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Kavak: Driving Emerging Markets Forward

  • September 22, 2021
  • by Adam Valkin, Kevin King, and Johnson Yang

We have a strong view at General Catalyst that the used car market is in the early innings of moving online. Online transactions still represent less than 2% of volume despite being one of the largest consumer categories. However, digital penetration is increasing quickly as a number of fast growing managed marketplace businesses are being built globally to provide a high quality and trusted customer experience, more fair transparent pricing, greater access to financial products, and an easy way to trade in. General Catalyst has previously invested in a number of these pioneers including  Vroom (US), Cazoo (UK/Europe), and Spinny (India)(1)

 

Introducing Kavak

In 2013, Kavak CEO / Founder Carlos Garcia was moving from Colombia to Mexico and needed to sell his car. His experience with the process was so nightmarish that he jotted down everything that went wrong on an airplane napkin on the way to Mexico, and from there the idea for Kavak was born. At first, he kept his day job, but at night he would continue to refine and re-iterate on a solution to solve the complexities of pre-owned car transactions in a market that lacked trust, accountability and consistency. Eventually in 2016, he convinced his close friend Roger Laughlin and sister Loreanne Garcia to drop everything and join him in launching Kavak.

 

Since then, Kavak has taken Mexico by storm and is quickly becoming the easiest and most trusted way to buy and sell pre-owned cars in Latin America, solving the foundational challenges of Trust and Financial Access endemic to large ticket retail purchases in the region.

 

Enabling Trust 

In emerging markets like LatAm, the majority of pre-owned cars sales are done informally or via peer-to-peer. No infrastructure exists to create transparency in vehicle condition or market pricing (i.e. CarFax or Kelley Blue Book in the US) and the wholesale channel (to support efficient vehicle sourcing) is also underdeveloped. As a result, as Carlos experienced first hand, fraud rates are materially higher (we estimate ~25%) and a trusted online managed marketplace offering is more than just a convenience, it’s almost a necessity. By vertically integrating the entire car journey (Procurement -> Inbound Logistics -> Refurbishment -> Outbound Logistics -> Sale and After Sale) and building proprietary data-driven technology to automate and scale these complex functions, Kavak ensures every aspect of the journey is conducted with the utmost attention-to-detail, quality control, and integrity to maximize the end user experience.

 

Democratizing Access

Beyond lacking ecosystem infrastructure to solve issues around consumer trust, access to financial services is another core challenge prospective car owners in emerging markets face. Existing financial services are often underdeveloped, requiring prohibitively large down payments, servicing only the wealthy, and having cumbersome application processes filled with tedious paperwork and phone calls. This results in extremely low loan approval rates (only ~5% of Pre-Owned Cars are financed in Mexico vs. ~70% in the US), holding back car ownership, economic mobility, and ultimately quality of life. Recognizing the gap in the financial services market for the middle class, Kavak has proactively worked with strategic partners to create innovative, proprietary financial products that meet the needs of their customers and usher in a new generation of car ownership that otherwise wouldn’t be possible.

 

Our Partnership with Kavak

All-in-all, Kavak has built a trusted brand, a digitally-native consumer experience, tech-driven operational excellence, inclusive financial products, and more… effectively becoming the end-to-end infrastructure for transacting pre-owned Cars in Emerging Markets. Today, we’re thrilled to announce our partnership with Carlos and his world-class team by leading their Series E fundraise alongside top-tier global investors in Tiger Global, D1 Capital, Founders Fund, Ribbit, Greenoaks, Bond, and others.

 

We are truly honored to join Team Kavak on their mission to democratize car ownership in Emerging Markets throughout LatAm and beyond. Thanks again Carlos and team for having us and welcome to the GC family.

 

(1)  Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by General Catalyst and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. Investment objectives and results may vary substantially over time. An investment in a General Catalyst-managed pooled investment vehicle is not intended to be a complete investment program for any investor. A list of investments made by funds managed by General Catalyst is available here. Excluded from this list are investments for which the issuer has not provided permission for General Catalyst to disclose publicly. Past results of General Catalyst’s investments, pooled investment vehicles, or investment strategies are not indicative of future results.

 

Views expressed in “posts” (including podcasts, videos, and other social media) are those of the individual General Catalyst personnel—whether quoted in, contributor to, or author of such posts—and are not the views of General Catalyst Group Management LLC (“General Catalyst”) or its respective affiliates. General Catalyst is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration as an investment adviser does not imply any special skill or training. The posts are not directed to any investors or potential investors, and do not constitute an offer to sell — or a solicitation of an offer to buy — any securities, and may not be used or relied upon in evaluating the merits of any investment.

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