By Alberto Azevedo, investment specialist and CEO of the Alby Foundation
In recent years, the venture capital market in Brazil has shifted from euphoria to retraction. Previously, there was an excess of liquidity driving investments in promising startups, but now the scenario is different. The rise in the Selic rate and the increased selectivity of investors have put a brake on the ecosystem, making fundraising an increasingly challenging task. Data from LAVCA shows that investments dropped from US$ 3.2 billion in 2022 to US$ 2.1 billion in 2023, and plummeted to just US$ 225 million in the first three quarters of 2024. This new reality forces entrepreneurs to rethink their financing strategies and explore less conventional, but often more sustainable paths.
The startup ecosystem has been captivated by the idea that an innovative business must necessarily have traditional investors to exist. Rounds of venture capital, inflated valuations, and the obsession with raising millions right at the beginning have become almost a rite of passage. However, the question remains: what if we are buying into a myth that benefits the financial market more than the entrepreneurs themselves?
Building an MVP – a simpler version of a product that can be launched in the market – and validating an idea are crucial challenges, but venture capital is not the only, and perhaps not the best option for this stage. In the rush for quick money, many founders end up diluting their participation too early and lose control of the company before even understanding its true growth potential. The fundraising model puts pressure for artificial scalability, which can be fatal for businesses that need time to mature.
Companies like Mailchimp, Amazon, and Duolingo took different paths, exploring alternatives such as bootstrapping, rounds with family, grants, and crowdfunding. Mailchimp, for example, never received a penny of venture capital and was sold for $12 billion. Duolingo secured its early development phases with research grants. Jeff Bezos took Amazon’s first steps with an investment from his own family.
The traditional investment model creates a vicious cycle, where startups raise funds to grow, grow to raise more, and in the process, lose identity and purpose. Many organizations end up hostages to investors who demand accelerated returns, forcing unnecessary pivots and decisions that could jeopardize the business’s longevity. The culture of grow or die led giants like WeWork and Peloton to burn billions before realizing that sustainable growth should have been the priority from the beginning.
There are alternatives. Bootstrapping ensures total control. Crowdfunding validates the market and generates cash without dilution. Grants and subsidies offer money without the need for repayment. Accelerator programs can be a shortcut to strategic connections, and preselling products allows customers to be the true initial investors. Airbnb started by selling cereal boxes to stay afloat until validating its business model. Pebble raised over $10 million on Kickstarter before making a single smartwatch.
Entrepreneurs need to break free from the narrative that there is only one way. Venture capital can be a useful tool, but it should be seen as a strategic choice, not a prerequisite. Startups that understand their options increase their chances of building solid, sustainable businesses aligned with the vision of their founders. The money is there; we just need to stop looking in the same direction.
