is the founder and CEO -of Zancan Partners and strategic
GVI partner in Brazil