Throughout 2021 and the beginning of 2022, large sums of money were invested, and with very high valuations, encouraging a tendency to grow “at all costs” for technological ventures, regardless of whether profits are generated. The model was to get financing, use it to gain market share, and then figure out how to be profitable.
However, the War affected all businesses around the world, causing a global crisis. Immediately afterwards, interest rates increased, inflation grew, and money became more «expensive.» Therefore, investors decided to move their resources to more traditional assets, not as risky as startups.
In that same scenario, they began to demand a higher return on their investments, posing access to capital as the main challenge for technological ventures. During 2022 there has been a correction in valuations, causing investors to be much stricter in their choice, with smaller investment rounds and being much more demanding with the financial performance of startups.
For this reason, startups today must not only have the capacity to grow, but must also be profitable, that is, as their business grows, they can also generate margins to reach the break-even point as soon as possible. We must not only show a good idea, but also that the business has traction, growth and sustainability.
All in all, the outlook is positive for 2023. It is thought that the crisis may last one or two years, but once the situation hits rock bottom, there will be no other way out than to return to balance. Investors continue to have resources, so startups that achieve traction, growth, sustainability, and financial discipline will be able to continue raising capital.