Grow, grow, grow!
Kavak emerged in 2016 as an alternative to buy or sell a used car. Carlos García Otatti had been maturing the idea –along with his partner Roger Laughlin and his sister Loreanne García Otatti–, after being scammed when trying to buy a pre-owned car in Mexico. The entire business model revolved around developing a platform where customers could easily and securely buy or sell a car from their phone or computer. Without physical points of sale and without sellers.
Kavak started with a small inventory of three cars in a rented parking lot in the Roma neighborhood, in Mexico City. The three partners were clear that they needed investors to scale the business and, between 2016 and 2020, they raised close to 400 million dollars, in three investment rounds, led by funds such as Kaszek Venture, Mountain Nazca and Softbank. This allowed Kavak to reach a $1 billion valuation and become a the first mexican unicorn at the end of 2020.
In April 2021, the three founders raised another $485 million, bringing Kavak to a $4 billion valuation, and five months later – amid a furor from private investors to take advantage of low interest rates to invest in equity -, raised another 700 million in its Series E, led by the American venture capital firm General Catalyst, with which it doubled its valuation and became the second most valuable unicorn in Latin America, after the Brazilian fintech Nubank.
This allowed him to quickly scale the business: in less than six years, the platform, which in 2016 started with five people, without an office and with an inventory of three cars, went on to have operations in Mexico, Argentina, Brazil, Chile, Colombia , Peru, Turkey, the United Arab Emirates, Oman and Saudi Arabia, and a workforce of more than 8,500 employees globally. In Mexico, Kavak also opened a large vehicle recognition center in Lerma, State of Mexico, and contact points in six states, where it has an inventory of more than 6,000 units distributed, according to information on its website.
Kavak belongs to an ecosystem that rewards accelerated growth, more than profitability. The very definition of a unicorn company recognizes this ability that very few technology companies have to reach a valuation of 1,000 million dollars in less than 10 years of its creation.
“Unicorn companies are explained by the type of capital behind them, venture capital, which has the mandate to grow and grow and grow. Everything that is done to raise the valuation in the shortest possible time is applauded by investors”, says Luis Antonio Paredes, director of Ipade’s Entrepreneurial Initiative Research Center.
But this, he warns, also creates challenges for companies. “Maintaining control in something that grows 10 times a month is difficult. You can very easily lose control of the structure because you can’t be in so many things at the same time. There are unicorns that focus so much on increasing their valuation that they lose focus in the business model and profitability”.
Vincent Speranza, general director of Endeavor Mexico, agrees with Paredes that there is a risk in accelerated growth. “Having 20 people in the office is not the same as having 200 or more, spread over three countries. Nor is selling three cars the same as selling 1,000. everything changes startup a scaleup”.
One of the biggest challenges that Kavak has had, in the midst of its accelerated growth, is customer service. Between 2019 and September 2022, some 251 consumers filed a complaint complain before the Federal Consumer Attorney’s Office (Profeco). According to the Profeco Commercial Bureau, the number of complaints filed has risen exponentially: while in 2019 only one client filed a complaint, in the first nine months of 2022 154 have been registered. This number is 66% higher compared to the 93 complaints filed before the Profeco in 2021. The disagreements range from the refusal to exchange or return the vehicle, refund of deposit or failure to enforce the guarantee, to failure to meet the deadlines for the delivery of the vehicle.
Expansion reached out to Kavak, but the company was not available to comment on its customer service.
Kavak says on his website that the purchase process lasts an average of seven days, but after the problem arising from the request to replace the blue Jeep Renegade, Israel Miranda had no further news on how or when the model would be delivered. This surprised him, since “before giving the down payment they could send me 20 messages, but after I deposited not one.”
Paradoxically, Kavak generated in his client the same feeling that García Otatti – founding partner and global CEO – had when he was scammed. “They didn’t deliver the car to me and they already had a down payment equivalent to more than half the value of the model. The truth did scare me. I said: ‘I’ve already been robbed’. You are not giving two pesos and as soon as you give it away they disappear… That generates a lot of anxiety”, says Miranda.
He called, sent emails and messages, but did not receive responses through any of the company’s official communication channels. She went to one of the Kavak branches, but she also did not find anyone who could give her answers. “You go and spend an hour or two there for them to tell you: ‘OK, I already wrote it down on a piece of paper or I already filed a report. We notify you’. And they never tell you.
So he decided to turn to Twitter. He wrote: “Kavak is a fraudI paid for a car eight days ago and it has not been delivered to me. No one shows their faces, I have spoken 15 times and no one answers me. Do not buy. Watch out. #KavakFraude”.
His tweet generated a snowball. His case was not isolated and several users of the social network felt identified with his experience and began to leave comments recounting his case. Then Kavak replied to the tweet, they got his data and they told him by direct message (DM) that they would look for him. “They contacted me and got it fixed literally in five minutes. It was a huge difference, day and night”, says Miranda.