EconomyFinancialThese are the ingredients (and challenges) to become a...

These are the ingredients (and challenges) to become a unicorn

The digital transformation has allowed the creation of companies with more impact, larger and with a more global vision, it is no coincidence that having technology as the guiding axis, there are more and more unicorns in Latin America , a region that for a long time stayed out of this wave. During the ‘Unicorn’ panel of the 2021 Summit of the Association of Entrepreneurs of Mexico (Asem), the founders of Clip, Kavak, Cornershop and Bitso shared the factors that led them to be unicorns.

“We are living a time in the world in which 290 unicorns have been added in the last year alone, bringing to 900 globally and having a combined value of more than 3 trillion dollars,” said Silvina Moschini, CEO of She Works, executive producer of Unicorn Hunters and who was moderator of the panel.

The panelists pointed out that although there is no single recipe to be a unicorn, and it is not an easy path, conditions in the region make it increasingly easy for companies to have the support to achieve exponential growth.

The recipe to be a unicorn

“All companies are different, there is no one way. It worked for us to be stubborn in what we did, combined with a little luck, ”shared Pablo González, co-founder and Chief Design Officer of Bitso, who added that unicorns are created by people, by the people they surround themselves with. entrepreneurs, who join their vision and help them reach their goals. And in the end, “the founder represents the company, but the team is essential,” agreed Moschini.

In addition to the people, and the culture within the company, Loreanne García, co-founder and Chief People Officer of Kavak, pointed out that for Kavak the conception of the market they were targeting was key. “We saw that the car market was huge. If you go to a large market, it gives you an important field to grow ”. On the contrary, if a startup focuses on a small market, the size and scalability of the business will be small.

In addition to size, the market that Kavak was targeting was fragmented, that is, it had many players, where “no competitor had more than 1%, so we could grow 100% focused on our customers without having to look sideways.”

The founder of the firm also indicated that part of the ingredients for its success was that they did not focus on their product, but on the problem they solved with it, “we were obsessed with how do we get the customer to have an incredible experience in the process of buying and selling cars? And what do we have to do more to improve it ”. This is how Kavak ventured into auto financing and shop fittings.

And as a last point to highlight, García assures that from the beginning they always thought big and prepared everything around the operations thinking that the company was going to be big. “You are preparing yourself for that scalability and with that preparation you put technology, you put processes and you make sure you are investing in the right things,” said Loreanne García.

Even so, a company can have all these ingredients and not be a unicorn, and financing is essential, although in the region it is an obstacle that is increasingly easy to overcome.

“Today funds have arrived that come with billions of dollars just for Latin America. Raising capital has become easier, the funds are now bigger, and that allows you to scale and see what is happening: bigger and bigger rounds ”, commented Daniel Undurraga, co-founder and CEO of Cornershop.

The challenges of becoming a unicorn

10 years ago, raising capital in the region was a more than titanic mission. Adolfo Babatz, Clip’s co-founder and CEO, said that “at that time the rounds in Latin America, and especially in Mexico, were not very favorable, there were many funds ‘leoninos’ who put ridiculous conditions on you ”.

The fact that there is more capital available does not necessarily mean that they give it to all companies, and it is not easy even for those companies that achieved a first round of investment. The entrepreneurs agreed with Moschini, who assured that in the middle investment rounds it is where it is most difficult to convince investors “that is where the valley of death is, where most companies fall by the wayside. Later, when things go well, everyone gets on the horse of success ”.

Regulatory issues are another of the great stones in the way of a company with growth potential, and more so if it is a disruptive business, which also puts the big players who in a certain way control the market in trouble.

“Regulation is the excuse traditional financial players have relied on to justify the lack of financial inclusion,” said Adolfo Babatz, who indicated that the problem is not regulation, but its application and speed.

An important part of unlocking this issue is the education work for regulators, who know the business models and technological innovations. “For us, regulation has always been a strategic part for this to develop in a good way and for the benefits to be seen. But at the same time, regulation is a double-edged sword, because it has also slowed us down to launch new products, or to add value to the user, ”says González de Bitso.

In addition, being a company growing at exponential rates, the money to maintain the operation is vital, and regulations can become a hindrance. “To be able to survive that you need a lot of capital, you are in limbo and you need money to support yourself,” Babatz said.

Although regulations change from country to country, when talking about Latin American unicorns, companies that operate in different nations of the region are addressed, which also have similar markets, therefore, Undurraga of Cornershop, indicated that it is important that in Latin America the countries work to have uniform criteria and that the economic competition law is more agile and moves towards European standards, where a procedure can last 12 days, in contrast to the 18 months that the evaluation and resolution process of the Uber-Cornershop merger implied in Mexico. “Regulators must help these companies exist, persist and grow,” he said.

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