By Julia Love and Daina Beth Solomon
MEXICO CITY, Apr 20 (Reuters) – The CEO of Colombian food startup Muy had hoped to spend the past few weeks preparing to raise a large amount of fresh funds from venture capital firms to execute an ambitious expansion plan.
Instead, José Calderón was busy closing the company’s 40 restaurants in Mexico and Colombia, as the global coronavirus outbreak forced the suspension of different businesses throughout the region.
“All the stores are at zero, zero, zero, all red. It’s super difficult,” said Calderón, who cut his own salary by more than half and asked employees to take voluntary cuts, just six months after raising 15 millions of dollars.
As a veteran entrepreneur, he added, “I have filed for bankruptcy because I made bad decisions, because I did not execute well, but this time it is difficult.”
Calderón’s experiences reflect the strong blow that the coronavirus has given to entrepreneurs in Latin America, whose technology sector, particularly with the help of SoftBank Group Corp of Japan, had finally begun to show valuations of billions of dollars, after years of battling to attract global investors.
Startups around the world have been affected by the coronavirus, which has confined billions of people to their homes and has stopped much of the global economy.
But in emerging markets such as Latin America, it is an especially precarious moment in the development of the technology sector, and that could make recovery difficult for the entrepreneurial union.
“We were gaining ground,” said Federico Antoni, an investor in Mexico City-based venture capital firm ALLVP. “It is definitely a bad time to be hit by this huge, unprecedented crisis.”
In some markets, the impact is already marked. In Brazil, funds invested in venture capital fell 85% in March from the same period last year, according to the market intelligence arm of Brazilian firm Distrito.
Some offers are still coming to fruition. SoftBank said this month that it will invest $ 48 million in Brazil’s pet products online store Petlove, and Brazilian logistics startup CargoX announced that it had raised $ 80 million.
But layoffs and pay cuts are taking place across the region, and even startups that can still raise money have been forced to do so at liquidation prices.
Mexican fintech startup Visor ADL, for example, explored the sale, CEO Rubén Sánchez said, although in the end it was able to attract an investor. The company is now closing a round of financing, but admitted its valuation has a discount.
“You have to be alive tomorrow to take advantage of the favorable wind,” said Sánchez.
The growing scooter company, which was one of the most promising startups in the region, is now in hibernation after the business was sold, as in March it suspended its operations in Latin America.
For those who survive, timing is key. Colombian startup Ayenda, a high-tech hotel chain, raised $ 8.7 million in February, just before the crisis hit the region.
CEO Andrés Sarrazola had thought about using that money in the company’s operation until December, but he changed his plans and cut his expenses by 40%, bringing the operation to life for at least 16 months, he said.
The Gympass gym membership app, backed by SoftBank in a $ 300 million round last June, said it cut its worldwide workforce by 20%, as users were staying home. The company founded in Brazil, and which has relocated to New York, now offers exercise classes online.
At Colombian firm Mensajeros Urbanos, CEO Santiago Pineda said a round of financing was delayed, putting him on edge even though the company had expanded its business to deliveries from pharmacies and supermarkets.
“It has been quite a challenge to keep (partners) interested in investing,” he said.
Co-founder of Mexican eyewear startup Ben & Frank, Mariana Castillo, said she is abandoning plans to seek funds this year and is focused on survival. Although the company is still making online sales, Castillo closed all 24 stores and halted the startup of three new locations.
“We really take care of every peso that goes into the business,” he said.
Some remain optimistic about the startup scene as it is a market where entrepreneurs have long operated with limited resources.
Eric Pérez-Grovas, general partner at Mexican venture capital firm Jaguar Ventures, said companies that are out of the crisis could be poised for success.
“Survive these three months and you will have a good market and a pool of talents,” he said.
(Report by Julia Love and Daina Beth Solomon; Translated by Abraham González. Edited by Raúl Cortés Fernández and Juana Casas)