He already knew the speech for potential investors by heart. Any company that has between ten and 200 employees, especially in Latin American countries, has a large part of its people management on paper or in an Excel table, began Bernat Farrero, co-founder of the human resources software startup Factorial.
This does not allow them to be competitive compared to large companies that have their own management methodologies and digitization tools, continued the entrepreneur, before presenting how the startup, which he created with his partners Pau and Jordi, could help small businesses Digitize your HR processes.
“But we don’t think you can win this battle,” they replied. Others claimed that SMEs are going to digitalize, just not at the pace that Factorial expected. “Nor was there much belief in investing in Latin America,” says Bernat.
However, the initial key to its success was in a digital calendar. Through this tool -but designed with Factorial software-, small companies could manage their employees’ vacations and optimize time control.
More than 60,000 SMEs used it for free for two years, since the idea of the entrepreneurs was to monetize through value-added companies. However, the losses caused them to start charging for the calendar. Today, Bernat knows that it was for the best.
“When we suddenly started charging for the product, billing took a huge leap and we went from being a company with losses to making money,” he recalls. Later, the conversation with potential investors turned to the use of the calendar and its acceptance among SMEs.
“Now imagine this same logic in the different areas of a person’s management: contracts, performance, selection, training…”, Bernat told them. And that is how its first round of investment arrived in 2019, for 3 million euros, led by the Swedish fund Creandum. Since then, his growth has not stopped.
From 2020 to 2021, the company’s annual increase was 200% and it expanded its workforce by more than 400%. The second round was a Series A of 15 million euros, which was in charge of Venture Capital CRV, one of the oldest and most respected in Silicon Valley, with more than 75 IPOs. And the third capital raising was in a Series B round for $80 million, led by the US investment fund Tiger Global.
Currently, the startup has a presence in 40 countries, including Spain, Portugal, Italy, France, Germany, England, Brazil, Mexico, the United States and those of Latin America. “Today’s situation has nothing to do with the beginning. We called all the funds and explained our vision to them, but nobody knew who we were. Now they call us or look for us on LinkedIn because they want to invest in Factorial”.
For Bernat, business plans are useless, but planning is essential because otherwise you end up improvising and there is no clarity as to where you are going. Making a business plan is rationalizing, he says. It is knowing what the end of the film is, why you do what you do, where you are going and what are the necessary resources to make it happen.
“The goal should not be to become a unicorn. That doesn’t really speak to the value you generate to the world, but to how investors value your company. Today, we could be a unicorn because we have investors who are interested in investing, but we are not at a time when we are looking for financing,” he says.
First things first: a business plan
Gerry Giacomán was born in Monterrey, Nuevo León, but moved to San Francisco to study for an MBA at the Stanford Business School. At that time, he served as VP of Revenue at Grow Mobility, leading the Growth area. However, he noticed that the company was having trouble managing its business expenses.
So with the knowledge acquired in the master’s degree and a growing taste for entrepreneurship, Giacomán -together with Diego García- created Clara, a startup that allows companies to have better control of their finances, through a platform that includes corporate credit cards, a system of expenses, in addition to a product of payments and transfers.
The first thing, he mentions, was to make a business plan that reflected the vision of the startup and its value. “The key is to build the product very close to the client and do an exercise in imagination, how this world can be different and write it down in a business plan that has a narrative component, history and resources, a financial plan, how much is it going to cost, what do I need for this to happen and how much is it going to generate in revenue . A business plan is important because to have an impact at scale and for a long time it needs to be a sustainable business”, he mentions.
The Mexican entrepreneur remembers that when talking to investors he told them that there was a great opportunity in Mexico and Latin America. They didn’t believe it, at least most of them didn’t. “That is something that has been changing and we had to see how we have been the first investment in Latin America for several funds, since the doubts that global investors have about the region are being removed,” he says.
What investors most questioned was whether Clara had the necessary and capable team and whether the product they offered responded to market demands, already with proven use.
The advantage, Giacomán points out, is that Clara emerged in 2020 before the pandemic. The acceleration of digitization that followed meant a boost for the startup. In March 2021, they raised their first round of $3.5 million, led by General Catalyst, the fund behind the likes of Stripe, Airbnb and Gusto.
Other funds such as Picus Capital, Canary Ventures, SV Angel, GFC, SOMA Capital, Liquid2, Adapt Ventures, as well as entrepreneurs and angel investors also participated in the round: Courtney McColgan from Runa, Nicky Goulimis from Nova Credit, James Sagan from Architect Capital, Casai’s Nico Barawid, VivaReal’s Brian Requarth, Tinder’s Justin Mateen, and Ramp’s Karim Atiyeh/Eric Glyman, among others.
That same year, they obtained the Series A round for $30 million, this time led by Tom Stafford of DST Global Partners, with the participation of monashees, Kaszek Ventures, Avid Ventures and the current investors of General Catalyst. In July, they received an additional $5 million in funding, backed by angel investors and unicorn founders like Rappi, Jüsto, Bitso, and Kushki.
And last December, Clara completed a Series B round, for 70 million dollars, in charge of the technology firm Coatue. Today, the startup, headquartered in Mexico with operations in Brazil, is already considered a unicorn company (generating a value of $1 billion during its go-to-market stage). Its current focus is to expand to more countries in Latin America and currently has more than 200 collaborators of different nationalities.
“The recommendation is not to have the goal of becoming a unicorn as such, but to have a vision of building an important company that solves problems. Be enthralled by those problems as well as their solutions. Around that, you have to create the company.”
No shops or car dealers
The first meeting took place in early 2017. Carlos García Ottati and a group of investors from Kaszek Venture – Nico Berman among them – met for breakfast at the restaurant of the Hotel W, in northwestern Mexico City.
The entrepreneur arrived with a PowerPoint presentation and began to explain the business model of Kavak, a startup that allows users to buy or sell a car easily and safely, from their phone or computer. There were no points of sale or vendors involved, just a platform that was launched in October 2016.
Investors asked questions of all kinds, from the calculation of the value of Nico Berman’s car, to questions about the Mexican macroeconomics and the automotive sector in general. “Every penalty that he threw at him, he saved it. He knew the industry numbers, the technology, how the market operated,” Berman recalls. “There was an immediate click. Kavak offered a business model that delivered value to the consumer and a team that had the passion necessary to achieve the ambitious plan”.
In Mexico, before 2017, an entrepreneur did not raise more than 20 million dollars in venture capital, but instead had to seek investors outside the country to raise capital rounds greater than this amount. The García Ottati brothers and Roger Laughlin did it.
Of every 1,000 companies Kaszek Venture reviews, it only invests in eight. Even before Kavak, the fund saw some startups also looking to enter the used car segment, but none convinced them.
“In some cases we felt that the business model did not deliver as much value to the consumer and we like to invest in companies that really do. In other cases, we got the impression that the team didn’t have what it took – experience and passion – to be able to succeed in such a complex business,” explains Berman.
But Kavak was different. The same year of its foundation, it had already closed an investment round for 3.3 million dollars, in charge of the Latin American fund Mountain Nazca. With this capital, the founders focused on strengthening their management team, expanding the catalog of vehicles for sale, and creating a technology center.
Leadership skills and team decision making; the size and fragmentation of the market, where the most dominant player owns around 1% of the sector, and the business model were the three elements that motivated Mountain Nazca to invest in the company.
Mountain Nazca maintained its capital in Kavak for five years, until its stake in the company was acquired by General Atlantic and the Japanese bank SoftBank, which allocated part of its exclusive fund for Latin America of 5,000 million dollars to the firm.
With this divestment and that of Creze – a FinTech that offers loans to SMEs – Mountain Nazca became the first fund in Mexico to return 100% of its allocated capital, preferred capital and additional returns to investors. This collapses the belief that investing in venture capital only generates losses.
By 2020, Kavak became the first Mexican unicorn, after reaching a valuation of more than $1.15 billion.
With information from Ivet Rodríguez.
