#023: How geared up is Kavak?
The equity landscape might be curbing its enthusiasm, but the venture debt parade is turning into a carnival
Olá technopolists,
Equity raises are still down bad — just ask SoftBank (more below) — while debt is becoming the new Gold(man) standard. That’s why we’re zooming in on Kavak’s capital structure to see what it tells us about their prospects and the current market, writ large.
What’s hot
💰 Adventurous debt. The foreign-led venture debt parade has reached a new crescendo this week. Kavak, the Mexican car marketplace, raised $810mn across three asset-backed debt facilities from HSBC ($675mn), Goldman Sachs ($100mn), and Santander ($35mn) to continue scaling operations. They’re not stopping there, either: the automotive unicorn is eyeing an additional $400mn in debt by year-end, bringing the potential total to $1.2bn, per Bloomberg Linea. Elsewhere, Rappi’s fintech subsidiary, RappiPay, bagged a $112mn sydicated credit line from 4 Colombian banks last week. The new thing here is the sheer magnitude of these facilities for private entities: Kavak, although still pre-IPO, managed to raise debt that’s quadruple that of Mercado Libre’s $200mn facility from Goldman. If you’re wondering why these companies are raising stonking debt facilities, it’s because both sides are loving it in this economy. More on this in the stat of the week. (Reuters)
🏦 Manic Pix-ie dreams. Pix, Brazil’s wildly successful digital payments platform, could soon be exported to Colombia, following conversations with both countries’ central banks. In a boastful social media broadcast, President Jair Bolsonaro extolled the virtues of the platform and upped the ante by claiming that the US and Canada also planned to import the platform. Bolsonaro’s bluster has some truth: over 62% of Brazilian adults are now using Pix only two years since launch, and mainstream adoption dwarfs the results of similar apps in neighbouring countries like Mexico (CoDi) and El Salvador (Chivo Wallet). Yet the claims about the US and Canada are unsubstantiated and unlikely; the US Fed has announced plans to launch its own version, ‘FedNow’, next year. (Forbes)
🔥 Hot 500. Bloomberg Linea has released their 2022 edition of LatAm’s 500 Most Influential People, and tech leaders are well represented amongst the list. The OG’s have all made the list: Rappi’s 3 co-founders, Ualá’s Pierpaolo Barbieri, Nubank’s top 3 (David Velez, Cristina Junqueira, and Edward Wible), dLocal’s Sergio Fogel, NotCo’s Matias Muchnick… But among the most interesting newcomers are Monique Oliveira, co-founder of iFood’s parent company, Movile, who is one of the few trans women on the list; Habi’s Sebastian Noguera and Brynne McNulty Rojas, who raised one of the largest equity rounds this year ($200mn); Barbara Gonzalez of Bitso, the crypto exchange’s Mexico chief who pushed the company to unicorn status by leading last year’s fundraise; and Marlene Garayzar, co-founder of credit fintech unicorn Stori. (Bloomberg Linea)
What’s not
🧰 SoftBank’s war chest. SoftBank seems to get cut by both sides of capitalism’s double-edged sword: either through not having enough cash (see: $23bn in global losses this year), or by having too much lying around unused. The Japanese fund’s LatAm subsidiaries, which have ploughed roughly $7bn into the region’s startup ecosystem in the last 3 years, are sitting on $2bn+ in reserves that are starting to burn a hole in their pocket. In the past several months, SoftBank has pulled back their investment pace in LatAm in line with the global slowdown; now, partner Rodrigo Costa of SoftBank’s Investment Advisors is lamenting how ‘investor versus company price expectations are still very divergent’. (Bloomberg Linea)
🪞 Rappi reflections. Andres Bilbao, a member of Rappi’s founding team, reflected on the bumpier parts of Rappi’s mistakes in a town hall session at Latitud’s Vamos LatAm Summit in São Paulo last week, sharing the story behind the highly hyped unicorn. First among the admissions was giving 50% of the company to DST Global in early funding rounds — a choice that, while insanely dilutive, Bilbao stands by since it was ‘smart money’ that ‘saved [Rappi] millions of dollars by telling us what to do.’ Then there’s a confession of toxic hustle culture: ‘there [was] no such thing as work/life balance’ in the early days at the delivery unicorn. Bilbao finally admitted that Rappi missed one-third of its goals. But let’s be clear: none of these mistakes are unique to Rappi in any stretch, as being highly diluted, falling short of moonshot ambitions, and praising workaholism (to say nothing of burning insane amounts of cash) are endemic in startupland. (Bloomberg Linea)
Stat of the week
Usually I use this space to go broad in country and industry trends, but today, we’re going micro by zooming in on Kavak, LatAm’s most valuable unicorn. Specifically, I’m going deep on Kavak’s financial position: having officially raised $2bn in equity to date, their fresh $810mn debt facilities bring total capital raised to $2.8bn
So here’s the main question: just how geared up (leveraged) is Kavak, and what does it say about the state of LatAm’s funding environment for late-stage giants?
So what (about Kavak)? The debt facility isn’t just mammoth relative to the market, it’s huge for Kavak, too. The $810mn is bigger than the size of their last fundraise (Series E, $700mn) and is 40% as much as equity they’ve raised all time. Being speculative: the debt could be as much as 30% of their total valuation (see below), which makes them start to look a lot more like a public company.
So, what (about the market)? Debt is looking readier than equity for these behemoth late-stage companies because it lets them avoid a painful down-round if they tried raising equity; (2) big banks have become envious of VC returns and want a piece of the action; (3) loans are becoming increasingly profitable for banks because of rising interest rates; (4) companies with assets or loan portfolios like Kavak and RappiPay can give banks more comfort by collateralising the loans; (5) banks need a good place to find inflation-beating returns with equity markets getting hammered and no end to inflation in sight. Today, there’s no reason to expect the debt parade to stop.
The twist. Kavak’s $8.7bn valuation came at the top of the market, and it’s highly unlikely that they would achieve the same valuation if they raised today; Carvana, a publicly listed American comp, has shed -70% in market cap since the beginning of this year. If we were to speculate and use that -70% loss as a worst-case scenario for Kavak (which is admittedly speculative as a worst-case scenario), it would set their valuation around $2.61bn and make $810mn in debt at nearly one-third of their valuation. That’s what starts looking more like a public company rather than a private one. The speculation is admittedly a pessimistic scenario, but we can use it to illustrate a general point about the market’s correction.
Smart links
Colombian fintech Mono launches VC initiative to connect startups with investors (Contxto)
Report: Digital Transformation in Latin America 2022 (Atlantico)
Unicorn paytech Kushki enters Peru (Latam List)
Thomson Reuters announces launch of a digital bank in Brazil (Fintechs Brasil)
SoftBank and Distrito launch Startup Map to catalogue LatAm startups (Contxto)
DOMO Invest spins out EXT Capital into $19mn fund (Startups Brazil)
Market map: BNPL fintechs in LatAm (Latam Fintech Hub)
Charts: Trust in Brazil’s media, Didi vs. Uber, and female labor (Latinometrics)
Q&A: Ricardo Sangion of TheVentureCity on how fintech has boosted LatAm (Rest of World)
Credito Real's foreign bondholders eyeing legal action in Mexico (Reuters)
Amazon Mexico cloud unit to open 'local zone' in early 2023 (Reuters)
IMF staff back $4 billion tranche for Argentina, praise 'decisive' steps (Reuters)
S&P says it could downgrade El Salvador in 6-18 months (Reuters)
Chile to cut debt issuance in half to $12bn in 2023, focusing on tech (Reuters)
BBVA Mexico grants $225mn green loan to fund Toyota hybrid vehicles (Reuters)
Deals (September 19-26, 2022)
M&A
🇨🇴 Ding, a Colombian paytech, was acquired by PayU for an undisclosed amount*
Late stage
🇧🇷 Solfácil, a Brazilian solar energy-focused fintech, raised a $30mn Series C extension from Fifth Wall
Early stage
🇧🇷 Amicci, a Brazilian whitelabel retail platform, raised a $7.6mn early stage round led by Astella Investimentos with participation from DGF and Endeavor Scale-Up Ventures
🇲🇽 Heru, a Mexican tax platform, raised a $6mn seed round led by Gradient Ventures (Google’s AI venture fund) with participation from SOMA Capital, GFC, Moving Capital, Flourish Ventures, and Magma Partners
🇲🇽 Naya Homes, a Mexican short-term rental proptech, raised a $5mn early stage round led by Flybridge Capital Partners with participation from Clocktower Technology Ventures, K50 Ventures, Trip Ventures, Colibri Equity Ventures, Derive Ventures, and former Uber LatAm executives
🇧🇷 Nintx, a Brazilian plant therapy biotech, raised a $3mn seed round from Fundo Pitanga and Peter Andersen
🇲🇽 Bendo, a Mexican ecommerce retail app, raised a $2mn early stage round from Canary
🇧🇷 Medipreço, a Brazilian medical benefits platform, raised a $1mn seed round led by Valutia with participation from OSinova Participações
🇧🇷 Simple&Co, a Brazilian cloud kitchen foodtech, raised a $700k crowdfunding round with participation from Bertha Capital
🇧🇷 Desafío Latam, a Chilean edtech, raised a $660k angel round
🇧🇷 Easy Carros, a Brazilian rental car fleet management software, raised a $250k round from BRQ Solucoes em Informatica
Ad hoc
🇲🇽 Kavak, a Mexico-based car marketplace, raised a $810mn debt facility from HSBC, Goldman Sachs, and Santander
🇨🇴 RappiPay, the fintech subsidiary of Colombian delivery superapp Rappi, raised a $112mn debt facility from a syndicate including Bancolombia, Banco de Bogotá, Davivienda, and Itaú*
🇧🇷 QR Capital, a Brazilian blockchain-focused fund, raised an undisclosed amount from DOMO Invest, Tessera Ventures, and undisclosed investors
🇵🇪 Wolet, a Peruvian lending-as-a-service fintech, raised a $2mn debt round led by Acorde Private fund with participation from angels
*Originally announced September 15
Did I miss any deals? Let me know!