Kavak: An update
Market conditions have changed, how is this reflected in the growth of this giant Mexican startup?
In late May of last year, an image circulated among WhatsApp groups related to venture capital and the entrepreneurial ecosystem in Mexico. According to said image, Tiger Global recognized that the $100 million it had invested in Kavak about 10 months earlier (in Series E, in September 2021) was now worth $51 million.
Valuation and funding
Kavak was founded by the Garcia brothers and their friend Roger Laughlin in 2016, with an initial investment of $3 million.
Over the years, they secured funding from various investors, raising over $1.5 billion in 12 months from funds such as Kaszek, General Atlantic, Tiger Global, and SoftBank.
They also secured loans from Goldman Sachs, Santander, and HSBC, which supported its financial operations.
It is the highest-valued Mexican startup in history, in their most recent funding rounds, they received $700 million, bringing its valuation to $8.7 billion and ranking it among the top 10 companies by market cap in Mexico.
The data aligned with the prevailing sentiment that valuations in 2021 were exaggerated and now it was "the moment of truth."
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Growth and expansion
Kavak experienced rapid growth, expanding from 250 employees and operations in a single city to over 6,000 employees and operations in seven countries.
They sold over 7,000 cars per month in Mexico and had an inventory of nearly 24,000 vehicles across all countries by May 2022.
Their model evolved to include financial services, a multiservice app, and the use of 3D printing for manufacturing car components.
Challenges faced
The company faced challenges due to rising interest rates, making it difficult to secure new funding and increasing the cost of credit for customers.
The used car market experienced a slowdown, impacting companies like Carvana, leading Kavak to focus on improving customer experience and preserving cash.
Estimated daily vehicle sales in Mexico dropped from over 120 to 35-40, while the average price increased to over $310,000 pesos.
Customer complaints increased, affecting the Net Promoter Score (NPS) for vehicle buyers, with many reporting issues throughout the purchase and post-sales experience.
The depreciation of used cars and their need for maintenance presented significant challenges for Kavak.
Strategic measures taken
They reduced their number of showrooms, downsized their inventory, and optimized their workforce.
They focused on improving customer experience to address the challenges in the used car market.
Competitive advantages and long-term prospects
Their brand recognition and extensive inventory remain advantages.
Despite the difficulties, Kavak still holds a strong market position, but its ability to maintain motivation, fulfill financial obligations, and rebuild its reputation will determine its long-term success.
