The other almost eternal problem of startups worldwide refers to earnings and returns for investors.
Article by New York Times In February this year, before the distorting effect of the pandemic on the economies, a whole group of startups that they do not fulfill the promise of value and cited some disappointment with the model: the money injected through private speculative appraisal does not appear to have the expected return.
Stephen Kaplan, an economist and professor of entrepreneurship and finance at the University of Chicago School of Business at the time, said that “companies that spent money uneconomically could not continue to do so.”
“Companies like WeWork have invested in buildings, in advertising and at customer prices because of the initial discounts. But they lost money. The same thing happens with Uber, Didi, Rappi, etc. “They offer free driving or free home delivery, as well as incentives to retain drivers,” Kaplan told AméricaEconomía.
Not that Kaplan is against the model startups not less than applications. On the contrary, for him, companies like Apple, Microsoft, Alibaba, Facebook, Amazon, Google, come from the world of Capital and they are the most valuable in the world today, becoming the engine of innovation in the last 40 years.
To date, the blue numbers that demonstrate the sustainability of the business in the case of Rapi are still not in sight, although he says he is looking for them. The company had operating income of 201,007 million Colombian pesos (US $ 61.2 million), but recorded losses of 305,808 million Colombian pesos (approximately US $ 93.1 million), according to the Supervision of Colombian Companies.
“Last year we invested a lot in growth and we were not so focused on profitability […]. “We are thinking about how to balance this growth, with much stronger profitability than we had before, and that, a very long time ago, we would be a holistically profitable company,” said Kathleen McInarney of the company’s future.
The strategy – emphasizes Rapi – would be to consolidate in the nine countries on the continent where they are already present, instead of expanding to more latitudes.
“Although we are still in way of thinking from StartAt this point we think we are already at an impressive level as a company. “We have already grown more than we could have imagined at the beginning, and what we want to do now is focus on having a very sustainable business in the cities and countries where we are.”
Because, in addition, it is not just about money in the bank for its founders. Behind Rapi are a number of investors who will demand, sooner or later, the return of their bet.
Opinions are divided on this point. While some “old-school” analysts point to the importance of being profitable, others see no problem in continuing to grow at the expense of investment circles without caring about blue numbers.
“This industry is called venture capital for a reason, because it bets that expectations will be met. Who makes money? People who started this process. “How successful are those who started in one and started to multiply their share, not as a percentage, but on an exponential scale,” said Colombian angel investor Leonardo Suarez.
“You make money when you do that exit, or output; when they tell you “let’s sell now, because we need to recover”. Or, on the other hand, you earn through an IPO that you trade on the stock exchange and you can sell your package of shares at a high price that allows you to return [que buscabas]Completed by academic and researcher Juan Pablo Torres-Cepeda.
Therefore, it does not matter that Rapi and others are at a loss at this stage. “Under this scheme, the company continues to grow in value, even though it has red numbers, but it shows you that in the future it will be the only player in the market,” said Tadashi Takaoka.
But that is when the old school disagrees.
“There is an old abbreviation in English” CIMITYM ” (cash is more important than your mother) “which sums up this situation,” explains Kaplan. “An entrepreneur can be successful without his mother, but he can not succeed without money. Businesses need to be able to generate money. Amazon has been losing money for a long time, but has always maintained strong positive margins. “At one point, the company had the confidence to become profitable and delivered it.”
The economist’s explanation is that when investors do not want to continue with financial losses, startups they must be able to generate money. “It means reducing investment and marketing mix, along with raising prices or reducing discounts,” said a Chicago Booth academic.
This is what happened to Uber in the United States. “Now that it is a public company, Uber is under a lot of pressure to be profitable. In fact, he made his IPO in May 2019 without being, and while improving his margins, he only had a lucrative quarter. Part of that strategy is to get rid of a lot of business units […] giving up the plan to be superprip “In the United States, they were thinking at some point,” Enzo Cavalli recalled.
“For Raps and Ubers, as long as they have large, positive profit margins, they can expect to make money at some point. “So investors are looking at these margins and trying to predict whether they will be profitable when they stop growing.”
But Start assures America’s economy that it is not in danger. “We have investors from all over the world who know how we can achieve that profitability. We believe that where we are now we will achieve profitability. We have full confidence that the business model we are following at the moment […] “It’s very solid,” said Kathleen McInerney.
This is where, in addition, Softbank’s capital inflows may play a relevant role in trying to see Rapi’s possible future.
“Softbank has one of the most powerful funds in the world. “The reality is that it is part of his business model to invest in these types of companies, because he knows that out of every 10, one ends up in public and is the next Amazon or the next Free Market.”
Faced with the choice to grow or make money, Rapi will have two options. “Given that they already had several rounds of funding, Start You can try to continue raising venture capital in rounds G, H … and more or make your own strategy (IPO). Given that Rapi has Justin Wilson, associated with Softbank as one of advisors and a late fundraising specialist should plan the exit strategy. “I am inclined to think that Softbank should prepare its acquisition in the coming years and that it is less likely for an IPO,” said Torres Cepeda.
Asked about it, Rapi is open to the possibility again, without completely solving it.
“We believe that we are innovating and inventing a company that could have a very successful IPO, at the right time. But our goal and our vision for five years is to create an ecosystem that helps lay the foundations for A. digital market “That would be the solution for our region.”
As if these doubts were not enough, two more big holes appear on Rapi’s route, which may affect his ability to make his business sustainable.
On the one hand, unexpected actors appear who can overshadow him. These are recent platforms, such as the Chilean Justasto working on the promotion and delivery of food, the Mexican check, made by and for restaurants, the new applications of home deliveries from various supermarkets and an array of retail looking to make their own e-commerce.
“If Rapi introduces his own superprip pre-KOVID probably could have done that [sin competencia], but with the pandemic, many years progressed by several months, with the adoption of e-commerce. The sales percentage is already so high via the Internet “Businesses can not afford to pay such a high commission to a third party,” explains Enzo Cavalli.
Added to that, despite the global success of applications, recent courier protests and the threat of new labor laws and new digital taxes on the continent show the fragility of the economic model whistle and the last mile.
Finally, the last round of Rapi financing, in September this year, was funded by Softbank, Secuya and Delivery Hero, for an announced amount of 350 million USD (although according to the US SEC, Rapi Request was for 155 million USD and part ). An amount that seems low compared to the previous round of $ 1 billion, and which can be interpreted as a bad omen for investors, in terms of the interest it arouses Start Colombian in the world of venture capital.
Even with all this against him, Rapi is convinced that his current bet is the right one.
“Our business has changed a lot because of KOVID-19 […] “We have invested a lot of money, time, resources and attention in how we can take care of our ecosystem.” “We do not think like Rapi [solamente] “We can grow, we think about how we can grow in the neighborhood, helping all actors – allies, customers and distributors – find a way to improve their lives through our application.”
In the world of platforms, there is a constant danger of forgetting the profits, but on Start He seems to be following the path of optimism equipped with restraint, where he aims to consolidate rather than grow. However, to be profitable, yours superprip must occupy a dominant position in the market, which necessarily happens to be a constant favorite of consumers. Will Rapi fulfill his dream?