In 2021, the Mexican used car platform Kavak will enter the Brazilian market. The platform intends to invest $500 million in Brazil, starting in São Paulo.
Kavak is the largest used car platform in Latin America. Before entering Brazil, the business had just raised $485 million at a valuation of $4 billion, one of the most highly valued startups in Latin America.
Kavak was founded in 2016 and is backed by Japan’s SoftBank Group. Kavak CEO Carlos Garcia expects Brazil, Latin America's largest economy, to eventually surpass Kavak's two initial markets in size. In the future, Kavak will also expand to other regions of Latin America, and plans to expand its business to emerging markets outside Latin America within two years.
The Latin American used car platform is attracting more attention outside Latin America with its unique business model.
However, Kavak is not without flaws. It is a capital-driven company, and behind its rapid development is a cumulative $1.6 billion in financing since its inception. The most recent $700 million funding round in 2021 valued the company at $8.7 billion, the second most valuable startup in Latin America. And in the eyes of some, Kavak's latest valuation is untenable, the used car business is far less valuable, and Kavak's competitor, the US-listed company Carvana has collapsed by nearly 90%, and can only lay off more than 2,500 jobs to recover profit.
The moving car can’t change hands, and the idea of starting up is born
Kavak founder Carlos Garcia, the son of a Venezuelan soldier, relocated frequently throughout his childhood. By his estimates, he had moved more than 30 times at the age of 37. Garcia discovered his passion for entrepreneurship after earning a degree in Economics from the Catholic University of Andrés-Bello in Caracas. Garcia started mowing lawns at the age of 12 and didn't really experience the business model until working at food and beverage distribution company Alfonzo Rivas & Cia. As Brand Manager for Alfonzo Rivas & Cia, Garcia is tasked with promoting the company's wine and spirits portfolio. During his three-year tenure, Garcia increased subsidiary revenue by 28 percent and established wine as a national leader. In 2010, after graduating from Saïd Business School at Oxford University, Garcia interned at Amazon and later went to work at McKinsey, the consulting firm that brought Garcia back to Latin America. While working at McKinsey, Garcia traveled frequently between countries, from Venezuela to Colombia to Mexico. During the constant travel, Garcia suddenly came up with the idea of Kavak. In 2013, near the end of his McKinsey job, Garcia decided to move from Bogota to Mexico City. Although Garcia lived in Bogota for a short period of time, he still bought a car. While moving, Garcia didn't want to transport the car north, and wanted to sell it and buy another after settling in Mexico. Although Garcia advertised the car and visited dealerships, no buyer was found. He had to go to Mexico with a car that was not for sale. In the end, it took Garcia six months to get the car in Mexico. Not long after this experience, Garcia was on the plane thinking about the painful experience of selling cars in Bogota. So he sketched out a potential solution. Wouldn't it be better if there was a trustworthy website that would immediately give you a fair price for your car? Garcia had already had the initial idea of Kavak at this time. When Garcia settled in Mexico City, he hired two developers in India to develop the first version of the car dealership. At first, the car resale platform was just Garcia's hobby, and he was not ready to start a business. In February 2014, Garcia became Linio's Chief Marketing Officer. Founded in 2012, Linio is Rocket Internet's e-commerce business in Latin America. The company sought to capitalize on the absence of Mercado Libre and Amazon in Mexico as a launch pad to conquer other regional markets. Linio has built a digital payment infrastructure and logistics network to solve online purchases and delivery of goods. These moves provided Garcia with valuable experience. But Linio ultimately failed. In 2018, Linio was sold to Chilean company Falabella for $138 million. But Linio has energized the Latin American ecosystem, driving the popularity of online commerce. Linio showed Garcia the enormous challenges of building an online commerce business and the risks of scaling too quickly. At the same time, Linio also created the opportunity for Garcia to meet his co-founder Roger Laughlin. Laughlin, a Venezuelan, shares his roots with Garcia, studied in an American school in Switzerland, and has an international upbringing. After graduating from the University of Caracas, he worked as a consultant at Bain before joining Groupon's Brazil operations. Laughlin was a managing director at Linio when the two met. While Garcia's side business stalled at Linio, the experiences strengthened his belief in the field. It is difficult to sell a car in Colombia, and it is difficult to buy a car in Mexico. While Garcia feels financially secure enough to afford the upfront cost of buying a car, he realizes there are millions of people who don't have that ability. He realized that this was not just an inconvenience, but a hindrance to economic mobility. The car is not only a mode of transportation, but also an asset, a tool that may increase the income potential of an individual. In the summer of 2016, Garcia and Laughlin set out to make a big splash in the used car world.
The seed round is valued at 3.3 million, and it will receive financing from Softbank in 2020
While Garcia and Laughlin are passionate, they lack funds.
But that didn't stop them from recruiting. Due to Garcia's charisma and Linio's background, Kavak's founders have access to elite talent at 15-20% of the market salary. Some even join without pay. Kavak's first employee was compensated for food and housing and lived in an "office" on the fourth floor of the apartment where Garcia lived.
Despite the company's low profile, Kavak quickly attracted investors. Former Linio colleague Carlos Salinas introduced Garcia to Hector Sepulveda, founder and general manager of Nazca Capital in Mexico. Even though Garcia told the leadership of the Mexican fund that Kavak wasn't ready for capital, they kept calling. A few weeks later, Garcia agreed to provide a formal pitch. The night before the presentation, the team stayed late in the office, making a three-year plan for Kavak. Garcia later said that the company almost fully executed the plan, with a margin of error of no more than 2 percent.
Garcia has $500,000 in funding from friends and family, and he hopes to get another $300,000 from Nazca, which will support the company for a year. Garcia hopes to attract more investment.
Finally, Nazca led a $3.3 million seed round in Kavak. Nazca sold shares to SoftBank and General Atlantic in 2020, and five months after Nazca’s announcement, Kavak closed a Series C round that pegged the price at $1.15 billion, and more than 7.5 times later about a year later.
Loreanne García joined as the third co-founder when Kavak closed its first round of funding. Loreanne studied in Venezuela before earning her MBA abroad. She worked at McKinsey for 5 years before moving to Mexico.
From 2016 to 2020, Kavak received $13.3 million in investment. Later, Kaszek Ventures led Kavak's $10 million Series A round.
According to García, the streamlined model created the follow-on power of Kavak. The used car market is a capital-intensive business. You have to buy cars from customers and then sell them to other people. Garcia realizes the importance of pricing algorithms, so he spends most of his funds on advancing pricing algorithms. Later, this also became one of the most important moats in Kavak.
The second advantage of Kavak comes with the launch of Kavak Financial Services. Garcia understands that a lack of auto funding is an important issue for Latin American consumers. To address this, he launched an in-house fintech unit that offers car rentals. Kavak has partnered with financial institutions such as HSBC, BBVA, Santander and Credimovil to further expand this service.
Following the completion of the Series C financing, Kavak has received investments from SoftBank, DST Global and Greenoaks. Kavak was also crowned as Mexico's first-ever unicorn company. Garcia will use the funds to expand the company's purchase of qualified "refurbished" cars. Meanwhile, Kavak acquired Checkars, an online marketplace for used cars in Argentina, for $10 million.
