Agustin Rotondo: How the Venture Capital Market Has Changed for Tech Startups and Why Capital is Rationalizing Today

Agustin Rotondo: How the Venture Capital Market Has Changed for Tech Startups and Why Capital is Rationalizing Today

Agustin Rotondo, investment fund from Wayra
Agustin Rotondo, investment fund from Wayra

of the world start It is a difficult moment. Typically before the US Federal Reserve raises interest rates (which makes investors safer in markets), global inflation has added to the hiring freeze or even layoffs at tech companies, as documented by this site. Exciting context. Augustine Rotondo is an Industrial Engineer (ITBA) and Vaira Regional Manager for Latin America, one of the largest startup investors on the continent. Look at this context as a change in which they were already working. “Two years ago, the goal was growth above all else. It didn’t matter if you were profitable or not, the message was “grow” and it made sense because the market was exploding and there was a lot of money available. There is not so much capital available now. Investors are starting to see how profitable companies are. We’ve been betting on mature companies for years,” Rotondo explains.

– Now the most important thing is not to grow up at any cost?

– Exactly. If the situation of access to capital becomes even more difficult and you do not have an investor to put money, it will be knowing how you are going to rationalize what you have or how to refine it instead of growing it. 10 markets at once, grow in one because you have an investor in banking; But maybe you don’t have 10 investors who are desperate to spend money and you have one who puts 2 instead of 5 million. You need to understand this scenario well, how to take advantage of it and come up with a more effective course of action. In this context, we see startups laying people off, but that’s not a sign that they’re doing poorly, it’s a sign that the context has changed. Before that, they scaled the world in one year because an investor asked them to; And now they realize that since the access to capital has changed, they have to reduce the cost line, set it well; Instead of expanding into 10 markets, do it in two or three. There is a rationalization of the venture capital market and we are experiencing a frenzy that has been difficult to defend.

– In the strongest years of the pandemic, were technological companies overvalued?

– If we are going to a startup, they probably over-measured their staff at a speed that they cannot do today; So they hired everyone from advertisers to developers to grow to a level the market wouldn’t allow today. But we are talking about technology services that are not yet at the beginning of their potential; That is, we are still going through a transformation period that has not yet reached maturity. There is a trend of digitization and transformation that will take place, this is very evident with services such as financial services for non-banks; The concerns that have caused the Fintech world to explode have yet to be covered; If you go to an unsecured area, someone can use a virtual wallet for you, but they don’t have access to, for example, credit; So there are a number of things that will eventually happen and that is Vaira’s mission and vision.

– How important is Argentina to you?

– Argentina is super relevant, not because we invested more, but because the companies we invest in are doing better. We have, at the regional level, more or less 100 and 25 in Argentina.

– From an operational point of view, is it easy to invest in the country?

– The investment functionality is the same if you invest here in an Argentinian company, or in a Colombian, Peruvian company, etc. , because it has a much easier tax efficiency when you operate in several countries. Consider that we all invest in companies that have operations in more than one country in the region (Argentina and a few others); It already makes sense to have one; In terms of the operational performance of that investment, it is the same. Then there are the criteria you use to invest here versus investing in a similar company in another country. And this is where something like talent comes into play. We are a source of regional talent, no doubt, and it is not uncommon to see Argentine CEOs in companies, even outside the country.

– What is special about us?

– We have the dynamics of managing complex contexts that no other entrepreneur in the world has. We are used to it and feel comfortable, especially in this global context. I talk to people in Colombia and it happens to me in Mexico where they talk about inflation, exchange rate… we are used to it. So someone who already has this more or less in their ability chart and who has already worked with this context several times is more prepared. The reality of a startup is that: it constantly faces new challenges that you didn’t foresee.

– Has the vision of startups changed a bit? Is it less idealistic?

– I think it is still so, but it is more rational. It’s not that the startup is mecca or everything is spectacular, and not the other way around. We probably rationalize this view a bit more because not many people are going to become millionaires. Also for someone who has worked in a more traditional company, sometimes that’s what’s needed in a startup, the appearance of someone with traditional experience.

– And the idea of ​​being a unicorn (a company worth more than a billion dollars) was abandoned?

– Being a unicorn is very marketable, but I think we’re at a time now where the unicorn path, which is the super aggressive growth path and so on, doesn’t work for many companies because it’s not sustainable. Today, funds look more favorably on a startup that, instead of growing by two or three times and reaching the billing that earns a million dollars, uses its resources more wisely with more sustainable growth. When the next cycle comes, we don’t know when it will be, there they can still take advantage of the growth opportunity.

– And what are you going to invest?

– Two fronts. First, that the startup itself is great, and second, related to Movistar. We look at how the founding team worked, that it is a balanced team, balanced between technicians, commercial and that at the management level they are well connected, that they have an interesting strategic vision of the team; Then how has it done commercially, performance, in which countries are they growing, what is the revenue mix now and what will the future look like. And then another layer of how they use their resources, their financial box, if they have a plan B in the context of a stronger capital squeeze, what if nobody lends them money, can they continue? And then comes the part of working with the startup to look for opportunities together. So far in 2022, we’ve invested $1 million, and we’re expecting another half to a million more in these remaining months.

Source: La Nacion