Rappi relies on Softbank valuation; confirms strong growth

Alejandro Solis, director of Rappi in Mexico, announced the arrival of the company in cities such as Ciudad Juarez, Veracruz, Cuernavaca and Morelia, in addition to a new functionality with which users can pay for telephone and electricity services, among others.

Colombia's unicorn collaborative economic model already works in six foreign markets: Argentina, Brazil, Chile, Mexico, Peru and Uruguay.
Colombia's unicorn collaborative economic model already works in six foreign markets: Argentina, Brazil, Chile, Mexico, Peru and Uruguay.

Despite the concerns generated by the financial results of several companies in which the Japanese corporate SoftBank has invested, Rappi, which is considered the anchor investment of this entity in Latin America, is confident in the valuation that has been given as a result of the investment of $1 billion dollars, nearly $20 billion pesos, and reaffirms its intention to maintain an aggressive expansion, which shows with the entry to 14 new cities in Mexico in the last quarter of 2019.

In a press conference, Alejandro Solis announced the entry of the company to Ciudad Juarez, Veracruz, Cuernavaca, Morelia, Colima, Puerto Vallarta, Mazatlan, Mexicali, Los Mochis, Playa del Carmen, Durango in October and November, as well as Los Cabos, La Paz and Ensenada in December.

The executive said that the company does have a very strong financial discipline, which is evident in the profitability of the different verticals in which it has ventured.

"We in Rappi do have a very strong financial discipline, we have many verticals that are very strong, we have mature cities that are also reaching profitability, our model is strong growth," said Solis.

For the executive, the luck that Uber has experienced since its IPO, as well as the fact that WeWork stopped its Initial Public Offering are a sign that "the world changed. He assured that "the market disciplines", so that the opinion of an investor does not correspond directly with the valuation of these companies.

"The world changed. A few months ago, at a time when some companies tried to get out into the market to do their IPO, the market disciplines and says, 'hey, maybe an investor came into this, but this is your valuation,'" he said.

Just last November 6, SoftBank reported a loss of 8.3 billion euros (about 9.19 billion dollars) between April and September 2019. This loss was mainly due to the devaluation of the Japanese corporate investments in Uber and WeWork. While Uber's share has shown little encouraging behavior after its IPO last May, WeWork did not even have the opportunity to become a public company, in addition to firing its founder and director Adam Neumann.

The director of Rappi in Mexico added that before these events, many investors adopted an approach based on the growth of sales, so they did not look at the profitability they generate. For this reason, he explained, the company seeks to invest the profits it produces, to reinject them into its business model and thus continue to reach more users.

"In Rappi we feel comfortable with the valuation that has been made known and even since the valuation, we have doubled sales. We continue with this traction and with this road to profitability," said Solis, who also presented the new functionality of its application with which users can make payments for telephone services, pay TV and electricity, with much lower commissions than other payment methods.

Rappi's business model is a four-sided marketplace, serving users, retailers, brands, and deliverers, known as Rappitenderos. According to the company, it currently has a presence in more than 100 cities in nine Latin American countries and its turnover has quadrupled in the last year. In Mexico this factor has multiplied fivefold, so this year have been able to expand from 12 to 31 cities in the country, with 15,000 merchants affiliated and 30,000 Rappitenderos.

For William Nazaret, who has been a director of large telecommunications companies but is also an angel investor of technology-based companies in Latin America, what happened with Uber and WeWork means that investors attended the moment they realized that "they had gone too far.

"The value being attributed to many of these companies was too far from tangible. These recent examples are drawing the attention of investors and people in general to the fact that we need a little sobriety, so the valuations of these companies have to be more anchored in tangible elements," Nazareth said in an interview.

For the investor, the Rappi model is different from the one implemented by Uber and WeWork, especially because of the region the company is focused on.

Rapid expansion

Of the territories explored, not counting the opening of Ecuador, Peru was the last to materialize. To achieve this market, the platform worked hand in hand with Diloo, after making an investment of US$10 million, so that at that time the income was with more than 150 restaurants.

"We are in the process of starting operation in Ecuador and there are plans to continue this expansion that cannot be mentioned due to commercial issues. Rappi's growth has been a part of the DNA of this venture and we have made significant growth in the almost four years that the application has been operating," Rozo added.

This power of expansion is one of the facts that other entrepreneurs highlight most about Rappi, but not the only one. Entrepreneur Nicolas Fernandez said days ago that the Colombian application demonstrated the power of execution and growth, which were combined in the function of a long-term vision of mergers under a single brand.

Precisely in terms of versatility, the application has been expanding its portfolio, allowing, at the time, use the platform to get a tax return, in addition to its alliance with the skateboard platform Grin, after entering the country or the generation of services such as "rappi favors" or "rappi pay", among others.

However, a recent obstacle appeared to this growth and was the decision in Argentina to prohibit the operation of this type of services in that territory. Faced with this, the Colombian startup indicated that it will study and appeal the decision in the coming days. "We will continue to look after the interests of all parties, with the same commitment as always," the company said last week when the decision became known.

These were the company's numbers last year

One of Rappi's constant features is that it keeps growing its income and wealth, but also its losses. By the end of last year, the Colombian startup reported a total of $77.227 million in revenue and nearly $49.532 in equity. However, the figure for losses at the end of 2018 was $156,014 million. According to experts, the reason for this constant red figure in Rappi's earnings has to do with the investment the company makes to continue its expansion in the region.

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The Japanese group SoftBank made its first movement in the entrepreneurial ecosystem of Latin America. The credit institution invested 1 billion dollars in the Colombian application of Rappi deliveries, which represents one of the largest venture capital investments in a technology company in the region, whose start-ups received capital for 2 billion dollars during 2018.

Rappi, which last September was considered the first unicorn of Colombia with a value of more than 1 billion dollars, will use the resources to accelerate its growth in the Latin American markets where it already participates, as well as to generate new products and services, reported the start-up in a statement.

Simón Borrero, co-founder, and CEO of Rappi said the investment is the result of the hard work of the entire team of the company and highlighted the support of the Japanese bank to improve the quality of life of Latin Americans with innovative products.

"We will continue to focus on creating innovations for restaurants, retailers and new start-ups so that they become new sources of growth," added Sebastian Mejía, co-founder and president of Rappi. The entrepreneurs did not disclose the participation that SoftBank will have.

Last March, the Japanese group announced the creation of an innovation fund for 5 billion dollars to invest in technology companies in Latin America. The bank divided the investment in Rappi into equal parts between SoftBank Group (SBG) and the SoftBank Vision Fund, later transferring the transaction to the newly created vehicle. Jeffrey Housenbold, managing partner of SoftBank Investment Advisers, will join Rappi's board of directors.

The start-up was created in 2015 and operates in 35 cities in Colombia, Mexico, Peru, Argentina, Chile, Uruguay, and Brazil. The application uses an army of delivery drivers on bicycles to deliver orders. In 2018, Rappi multiplied the number of delivered products by seven and recorded a monthly growth of 20% in the seven countries where it operates.

Among its investors are DST Global, Delivery Hero, Sequoia Capital, Andreessen Horowitz, and Y Combinator, where it was accelerated in 2016.

By Agencies