Kavak- The one that got away

There are no mistakes, only lessons.

In 2017 we were fundraising for DILA III. Mexico was in deep need of institutional limited partners, so we organized a cocktail for many of our potential limited partners in the beautiful Hacienda de los Morales in Mexico City. We invited national and international development banks, prominent family offices, institutional investors and HNWIs from all around the region. We spoke about the nascent venture capital industry in LatAm and presented three companies which we wanted to be part of our new fund: Ben&Frank, Urbvan and Kavak.

All three pitches were outstanding and our mission was accomplished; most of the potential investors present were thrilled by what they saw and wanted to invest in DILA III. However, there were some potential investors that came to speak to us during the event: they had recently invested in Kavak’s simile in the United States and the company had flopped. The investors had lost all their money and they explained extensively why the business model did not work. We analyzed the case and decided, very unfortunately, not to invest in Kavak.

This week, just four years after the cocktail mentioned, Kavak announced an investment round in their company with a valuation of over US$1 billion! Kavak is officially Mexico’s first tech unicorn. My most sincere admiration and awe to Loreanne García, Carlos García, Roger Laughlin and the entire Kavak family! You deserve this and much more. I am certain that this is only the beginning of many many milestones and successes. You are a true inspiration to all Latin American entrepreneurs.

As venture capitalists we are going to pass on many startup opportunities that are going to become very successful businesses: it is simply part of our job and we have to live with this reality. Knowing that, it’s important to learn from those mistakes and install new investment principles in order to avoid the same mistakes going forward. I would like to share my learnings from passing on Kavak with you and my thoughts on their recent news:

1. The importance of teams. Once again this is proof that it’s all about execution. Team is the name of the game. The Kavak team and their execution has been impeccable and this has paid off.
2. What didn’t work in the United States does not mean it won’t work in Latin America. We have different countries with different geographies and cultures. We have to analyze the opportunities as such.
3. The past is not always a great dictator in the future. Past results are context dependent. The same action under different conditions may cause different consequences
4. We, as General Partners, wanted to invest in Kavak, we got carried away by external advisors. We should trust our gut, trust our analysis and make decisions based on their own merits.
5. After a failure, we often become overly pessimistic and risk adverse, even in cases where the failure was merely a result of bad luck or bad management.
6. Mexico, even in these turbulent times, is very capable of producing tech unicorns. I am sure that this is the first of many.