After Record Haul, Latin American Startups Adapt to Stay Afloat

(Bloomberg) -- Gympass built one of Latin America’s fastest-growing tech companies by making it easier for corporate employees to work out.

The eight-year-old Sao Paulo startup signed contracts with around 2,000 companies, which gave their workers access to some 53,000 gyms in 14 countries, including the U.S. Then the coronavirus pandemic hit and almost all gyms closed. The company’s business model was upended nearly overnight.

“It was a code red, something so important that everything else is put on hold until it’s solved,” said Leandro Caldeira, the company’s chief executive officer for Latin America. “We focused everything on building a platform so that the gyms could provide online classes.”

Investors poured a record $4.6 billion of venture capital into Latin American startups in 2019, according to LAVCA, the Association for Private Capital Investment in Latin America. Now, with economies shut down and governments imposing quarantines, the companies, guided by their investors, are trying to survive by cutting expenditures, slashing salaries and jobs and, in some cases, changing their business models.

Gympass -- which last year became a tech unicorn valued at $1.2 billion when it raised $300 million in an investment round led by SoftBank Group Corp. -- launched its online program in two weeks. Through the platform, members can access some 50,000 classes as well as health apps, like web-based therapy. That’s helped limit the number of cancellations, Caldeira said.

Across the region, investors are telling their companies to take quick action to preserve funds, said Julie Ruvolo, director of venture capital at LAVCA. “Right now, cash is king,” she said. “The question now is really how quickly companies will pivot and respond.”

One of the region’s largest homegrown venture investors, Buenos Aires-based Kaszek Ventures, began sounding the alarm in early March, telling its portfolio of about 40 companies to “switch to war mode.” The company, which itself last year raised $600 million for new investments, has seen revenue for the firms in which it has stakes fall by as much as 30%, said Hernan Kazah, Kaszek’s co-founder and managing partner.

While some startups won’t survive the crisis, many firms are flush with cash thanks to the amounts they raised last year, he said. To survive, “you have to be more frugal than anything and defend cash,” Kazah said. “Not everyone will make it, but hopefully most will and we’ll end up producing great companies.”

Startups in some of the hardest-hit sectors are moving to adjust to the new reality.

Urbvan normally shuttles commuters around Mexico City’s traffic-clogged streets with a fleet of wifi-equipped vans. That all changed when the world started working from home. The company is now focusing on delivering food and medical equipment, and providing transportation to workers at hospitals and other essential industries, said Joao Albino, the co-founder.

“At first, we went from operating 300 vans down to 20,” he said. “With this change, the recovery has been like a V. We’re up to around 200 vans now.”

In Colombia, the startup Ayenda became the country’s largest lodging chain by working with small, budget hotels to spruce up their properties, re-brand them and give them an online presence. Nearly all of its 140 locations have closed temporarily, forcing the company to cut costs and ponder new business models.

One idea is already in the works: The company is launching a food business, using the kitchens of some of those hotels, said Andres Sarrazola, the chief executive officer.

“We’re in the hospitality industry, the eye of the hurricane, so we’ve had to focus on limiting losses,” he said. After taking those steps, the company can survive for 20 months, using the nearly $9 million it raised last year, Sarrazola said.

For Gympass, the addition of online content has already helped bring in some new subscribers, and, most importantly, helped it preserve cash, Caldeira said.

“We will definitely survive and after this crisis we’ll be much stronger than before,” he said.

©2020 Bloomberg L.P.