* Olga Maslikhova is a VC investor, Founder & Host of The J Curve podcast

Venture capital is a cyclical business. There will always be times when capital is abundant and times when it’s severely scarce.

2021 was an exceptional year for Latin America when the region was ranked as the fastest growing in the world for venture funding. VC and growth investors poured an estimated $19.5B into the region, per Crunchbase data, more than tripling prior year level. 

The boom-bust cycle in Latam tech was driven by the combination of higher risk appetite / lower price sensitivity from growth investors, skyrocketing valuations of the US tech companies, optimism and herd mentality when global capital inflows into the venture capital asset class from limited partners was abundant and public markets were looking good. 

However, rising interest rates, inflation and geopolitical instability that marked the beginning of 2022 have already led to a slight decline in fundraising compared to Q4’2021. If the decline continues, we will see a cohort of tech startups struggling to raise capital in a market that does not agree with their prior valuation multiples: also rans will go bankrupt, valuations will go down and exceptional founders with a solid strategy to persevere when cash is scarce will be shining bright like diamonds. 

Time will show if we slip into a deep recession this time but there is one thing I know for certain – gravity always comes back and there’s no better way to prepare for a downturn than to plan for it from the get-go.

  • 1. Build a network of mentors who’ve navigated businesses during rough times before. Good judgment comes from experience that comes from bad judgment.
  • 2. Capital efficiency and unit economics matter. Always. Regardless of market conditions, investors will always pay for a healthy unitary economy.
  • 3. Sustainability is the name of the game. ‘Growth at all costs’ mentality is outdated. Growth is very important, but the quality of growth is even more so. It is naive to assume that you will have the opportunity to adjust to business inefficiencies at a certain scale if you have a huge inorganic growth rate, negative unit economics, and churn today. Growth for growth’s sake is possible, but when the money dries up, your investors will be the first to ask you to cut costs and overhead. 
  • 4. Resiliency is an organizational mindset. Resiliency is a company’s capacity to absorb stress, recover critical functionality, and thrive in altered circumstances. It deals with what is unknown, changeable, unpredictable, and improbable which is basically everyday life in Latin America. 

Resilient business models have FIVE important attributes:

  • High switching costs
  • Strong network effects
  • Counter-cyclical value proposition
  • Control over customer acquisition channels
  • Limited exposure to external factors like regulations

5. If you can raise a preemptive round at an attractive valuation and terms, go for it but treat the capital as if it were super scarce. 

This approach requires two things in particular:

– Founder control on the Board of Directors level because you need the power of decision making to stand up to investors when they push for unreasonably aggressive growth, hirings and cash burn. 

– Financial discipline at a personal and organizational level. There should be a well communicated and regulated spending pattern.

The economic and political instability, inequality, inflation, and bureaucracy in Latin America make investments even riskier. The best way for a startup to be consistently funded in this scenario is to create an “analgesic, not vitamin” type of business that will be relevant 10 years from now.


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