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Architect Capital brings alternative capital to the early stage with new $100M fund
Early-stage startups are increasingly looking for alternative ways to access capital, meaning not every company wants to raise money from VCs or take on debt.
In recent years, a flurry of startups have emerged to give companies other options. (Think Pipe, for example.)
And today, San Francisco-based Architect Capital is a new firm that is launching with over $100 million in funds to serve as an “asset-based lender” to “high-growth,” early-stage tech companies. Specifically, the new firm aims to provide non-dilutive or less-dilutive financing options to asset-rich fintech, e-commerce and SaaS companies in the U.S. and Latin America, but with an emphasis on the latter. The region, Architect maintains, does not have a plethora of institutional financing available against assets.
The firm is not out to replace traditional venture capital or venture debt, emphasizes founder and CEO James Sagan, but rather to offer asset-based products that will complement them.
For some context, Sagan is no stranger to the startup world, having co-founded and served as managing partner of Arc Labs, an early-stage credit fund focused on lending to technology-enabled businesses. He’s been investing in Latin America for years, and recognized the need for new forms of financing to fund “novel and underappreciated assets.”
Also, he believes the region is home to “the most prominent fintech ecosystem in the world.”
To Sagan, traditional forms of equity and debt financing in the venture world are vital for things like growing headcount, but he believes they are “not engineered to support the growth of a company’s underlying financial products.”
“VC is highly dilutive and should be used for ROI activities such as hiring engineers and building great teams,” Sagan told TechCrunch. “It’s expensive to use equity to fund assets. Equity should not be put in a loan book. We’ll fund the loan book.”
Image Credits: Architect Capital founder James Sagan / Architect Capital
Architect’s goal is to provide “tailored and less dilutive funding,” especially to companies that produce repeatable revenues, such as SaaS and subscription businesses.
Sagan said he first discovered the strategy in 2015 when he was working for a multifamily office that was lending against a bunch of traditional assets.
“A colleague and good friend of mine started a business and raised some equity and venture debt, but he couldn’t find the asset-specific financing for the receivables he was generating,” Sagan recalls. “He was lending to small businesses and needed asset-specific financing against those receivables.”
Venture debt doesn’t really work for receivables-based lending because venture debt shops typically are underwriting assets, or rather, underwriting the quality of the investors in the company, Sagan believes.
“So we really tailor our underwriting towards those assets themselves right and those assets range from unsecured consumer receivables to secure small business receivables to real estate,” he told TechCrunch. “Essentially, we’re providing an additional instrument for asset-heavy businesses that will allow them to scale in a way that venture debt will not.”
Architect’s LPs are mostly large institutions, as opposed to traditional high net worth individuals. The firm’s average check size will land at around $10 million to $15 million.
“Our portfolio allocation is more concentrated in general,” Sagan said. “We expect to grow our AUM (assets under management) pretty precipitously.”
Architect Capital has invested in six companies since inception, including PayJoy, a company that delivers consumer financing and smartphone technology to customers in emerging markets; Forum Brands, a U.S.-based e-commerce marketplace aggregator; and ADDI, a fintech that aims to give Colombian consumers access to fair and affordable credit through point-of-sale-financing that recently raised $65 million.
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Meet Justos, the new Brazilian insurtech that just got backing from the CEOs of 7 unicorns
Here in the U.S. the concept of using a driver’s data to decide the cost of auto insurance premiums is not a new one.
But in markets like Brazil, the idea is still considered relatively novel. A new startup called Justos claims it will be the first Brazilian insurer to use drivers’ data to reward those who drive safely by offering “fairer” prices.
And now Justos has raised about $2.8 million in a seed round led by Kaszek, one of the largest and most active VC firms in Latin America. Big Bets also participated in the round, along with the CEOs of seven unicorns, including Assaf Wand, CEO and co-founder of Hippo Insurance; David Vélez, founder and CEO of Nubank; Carlos Garcia, founder and CEO of Kavak; Sergio Furio, founder and CEO of Creditas; Patrick Sigrist, founder of iFood and Fritz Lanman, CEO of ClassPass. (There’s a seventh CEO who wishes to remain anonymous). Senior executives from Robinhood, Stripe, Wise, Carta and Capital One also put money in the round.
Serial entrepreneurs Dhaval Chadha, Jorge Soto Moreno and Antonio Molins co-founded Justos, having most recently worked at various Silicon Valley-based companies including ClassPass, Netflix and Airbnb.
“While we have been friends for a while, it was a coincidence that all three of us were thinking about building something new in Latin America,” Chadha said. “We spent two months studying possible paths, talking to people and investors in the United States, Brazil and Mexico, until we came up with the idea of creating an insurance company that can modernize the sector, starting with auto insurance.”
Ultimately, the trio decided that the auto insurance market would be an ideal sector considering that in Brazil, an estimated more than 70% of cars are not insured.
The process to get insurance in the country, by any accounts, is a slow one. It takes up to 72 hours to receive initial coverage and two weeks to receive the final insurance policy. Insurers also take their time in resolving claims related to car damages and loss due to accidents, the entrepreneurs say. They also charge that pricing is often not fair or transparent.
Justos aims to improve the whole auto insurance process in Brazil by measuring the way people drive to help price their insurance policies. Similar to Root here in the U.S., Justos intends to collect users’ data through their mobile phones so that it can “more accurately and assertively price different types of risk.” This way, the startup claims it can offer plans that are up to 30% cheaper than traditional plans, and grant discounts each month, according to the driving patterns of the previous month of each customer.
“We measure how safely people drive using the sensors on their cell phones,” Chadha said. “This allows us to offer cheaper insurance to users who drive well, thereby reducing biases that are inherent in the pricing models used by traditional insurance companies.”
Justos also plans to use artificial intelligence and computerized vision to analyze and process claims more quickly and machine learning for image analysis and to create bots that help accelerate claims processing.
“We are building a design-driven, mobile first and customer experience that aims to revolutionize insurance in Brazil, similar to what Nubank did with banking,” Chadha told TechCrunch. “We will be eliminating any hidden fees, a lot of the small text and insurance-specific jargon that is very confusing for customers.”
Justos will offer its product directly to its customers as well as through distribution channels like banks and brokers.
“By going direct to consumer, we are able to acquire users cheaper than our competitors and give back the savings to our users in the form of cheaper prices,” Chadha said.
Customers will be able to buy insurance through Justos’ app, website or even WhatsApp. For now, the company is only adding potential customers to a waitlist but plans to begin selling policies later this year..
During the pandemic, the auto insurance sector in Brazil declined by 1%, according to Chadha, who believes that indicates “there is latent demand raring to go once things open up again.”
Justos has a social good component as well. Justos intends to cap its profits and give any leftover revenue back to nonprofit organizations.
The company also has an ambitious goal: to help make insurance become universally accessible around the world and the roads safer in general.
“People will face everyday risks with a greater sense of safety and adventure. Road accidents will reduce drastically as a result of incentives for safer driving, and the streets will be safer,” Chadha said. “People, rather than profits, will become the focus of the insurance industry.”
Justos plans to use its new capital to set up operations, such as forming partnerships with reinsurers and an insurance company for fronting, since it is starting as an MGA (managing general agent).
It’s also working on building out its products such as apps, its back end and internal operations tools, as well as designing all its processes for underwriting, claims and finance. Justos’ data science team is also building out its own pricing model.
The startup will be focused on Brazil, with plans to eventually expand within Latin America, then Iberia and Asia.
Kaszek’s Andy Young said his firm was impressed by the team’s previous experience and passion for what they’re building.
“It’s a huge space, ripe for innovation and this is the type of team that can take it to the next level,” Young told TechCrunch. “The team has taken an approach to building an insurance platform that blends being consumer-centric and data-driven to produce something that is not only cheaper and rewards safety but as the brand implies in Portuguese, is fairer.”
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Brazilian proptech startup QuintoAndar lands $300M at a $4B valuation
Fintech and proptech are two sectors that are seeing exploding growth in Latin America, as financial services and real estate are two categories in particular dire need of innovation in a region.
Brazil’s QuintoAndar, which has developed a real estate marketplace focused on rentals and sales, has seen impressive growth in recent years. Today, the São Paulo-based proptech has announced it has closed on $300 million in a Series E round of funding that values it at an impressive $4 billion.
The round is notable for a few reasons. For one, the valuation — high by any standards but especially for a LatAm company — represents an increase of four times from when QuintoAndar raised a $250 million Series D in September 2019.
It’s also noteworthy who is backing the company. Silicon Valley-based Ribbit Capital led its Series E financing, which also included participation from SoftBank’s LatAm-focused Innovation Fund, LTS, Maverik, Alta Park, an undisclosed U.S.-based asset manager fund with over $2 trillion in AUM, Kaszek Ventures, Dragoneer and Accel partner Kevin Efrusy.
Having backed the likes of Coinbase, Robinhood and CreditKarma, Ribbit Capital has historically focused on early-stage investments in the fintech space. Its bet on QuintoAndar represents clear faith in what the company is building, as well as its confidence in the startup’s plans to branch out from its current model into a one-stop real estate shop that also offers mortgage, title, insurance and escrow services.
The latest round brings QuintoAndar’s total raised since its 2013 inception to $635 million.
Ribbit Capital Partner Nick Huber said QuintoAndar has over the years built “a unique and trusted brand in Brazil” for those looking for a place to call home.
“Whether you are looking to buy or to rent, QuintoAndar can support customers through the entire transaction process: from browsing verified inventory to signing the final contracts,” Huber told TechCrunch. “The ability to serve customers’ needs through each phase of life and to do so from start to finish is a unique capability, both in Brazil and around the world.”
QuintoAndar describes itself as an “end-to-end solution for long-term rentals” that, among other things, connects potential tenants to landlords and vice versa. Last year, it expanded also into connecting a home buyers to sellers.
Image Credits: QuintoAndar
TechCrunch spoke with co-founder and CEO Gabriel Braga and he shared details around the growth that has attracted such a bevy of high-profile investors.
Like most other businesses around the world, QuintoAndar braced itself for the worst when the COVID-19 pandemic hit last year — especially considering one core piece of its business is to guarantee rents to the landlords on its platform.
“In the beginning, we were afraid of the implications of the crisis but we were able to honor our commitments,” Braga said. “In retrospect, the pandemic was a big test for our business model and it has validated the strength and defensibility of our business on the credit side and reinforced our value proposition to tenants and landlords. So after the initial scary moments, we actually felt even more confident in the business that we are building.”
QuintoAndar describes itself as “a distant market leader” with more than 100,000 rentals under management and about 10,000 new rentals per month. Its rental platform is live in 40 cities across Brazil, while its home-buying marketplace is live in four. Part of its plans with the new capital is to expand into new markets within Brazil, as well as in Latin America as a whole.
The startup claims that, in less than a year, QuintoAndar managed to aggregate the largest inventory among digital transactional platforms. It now offers more than 60,000 properties for sale across Sao Paulo, Rio de Janeiro, Belho Horizonte and Porto Alegre. To give greater context around the company’s growth of that side of its platform: In its first year of operation, QuintoAndar closed more than 1,000 transactions. It has now surpassed the mark of 8,000 transactions in annualized terms, growing between 50% and 100% quarter over quarter.
As for the rentals side of its business, Braga said QuintoAndar has more than 100,000 rentals under management and is closing about 10,000 new rentals per month. The company is not profitable as it’s focused on growth, although it’s unit economics are particularly favorable in certain markets such as Sao Paulo, which is financing some of its growth in other cities, according to Braga.
Now, the 2,000-person company is looking to begin its global expansion with plans to enter the Mexican market later this year. With that, Braga said QuintoAndar is looking to hire “top-tier” talent from all over.
“We want to invest a lot in our product and tech core,” he said. “So we’re trying to bring in more senior people from abroad, on a global basis.”
Some history
CEO Braga and CTO André Penha came up with the idea for QuintoAndar after receiving their MBAs at Stanford University. As many startups do, the company was founded out of Braga’s personal “nightmare” of an experience — in this case, of trying to rent an apartment in Sao Paulo.
The search process, he recalls, was difficult as there was not enough information available online and renters were forced to provide a guarantor, or co-signer, from the same city or pay rent insurance, which Braga described as “very expensive.”
“Overall, I felt it was a very inefficient and fragmented process with no transparency or tech,” Braga told me at the time of the company’s last raise. “There was all this friction and high cost involved, just real tangible problems to solve.”
The concept for QuintoAndar (which can be translated literally to “Fifth Floor” in Portuguese) was born.
“Little by little, we created a platform that consolidated supply and inventory in a uniform way,” Braga said.
The company took the search phase online for the first time, according to Braga. It also eliminated the need for tenants to provide a guarantor, thereby saving them money. On the other side, QuintoAndar also works to help protect the landlord with the guarantee that they will get their rent “on time every month,” Braga said.
It’s been interesting watching the company evolve and grow over time, just as it’s been fascinating seeing the region’s startup scene mature and shine in recent years.
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In the race for tech talent, the US should look to Mexico
The global tech sector is booming, and as technologies like cloud and AI accelerate their growth, the demand for tech talent outpaces supply globally. Specifically, the U.S. tech sector has seen unprecedented growth in recent years, with four tech firms reaching a $1 trillion market cap by the beginning of 2020 — all of which have seen double-digit growth since achieving a 13-digit valuation pre-pandemic.
One of the major factors in the growth and adoption of tech in the U.S. is the increasing focus on software as a service and broader digital transformations across industry sectors, which have accelerated due to the COVID-19 pandemic. As such, there is an insatiable appetite for quality tech talent in the U.S., with projections showing an 11% increase by 2029 from 2019 numbers, which amounts to over half a million new jobs.
Given that the U.S. produces only about 65,000 computer science graduates, there is a vast deficit in the tech talent market, which materialized as over 900,000 unfilled IT and related positions in 2019 alone. The problem is so vast that more than 80% of U.S. employers stated that recruiting for tech talent is a top business challenge, according to a survey by top HR consulting firm Robert Half.
Demand increasing for Mexican tech talent
Mexico’s tech talent can help to fill the gaps left in a hypercompetitive U.S. market for tech workers. Unlike the U.S., 20% of Mexican college graduates have relevant engineering degrees, amounting to over 110,000 per year, far surpassing the U.S. in technical talent. Investors and tech firms have noticed and are increasing operations in Mexico.
20% of Mexican college graduates have relevant engineering degrees, amounting to over 110,000 per year, far surpassing the U.S. in technical talent.
Some have referred to the cities of Monterrey and Guadalajara as the “Silicon Valley of Latin America,” and while their tech sectors are also seeing tremendous growth, the pace falls short of Mexico’s talent production, leading to a surplus of highly trained and capable individuals in the tech sector. The cost of higher education in Mexico is far less than in the U.S., so we’re likely to see that talent surplus grow in the coming years.
Under current conditions, the U.S. has an incredible opportunity to capitalize on the surplus of tech talent in Mexico. Because tech jobs are more scarce than in the U.S., the cost of talent in Mexico is considerably less than in the U.S. or in Canada. In general, talent in Mexico can be two to three times cheaper than in the U.S. while still delivering outstanding quality and specialized experience.
More so than other Latin American countries, Mexico has the experience and economy to support a robust tech talent export ecosystem. In fact, Mexico City’s concentrated market is larger than the sum total of every other Spanish-speaking country in Latin America. Specifically, Mexico’s IT outsourcing industry has been growing at an annual rate of 10%-15% and is now considered the third-largest exporter of IT services.
What’s more, the U.S./Mexico relationship is seeing a refresh after several tumultuous years. With Mexico ranked No. 1 among U.S. trade partners, the political and economic mechanisms for investments and partnerships are in place. Technology leaders such as Cisco and Intel have already set up shop in Mexico, demonstrating confidence in the country’s ability to support tech and economic growth.
The benefits of proximity
Mexico provides a number of benefits that make drawing from its talent surplus easier and more efficient. For one, Mexico’s time zones align with those in the U.S., enabling real-time collaboration at times that work best for both parties. Compare this to the time difference in India, which is over 12 hours ahead of California’s Silicon Valley.
Beyond the time difference, there are also many cultural similarities that make working with Mexico the clear choice for IT outsourcing. For example, the U.S. is home to more than 41 million native Spanish speakers, and plus over 12 million bilingual Spanish speakers, making the U.S. the second-largest Spanish-speaking country after Mexico. While difficult to quantify, the number of consumer and cultural exports from Mexico to the U.S. also helps to build familiarity and solidarity between the two countries, which can only improve an already healthy relationship.
New geopolitical considerations favor U.S.-Mexico ties
The steady progression of America’s tech sector is now seen as a strategic priority at the federal level. Meanwhile, public and private sector decision-makers are more interested than ever in conducting business under favorable trade treaty terms with friendly governments amid a new climate of geopolitical uncertainty.
As the U.S. tech sector continues its explosive growth, technology companies in the U.S. will need to seek alternative means to supplement its in-demand tech workforce. Rather than turning to countries undergoing increased regulatory scrutiny, or distant talent bases requiring significant business travel, business leaders are looking to geographically close, diplomatically friendly nations. U.S. companies are finding Mexico’s status as a key business partner and strategic ally to be a massive value driver.
By 2030, the middle-class population in Mexico is expected to reach 95 million, placing it in the top 10 countries with the highest share of global middle-class consumption. As the middle class rises, so will companies to meet their consumer needs, and, as such, Mexico’s own tech sector will grow and require significantly more tech talent, reducing or potentially eliminating Mexico’s talent surplus.
This is evidenced by the uptick in Mexico-based technology companies, such as Mexican used-car startup Kavak, which recently hit a $4 billion valuation. Amid an exciting backdrop of skyrocketing tech valuations and potential, the U.S. tech sector should look to Mexico as a key growth market and technology partner. The time is now for the U.S. to tap into the surplus of quality tech talent in Mexico.
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As concerns rise over forest carbon offsets, Pachama’s verified offset marketplace gets $15 million
Restoring and preserving the world’s forests has long been considered one of the easiest, lowest-cost and simplest ways to reduce the amount of greenhouse gases in the atmosphere.
It’s by far the most popular method for corporations looking to take an easy first step on the long road to decarbonizing or offsetting their industrial operations. But in recent months the efficacy, validity and reliability of a number of forest offsets have been called into question thanks to some blockbuster reporting from Bloomberg.
It’s against this uncertain backdrop that investors are coming in to shore up financing for Pachama, a company building a marketplace for forest carbon credits that it says is more transparent and verifiable thanks to its use of satellite imagery and machine learning technologies.
That pitch has brought in $15 million in new financing for the company, which co-founder and chief executive Diego Saez Gil said would be used for product development and the continued expansion of the company’s marketplace.
Launched only one year ago, Pachama has managed to land some impressive customers and backers. No less an authority on things environmental than Jeff Bezos (given how much of a negative impact Amazon operations have on the planet), gave the company a shoutout in his last letter to shareholders as Amazon’s outgoing chief executive. And the largest e-commerce company in Latin America, Mercado Libre, tapped the company to manage an $8 million offset project that’s part of a broader commitment to sustainability by the retailing giant.
Amazon’s Climate Pledge Fund is an investor in the latest round, which was led by Bill Gates’ investment firm Breakthrough Energy Ventures. Other investors included Lowercarbon Capital (the climate-focused fund from über-successful angel investor, Chris Sacca), former Uber executive Ryan Graves’ Saltwater, the MCJ Collective, and new backers like Tim O’Reilly’s OATV, Ram Fhiram, Joe Gebbia, Marcos Galperin, NBA All-star Manu Ginobili, James Beshara, Fabrice Grinda, Sahil Lavignia and Tomi Pierucci.
That’s not even the full list of the company’s backers. What’s made Pachama so successful, and given the company the ability to attract top talent from companies like Google, Facebook, SpaceX, Tesla, OpenAI, Microsoft, Impossible Foods and Orbital Insights, is the combination of its climate mission applied to the well-understood forest offset market, said Saez Gil.
“Restoring nature is one of the most important solutions to climate change. Forests, oceans and other ecosystems not only sequester enormous amounts of CO2 from the atmosphere, but they also provide critical habitat for biodiversity and are sources of livelihood for communities worldwide. We are building the technology stack required to be able to drive funding to the restoration and conservation of these ecosystems with integrity, transparency and efficiency” said Saez Gil. “We feel honored and excited to have the support of such an incredible group of investors who believe in our mission and are demonstrating their willingness to support our growth for the long term.”
Customers outside of Latin America are also clamoring for access to Pachama’s offset marketplace. Microsoft, Shopify and SoftBank are also among the company’s paying buyers.
It’s another reason that investors like Y Combinator, Social Capital, Tobi Lutke, Serena Williams, Aglaé Ventures (LVMH’s tech investment arm), Paul Graham, AirAngels, Global Founders, ThirdKind Ventures, Sweet Capital, Xplorer Capital, Scott Belsky, Tim Schumacher, Gustaf Alstromer, Facundo Garreton and Terrence Rohan were able to commit to backing the company’s nearly $24 million haul since its 2020 launch.
“Pachama is working on unlocking the full potential of nature to remove CO2 from the atmosphere,” said Carmichael Roberts from BEV, in a statement. “Their technology-based approach will have an enormous multiplier effect by using machine learning models for forest analysis to validate, monitor and measure impactful carbon neutrality initiatives. We are impressed by the progress that the team has made in a short period of time and look forward to working with them to scale their unique solution globally.”
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Brazil’s Loft adds $100M to its accounts, $700M to its valuation in a single month
Nearly exactly one month ago, digital real estate platform Loft announced it had closed on $425 million in Series D funding led by New York-based D1 Capital Partners. The round included participation from a mix of new and existing investors such as DST, Tiger Global, Andreessen Horowitz, Fifth Wall and QED, among many others.
At the time, Loft was valued at $2.2 billion, a huge jump from its being just near unicorn territory in January 2020. The round marked one of the largest ever for a Brazilian startup.
Now, today, São Paulo-based Loft has announced an extension to that round with the closing of $100 million in additional funding that values the company at $2.9 billion. This means that the 3-year-old startup has increased its valuation by $700 million in a matter of weeks.
Baillie Gifford led the Series D-2 round, which also included participation from Tarsadia, Flight Deck, Caffeinated and others. Individuals also put money in the extension, including the founders of Better (Zach Frenkel), GoPuff, Instacart, Kavak and Sweetgreen.
Loft has seen great success in its efforts to serve as a “one-stop shop” for Brazilians to help them manage the home buying and selling process.
Image Credits: Loft
In 2020, Loft saw the number of listings on its site increase “10 to 15 times,” according to co-founder and co-CEO Mate Pencz. Today, the company actively maintains more than 13,000 property listings in approximately 130 regions across São Paulo and Rio de Janeiro, partnering with more than 30,000 brokers. Not only are more people open to transacting digitally, more people are looking to buy versus rent in the country.
“We did more than 6x YoY growth with many thousands of transactions over the course of 2020,” Pencz told TechCrunch at the time of the company’s last raise. “We’re now growing into the many tens of thousands, and soon hundreds of thousands, of active listings.”
The decision to raise more capital so soon was due to a variety of factors. For one, Loft has received “overwhelming investor interest” even after “a very, very oversubscribed main round,” Pencz said.
“We have seen a continued acceleration in our market share growth, especially in São Paulo and Rio de Janeiro, the two markets we currently operate in,” he added. “We saw an opportunity to grow even faster with additional capital.”
Pencz also pointed out that Baillie Gifford has relatively large minimum check size requirements, which led to the extension being conducted at a higher price and increased the total round size “by quite a bit to be able to accommodate them.”
While the company was less forthcoming about its financials as of late, it told me last year that it had notched “over $150 million in annualized revenues in its first full year of operation” via more than 1,000 transactions.
The company’s revenues and GMV (gross merchandise value) “increased significantly” in 2020, according to Pencz, who declined to provide more specifics. He did say those figures are “multiples higher from where they were,” and that Loft has “a very clear horizon to profitability.”
Pencz and Florian Hagenbuch founded Loft in early 2018 and today serve as its co-CEOs. The aim of the platform, in the company’s words, is “bringing Latin American real estate into the e-commerce age by developing online alternatives to analogue legacy processes and leveraging data to create transparency in highly opaque markets.” The U.S. real estate tech company with the closest model to Loft’s is probably Zillow, according to Pencz.
In the United States, prospective buyers and sellers have the benefit of MLSs, which in the words of the National Association of Realtors, are private databases that are created, maintained and paid for by real estate professionals to help their clients buy and sell property. Loft itself spent years and many dollars in creating its own such databases for the Brazilian market. Besides helping people buy and sell homes, it offers services around insurance, renovations and rentals.
In 2020, Loft also entered the mortgage business by acquiring one of the largest mortgage brokerage businesses in Brazil. The startup now ranks among the top-three mortgage originators in the country, according to Pencz. When it comes to helping people apply for mortgages, he likened Loft to U.S.-based Better.com.
This latest financing brings Loft’s total funding raised to an impressive $800 million. Other backers include Brazil’s Canary and a group of high-profile angel investors such as Max Levchin of Affirm and PayPal, Palantir co-founder Joe Lonsdale, Instagram co-founder Mike Krieger and David Vélez, CEO and founder of Brazilian fintech Nubank. In addition, Loft has also raised more than $100 million in debt financing through a series of publicly listed real estate funds.
Loft plans to use its new capital in part to expand across Brazil and eventually in Latin America and beyond. The company is also planning to explore more M&A opportunities.
This article was updated post-publication to reflect accurate investor information.
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Andela begins global expansion in 37 countries months after going remote across Africa
More than a year after the pandemic began, remote work shows no signs of going away. While it has its cons, it remains top of mind for potential employees around the world before joining a new company.
But while most people in Africa still go to physical offices despite the pandemic, a few companies have nevertheless embraced this concept. Andela, a New York-based startup that helps tech companies build remote engineering teams from Africa, was one of the first to publicly announce it was going remote on the continent.
Today, it is doubling down on this effort by announcing the global expansion of its engineering talent. Over the past six months, the company has seen a 750% increase in applicants outside Africa. More than 30% of Andela’s inbound engineer applications also came from outside the continent in March alone. Half this number came from Latin America while Africa saw a 500% increase in applications as well.
When Andela launched in 2014, it built hubs in Nigeria, Kenya, Rwanda and Uganda to source, vet and train engineers to be part of remote teams for international companies. It also tested satellite models in Egypt and Ghana as substitutes to physical hubs.
The company would issue a call for applications, select a few (less than 1%), pay them a salary for the first six months and provide them with housing and food. It also helped developers improve their skills via training and mentorship. Over 100,000 engineers have taken part in the company’s learning network and community, and, as of 2019, Andela had more than 1,500 engineers on its payroll.
However, after noticing that this model wasn’t sustainable, it began to make changes.
In September 2019, it let go of 420 junior engineers across Kenya, Uganda and Nigeria. Nine months later, citing the pandemic, it laid off 135 employees while introducing salary cuts for senior staff. But despite the layoffs, the pandemic provided some form of clarity to how Andela wanted to operate — which was remote, judging by the success of the satellite models.
“In the very beginning, a developer had to be in Lagos to work with Andela. Then it became living in Nigeria. Then Kenya. Then Uganda, Rwanda,” CEO Jeremy Johnson told TechCrunch. “Before the pandemic, Andela was opening applications in country after country. The pandemic came and changed that as we opened up to the entire continent.”
Shutting down its existing physical campuses and going remote also helped the company focus on getting engineers with more experience to meet its clients’ requirements. That experiment, which the company conducted in less than a year, is also part of its mission to be a global company.
“That went so well and we thought ‘what if we accelerated it now that we’re remote and just enable applicants from anywhere?’ because it was always the plan to become a global company. That was clear, but the timing was the question. We did that and it’s been an amazing experiment,” Johnson added.
Now with its global expansion, its clients can tap into regional expertise to support international growth.
According to a statement released by the firm, it currently has engineers from 37 countries across Africa, Asia, Latin America, North America and Europe.
Johnson didn’t go into details about how many of these engineers are getting jobs from Andela or even its total developer count. He’s more interested in helping its clients solve the diversity issues that have plagued many Western corporations.
Andela is currently working with eight companies that have hired its engineers in Latin America and Africa. In addition to the diversity play, the CEO says that means Andela engineers get to prove themselves on a global playing field in a way the company has “always wanted to see.”
Andela serves more than 200 customers, including GitHub, ViacomCBS, Pluralsight, Seismic, Cloudflare, Coursera and InVision. GitHub is one company that seems to be benefitting from Andela’s new offerings. The company’s VP of Engineering, Dana Lawson, in a statement said, “As a business in the developer tool space, a lot of us are trying to enter those areas of the world (Southeast Asia, Latin America and Africa) where the emergent developers are coming so we can better understand their needs. Having a local presence there with amazing talent is super valuable to building a global product.”
Image Credits: Andela
In its quest to become a global company, going up against competition is unavoidable for the seven-year-old company. But since most of these companies are horizontal marketplaces (providing a wide range of expertise), whereas Andela is vertical, Johnson believes there’s enough market share to be acquired by the company.
“We are focused on building digital products, and because of that, we’re able to do more, essentially, for our customers… That’s where our focus is — [building long-term relationships] and around building great digital products,” the CEO said.
The company was founded by Jeremy Johnson, Christina Sass, Nadayar Enegesi, Ian Carnevale, Brice Nkengsa and Iyinoluwa Aboyeji. It has raised more than $180 million (up to Series D) from firms like Chan Zuckerberg Initiative, Generation Investment Management, Google Ventures and Spark Capital, at a valuation of about $700 million.
While announcing the layoffs last year, Andela said it was on an annual revenue run rate of $50 million. But when asked how this number has changed over the past year, Johnson said the company is “growing at a healthier pace as we’ve ever had.”
The future of remote work is global and Johnson believes Andela provides the vital link to talent wherever it is found. The company’s head of talent operations, Martin Chikilian, echoed similar sentiments regarding the expansion.
“We’ve seen exponential growth and interest from engineers from across Africa who want to work with some of the world’s most exciting technology-focused companies,” he said. “Growing our network of talent from Africa to include more markets is a unique proposition and we continue to match talent with opportunity beyond geographical boundaries.”
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Mexican unicorn Kavak raises a $485M Series D at a $4B valuation
Kavak, the Mexican startup that’s disrupted the used car market in Mexico and Argentina, today announced its Series D of $485 million, which now values the company at $4 billion. This round more than triples their previous valuation of $1.15 billion, which established them as a unicorn just a couple of months ago in October of 2020. Kavak is now one of the top five highest-valued startups in Latin America.
The round was led by D1 Capital Partners, Founders Fund, Ribbit and BOND, and brings Kavak’s total capital raised to date to more than $900 million. Kavak recently soft-launched in Brazil, and this new round of funding will be used to build out the Brazilian market and beyond, said Carlos García Ottati, Kavak’s CEO and co-founder. The company plans to do a full launch in Brazil in the next 60 days, García said, and we can expect to see Kavak in markets outside Latin America in the next 24 months, he added.
“We were built to solve emerging market problems,” García said.
Kavak, which was founded in 2016, is an online marketplace that aims to bring transparency, security and access to financing to the used car market. The company also offers its own financing through its fintech arm, Kavak Capital, and counts more than 2,500 employees and 20 logistics and reconditioning hubs in Mexico and Argentina.
“In Latin America, 90% of the [used car] transactions are informal, which leads to a 40% fraud rate,” said García, who experienced these challenges firsthand when he moved to Mexico from Colombia a couple of years ago and bought a used car.
“My budget allowed me to buy a used car, but there was no infrastructure around it. It took me six months to buy the car, and then the car had legal and mechanical issues and I lost most of my money,” he said. Kavak buys cars from individuals, refurbishes them and offers warranties to buyers.
“Instead of buying a new car, they can buy a better car that still has all the warranties. It’s a really aspirational process,” said García. The company, which really amounts to four companies in one given its areas of focus, was built to be comprehensive by design in order to meet the various gaps in the market, García said.
“When you’re building a business here [Latin America], you need to build several businesses because so many things are broken,” he said. That’s why the financing option, for example, has been a key to their success, according to García.
Financing has traditionally been hard to come by in Brazil, and as García said, the used car market lacks infrastructure there, too. That being said, Brazil is Latin America’s fintech hub, and the space has made leaps and bounds over the last 7-10 years with companies such as Nubank, PagSeguro, Creditas, PicPay, and others leading the way. As a result, credit cards and loans are more widely available today in the region, offering competition for Kavak Capital. While Kavak has localized some of its product for the Brazilian market — namely building out a Portuguese language version of the app and website — García said the markets are very similar.
“In Brazil, you still have the same problems that you have in Mexico, but Brazil is a little more developed, especially in fintech, which is light years ahead of Mexico,” he said.
With the Brazilian product heading to the races, García said they already have plans for other regions, though he declined to name them.
“80% of people in emerging markets don’t have access to a car,” García said of the global market size. “We want to go into big markets where customers are facing similar problems and where Kavak can really change their lives,” he added.
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Ribbit Capital leads $26.7M round for Brazilian fintech Cora
Cora, a São Paulo-based technology-enabled lender to small and-medium-sized businesses, has raised $26.7 million in a Series A round led by Silicon Valley VC firm Ribbit Capital.
Kaszek Ventures, QED Investors and Greenoaks Capital also participated in the financing, which brings the startup’s total raised to $36.7 million since its 2019 inception. Kaszek led Cora’s $10 million seed round (believed at that time to be one of the largest seed investments in LatAm) in December 2019, with Ribbit then following.
Last year, Cora got its license approved from the Central Bank of Brazil, making it a 403 bank. The fintech then launched its product in October 2020 and has since grown to have about 60,000 customers and 110 employees.
Cora offers a variety of solutions, ranging from a digital checking account, Visa debit card and management tools such as an invoice manager and cashflow dashboard. With the checking account, customers have the ability to send and receive money, as well as pay bills, digitally.
This isn’t the first venture for Cora co-founders Igor Senra and Leo Mendes. The pair had worked together before — founding their first online payments company, MOIP, in 2005. That company sold to Germany’s WireCard in 2016 (with a 3 million-strong customer base), and after three years the founders were able to strike out again.
Cora co-founders Leo Mendes and Igor Senra; Image courtesy of Cora
With Cora, the pair’s long-term goal is to “provide everything that a SMB will need in a bank.”
Looking ahead, the pair has the ambitious goal of being “the fastest growing neobank focused on SMBs in the world.” It plans to use the new capital to add new features and improve existing ones; on operations; and launching a portfolio of credit products.
In particular, Cora wants to go even deeper in certain segments, such as B2B professional services such as law and accounting firms, real estate brokerages and education.
Ribbit Capital partner Nikolay Kostov believes that Cora has embarked on “an ambitious mission” to change how small businesses in Brazil are able to access and experience banking.
“While the consumer banking experience has undergone a massive transformation thanks to new digital experiences over the last decade, this is, sadly, still not the case on the small business side,” he said.
For example, Kostov points out, opening a traditional small business bank account in Brazil takes weeks, “reels of paper, and often comes with low limits, poor service and antiquated digital interfaces.”
Meanwhile, the number of new small businesses in the country continues to grow.
“The combination of these factors makes Brazil an especially attractive market for Cora to launch in and disrupt,” Kostov told TechCrunch. “The Cora founding team is uniquely qualified and deeply attuned to the challenges of small businesses in the country, having spent their entire careers building digital products to serve their needs.”
Since Ribbit’s start in 2012, he added, LatAm has been a core focus geography for the firm “given the magnitude of challenges, and opportunities in the region to reinvent financial services and serve customers better.”
Ribbit has invested in 15 companies in the region and continues to look for more to back.
“We fully expect that several fintech companies born in the region will become global champions that serve to inspire other entrepreneurs across the globe,” Kostov said.
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FinanZero, Brazil’s free online credit marketplace, raises $7M
FinanZero, a Brazilian online credit marketplace, announced today that it has closed a $7 million round of funding — its fourth since it launched in 2016. It has raised a total of $22.85 million to date.
The real-time online loan broker allows people to apply for a personal loan, a car equity loan or a home equity loan for free and receive an answer in minutes. A key to FinanZero’s success is that it doesn’t offer the loans itself, but has instead partnered with about 51 banks and fintechs who back the loans.
FinanZero is based in Brazil’s financial capital, São Paulo, and has 52 employees.
“From day one we said, ‘We only work with a success fee,’ so we only get paid when the customer signs the loan contract,” said Olle Widen, the company’s co-founder and CEO.
Instead of charging the customer, FinanZero gets a commission from one of its partners, and with a growing volume of credit applications — an average of 750,000 applications per month — the company has seen 61% revenue growth from 2019-2020.
Olle Widen, co-founder and CEO of FinanZero. Image Credits: FinanZero
The Brazilian finance and banking market has been ripe for disruption, as it has traditionally favored the rich.
Those with low incomes — the vast majority of Brazilian citizens — are then left with few options when it comes to financing, and which in turn forces them into compounding debt from which they’ll likely never escape. Traditionally, young Brazilians have lived with their families until they got married, and while there is a cultural aspect to it, the bottom line is that mortgages were infinitely hard to get approved.
With products like FinanZero and Nubank — Latin America’s largest digital bank — Brazilians are starting to see more economic mobility and independence from the legacy institutions that dictated their lives for so long.
Widen, who is Swedish, moved to Brazil about 10 years ago for personal reasons, and while there, was pitched the idea of FinanZero by Webrock Ventures, an investment company focused on bringing Nordic innovation to Brazil.
At the time, Swedish startup Lendo — a precursor to FinanZero — was making waves in Sweden, and the team felt that a similar model would succeed in Brazil, a country known for its bureaucracy and red tape, and thus primed for a streamlined and hassle-free approach to loans.
The original idea was to just copy Lendo, Widen said, but as others have discovered, along the way the team needed to “tropicalize” the product and the experience, meaning they had to build a custom solution for the Brazilian market and its people.
“The founder of Lendo was a childhood friend of mine,” said Widen, of his close ties to the Swedish fintech.
To apply for a loan on FinanZero you don’t need to provide your credit score. Instead, all you need is a utility bill (proof of address), proof of income and your government ID. The process is so simple, Widen said, that 92% of loan applications are initiated from a smartphone.
“Our business model is very based on the bank’s risk appetite and we saw 60% growth from 2019-2020. We are close to 3 million visits per month, about 1.5 are unique and in March of 2021, we had 800,000 people fill out the entire loan form. We have about a 10% approval rating across all products,” Widen said.
The round was led by the Swedish investors VEF, Dunross & Co, and Atlant Fonder, which are all previous investors in the company. The funding will go toward marketing — most of which will be on T.V. — product development, and talent acquisition.
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