Thursday, January 20

Kavak: the Mexican ‘unicorn’ of used cars | Business

Kavak values ​​each car and its documents in a few hours to offer the buyer legal certainty.
Kavak values ​​each car and its documents in a few hours to offer the buyer legal certainty.

Barely a month had passed since Kavak opened its digital platform for buying and selling cars when one morning, when reviewing the operations of the previous day, Carlos García realized: someone had bought a car at three in the morning. “It was crazy,” he sums up, before recounting the reason for the surprise: “Someone got on the platform from his phone, not even a computer, and booked a model at three in the morning.” The car stopped being something merely aspirational and became, García says, something so accessible that one could buy it impulsively in the middle of insomnia and from your mobile device.

“We realized that the value proposition combined with the financing proposition we were offering made this whole process easy for clients, who didn’t have to invest as much time. We knew we were offering something special, something that was different, and that’s when we started putting a lot more energy into it and scaling this idea much more ”.

That happened in 2016, the same year that García, a 37-year-old Venezuelan, managed to get a group of private investors to contribute three million dollars in the form of seed capital to start Kavak, a company based in Mexico that buys cars, reforms them and sells them on a digital platform managed by an algorithm developed with unique artificial intelligence, owned by the company. Four years later and amid the global economic crisis due to the coronavirus, Kavak has managed to raise financing from new private investors in an operation that values ​​the company at more than 1,150 million dollars (about 954 million euros at current exchange rates), converting so to the start-up the first in Mexico to achieve the status of “unicorn”. Among those that have put money in are groups like Greenoaks, DST Global, Kaszek Ventures, QED Investors, General Atlantic and Softbank, a company that has also invested in giants like Uber and WeWork.

Kavak has joined other Latin American companies that also managed to achieve this valuation, such as Globant, from Argentina; Rappi, from Colombia; Pagseguro, from Brazil and Duolingo, whose founder is Guatemalan, among others. For now, the company says it is too early to plan an IPO, but does not rule it out.

Garcia speaks with contagious energy. Her straight, slicked-back hair falls just over her shoulders. He wears a black T-shirt, not unlike the plain and understated ones Mark Zuckerberg is known for. García also shares with the founder of Facebook his ambitions to scale his company to become global, and that car bought on a mobile phone in the middle of the morning was a sign for him and his team that his instinct was correct.

For Kavak, the car is not only a means of transport: it is an economic tool with which customers can be financed with a more attractive interest rate than a credit card can offer. In a few hours, a car is evaluated, valued and its documents reviewed to offer the buyer legal certainty. It is Kavak who buys from the seller, so the transaction can be almost immediate. In addition, Garcia explains, “a car is not only a financial tool for a client, but it improves their lifestyle overnight and productivity in order to have better income.”

Market on the rise

According to some market studies, the purchase of second-hand vehicles is on the rise throughout the world. The Edmunds firm estimates that the global market for second-hand cars reached 10.2 billion units during the third quarter of 2018. In Latin America, the market for buying and selling vehicles is highly informal. In Mexico, for example, 90% of transactions are on the black market, exposing both buyers and sellers to fraud. The lack of financing options limits the size of the market, says García. In the United States, an economy of more than 300 million people, the car market is ten times larger than that of Mexico despite the fact that the latter country has 120 million inhabitants.

“The reason why this gap occurs is because the middle class and the financing ecosystem in Mexico do not work,” says García: “We entered with a proposal to lend to customers because the car is the fastest way to help for there to be more financial inclusion in the country and for people to start growing economically ”.

The future of the car is a sore point in the global environmental debate. The arrival of electric vehicles that do not use fossil fuels, such as Tesla, led by Elon Musk, is welcome, although they also have an impact on the environment, since their lithium-based batteries are highly toxic at the moment. that are discarded. For García, the argument that the future lies in mass electric transport and not in the individual use of cars is an argument impossible to deny. However, it justifies that today there are billions of cars in the world and no one is doing anything to at least reduce their emissions.

“We are in the second-hand market, buying vehicles that already exist, that already are; the alternative is to throw them into the sea ”, says García. “What we are doing is improving the experience inside these cars, investing in them, doing maintenance and service so that they pollute less, so that they exist in a healthier way.”

After the last round of financing, and with the bank account full, Kavak advances in his plans. First, to expand throughout Mexico. On November 11 they announced their arrival in Monterrey, the third largest city in the country. After a merger with the Checkars company, they are already in Buenos Aires, Argentina. And, right now, they are approaching Brazil, where they hope to start operations during the first quarter of 2021.

The plan, then, is to grow in the rest of Latin America. And finally, all over the world. “My ambition is global,” says Garcia, “my ambition is to be the number one player and transform the automotive industry globally, not transform it into one place. What do we need for this to be something that changes the world? When you want to change the world, you require many more resources to be able to do it, you require much more equipment, you need partners who have that ambition as well ”, he assures. “It is sexy to be an entrepreneur, but difficult. It is a vocation, an art. You have to deliver everything because you don’t change the future by working part-time ”, he concludes.

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