Funding’s dry. Companies are cutting back. We’ve been here before

When the suits from investment funds held an intervention for Rappi, they implored the Colombian last-mile delivery startup that became a superapp unicorn: please, focus on profitability rather than the current profligate spending on growth. Rappi relented, and the layoffs — 6% of the company’s corporate staff — shocked the Latin American startup scene.

But this is old news. This all happened way back in January 2020, before the pandemic was a fixture in our lives and Covid-19’s ominous arrival turned into a surprise funding boom, a year later, for startups that promised to move everything online.

On the surface, it would seem we’ve come full circle. Our “new normal” is just the old normal, with its demands of profitability over growth, just with added antibodies. But we’re also a long way from January 2020. 

The investment glut of the past couple of years spoiled companies who now look back wistfully at what many considered to be an age of “free money.” But take a look at the quarterly investments in Latin America, and 2022 is still well on track to being the second-best year for funding in the region’s history. What we’re seeing is recalibration, a slowdown of so-called mega-rounds — which mostly concentrated impressive-looking investments in the hands of a few companies — and a return to profitability as a priority. 

Just as in the last-mile delivery sector, we’re starting to see companies take all three factors into account, or risk facing their own demise. 

This month alone, delivery giants Jokr and Jüsto doubled down on Latin America, while Pakistan’s delivery darling Airlift folded, as per a Rest of World scoop. On the surface, there is little difference between these three companies, so, for investors, it is a matter of time before the former two meet the fate of the latter. But there are a few points of distinction that are worth pointing out before we all succumb to the generalized negativity of our time.

For starters, the common denominator among the mighty VC-backed companies that we’ve seen failing over the past months has been access to too much money being spent too fast. Consequently, the luckiest startups are those that secured substantial sums as we entered the funding drought. Jokr, still with millions under its belt, and Jüsto, which secured a $152 million series B round in April, were well embarked on a path to spending their ways into an early grave but now seem to have had some sense knocked into them.

And not all is lost for the delivery companies that spent like crazy during the boom. Many had already been using their money to migrate to other more profitable services — particularly toward higher margin, more profitable adtech and fintech services like RappiPay or Argentina’s Mercado Pago. 

Belts are certainly tightening, and companies are right to be nervously glancing at their bank accounts, but nothing pays off better than being at the right place at the right time.