Why We Invested in Kushki?
As the saying goes, “overnight successes take a very long time to build”. Seven years ago I was in my “between startups” period and accepted a tempting offer to work for a while at a big company again: I joined PayPal in charge of business development for their Point of Sale foray into brick-and-mortar stores. There I had the chance to meet a couple of exceptional young entrepreneurs: Aron Schwarzkopf freshly graduated from Babson and Sebastián Castro in turn with a just minted Bachelors and Masters degree in electrical engineering from MIT.
Just a year earlier, in 2011, Aron and Sebastián had started a project that nowadays you take for granted at most restaurants or coffee shops: a simple Android tablet with a funky design and geared to take payments at the point of sale... As importantly they already had integrated the development of an app store for merchants to develop on their platform and, of course, they were able to accept the latest forms of payments: from PayPal to LevelUp including Barcodes and even NFC Wallets.
Their ragtag startup Leaf had built an open platform on top of which others can build apps and, remarkably, let their customers choose from several payment processors contrary to the walled-garden approaches of their competitor Square or others like First Data-Clover.
Thanks to a combination of correct strategy and flawless execution, they attracted close to $30M in investment within 2 years, including a $20M from Heartland (now Global Payments) who ended up acquiring them in 2014. Not bad for a couple of first time entrepreneurs in their early 20s at the time of their acquisition!
As would most “repeat successful entrepreneurs”, not long afterwards they decided to launch a new company in order to tackle an even larger business: the e-commerce market in Latin America.
With the growth of Latin America’s middle class that doubled in size over the last 10 years, e-commerce has seen one of the highest growth rates in the world. Sales in 2018 topped 69 billion USD with a surge of nearly 20% year-on year (twice the world’s e-commerce growth) and will reach well over $120 billion USD by 2021 thanks to the penetration of smartphones.
eMarketer forecasts that 155 million of the 650 million people in Latin America will shop online in 2019, an impressive increase of 40 million over 2015 figures.
But the landscape is complex, and when there is complexity there are always opportunities for entrepreneurs. Well over 50% of online purchases are made thru local payment methods and unlike in the US or west Europe card decline rates are abysmal. Developers are also very fragmented and in need of regional APIs adapting this complexity and, of course, local regulations are fairly difficult to manage and follow.
Aron and Sebastian decided to create a payment platform for Latin America, serving as Gateway as well as Aggregator with an advanced, propietary anti-fraud AI layer but very simple APIs available for developers.
They worked tirelessly to become the next big Gateway and Aggregator for Latin America. While many local competitors are present in these latitudes, very few are global, and APIs are complex to setup yet with high decline rates.
So, all in all, why did we invest?
- Number One: No doubt the most imortant reason is team team team: we love successful repeat entrepreneurs that tackle big problems.
- Number Two: Answering the why now: e-commerce growth is at a real inflection point now, and yet there are not major actors dominating in the pan-american region.
- Number Three: While Sebastian and Aron are located in NYC and our investment is protected by US corporate law, Kushki’s headquarter is in Quito, Ecuador; a US Dollar market with excellent low cost quality developer and marketers where they are the de facto dominant player. Additionally they have offices and source talent from Bogota, Lima, Mexico, and Santiago. Competition is there, but still very fragmented and the two other co-founders who lead Colombia and Ecuador are a couple of energetic businesswomen, former bankers, that are passionate about the company’s success.
- Number Four: Top notch solution focused at ease of use and powered by artificial intelligence use to reduce fraud and increase acceptance rates.
- Number Five: Top list of international merchants such as Telefonica or Cabify; many Spanish corporations that badly need one single integration point for the entire region and higher card success rates.
- Number Six: we could bring immediate value by pushing large Spanish corporations, we are already well connected with to use the platform and opening up our rolodex of large commerce merchants in the US.
- And last but not least… a company that was already cash flow positive with exponential sales growth quarter over quarter.
But Sebastian is already working on his next big thing: set up a rocket center on top of one of Ecuador 100 volcanoes. It is said that in Ecuador, at the top of some of their highest mountains, you are closer to space than you are from the Everest!
Sebastian and Aron might not be there yet, but with a little more effort they are close to the stars, and to become the payments leader of Latin America through a single API able to power local payment and local regulations in every country of the region, translating into higher acceptance rates for their merchants.
At Conexo Ventures we strive to get our invested startups expand in the US or Latam or help them bring south Europe customers. After successfully supporting our first investment, Spanish cybersecurity startup Buguroo in Mexico and helping them land major deals thru our network, we are proud to be part of the $3M series led by our new venture fund focused at Fintech and Artificial Intelligence between Lisbon, Madrid, Boston and San Francisco, which is part of GED Capital, a Spanish PE, VC & Infrastructures firm with over 1 Billion EUR under management.
