STARTUPS ENTRE FUMAÇAS E BOLHAS

AirBPO
Apr 24, 2023
3 min read

I would like to post here my position about the current market moment:

The Financial Market lives from windows where the smoke hides the bubbles and the market magicians do the show. When the bubble bursts, the smoke clears, but it is already too late for those who did not take part in the show. The poor clowns, who are the small investors, the unwary ones who started laughing, end up crying" (Jean Apolidorio, 2023)

But after all it is very easy to be seduced when the bubble is forming, because at this point everyone is winning, it was like this with the NASDAQ - dot.com market bubble, it was like this with the subprimes, and it was like this with the startups, and soon there will be new ones, because the seduction of short-term gain is almost irresistible, regardless of the avalanche that will come later, such as layoffs, recession, bankruptcies, markets and economies collapsing, loss of purchasing power, and impoverishment of the population.

The new generations love to look for ways to counteract the previous generations, and I am even in favor of this, but the truth is that that 92-year-old Mr. Warren Buffett puts as a thesis of his investments Low Cap - Low leverage in debts; and Positive Cash Flow - Positive cash flow, continues to hit the nail on the head.

Yes, we should look for better ways to do something, and why not look for better ways to invest? But we must consider history and not repeat the same mistakes too often.

I've been wondering for a while if Burn Money isn't dumping? Below is the definition of dumping:

Dumping is defined as the sale of goods or services at below-market prices or below production cost values, especially by outside sellers, for the purpose of eliminating competitors and gaining larger market shares.

After all, isn't that what startups do? They seek capital, they burn money by pricing at a loss to isolate themselves in the market, to increase the value of their shares because they promise future cost optimization for their shareholders with increased revenue.

But in the end

CEOs gain because they create debt in the long term, but in the short term they leverage EBITIDA of the company from which their annual bonuses are calculated.
Venture Capitals, Private Equity, profit in their exits regardless of how many years of life the company will have in the future. According to a McKinsey consulting study, in 1958 a listed company had an average life expectancy of 68 years. Today companies disappear in 18 years, either by being bought out or by simply closing down.
The owners of startups do not profit in the long run by creating a sustainable business, they profit by selling their shares for others to manage; as the Harvard Business Review study shows:

By the time the ventures were three years old, 50% of founders were no longer the CEO; in year four, only 40% were still in the corner office; and fewer than 25% led their companies’ initial public offerings. Other researchers have subsequently found similar trends in various industries and in other time periods. We remember the handful of founder-CEOs in corporate America, but they’re the exceptions to the rule.

OK, and what is the solution then? What is sustainable anyway? Sustainable is what Mr. Warren Buffett, at the age of 92, does. His investment performance on a long-term track record is justified by looking for companies that really demonstrate that their business can be sustained over a long period of time, and that are not a stepping stone for CEOs, VCs, and Private Equity firms to get rich.

SGA - Sustainability, Governance and Environment, in English ESG, are beautiful words, but in practice may be just another smoke that hides companies and company leaders that aim for short-term profit. We must remember that all companies that have committed fraud or environmental damage have been audited, and that auditing has not prevented them from committing fraud or violating governance standards. The term greenwash has been adopted in Brazil to portray this antithesis as explained in academic articles such as the following:

https://www.cursosavante.com.br/cursos/curso559/conteudo8276.pdf

If you want money in the short term, my advice is: know when to get in and when to get out, because these bubbles are not windows of opportunity, but guillotines. There is no high return without high risk in practice.

If you want something solid and sustainable, as an entrepreneur, focus on long-term cash generation and long-term sustainability.

If you are an investor focus on the company/entrepreneur doing what I mention above.

Focus on cash generation and long-term sustainability are the buzzwords of the moment, real governance and not just in the cute ad to look "Green".