The Generalist - Kavak: The Drive to Conquer

Hey friends,

Unless you’re focused on the Latin American tech market, there’s a good chance you haven’t heard about Kavak before.

I think it’s one of the most interesting businesses I’ve studied in some time. Why? A few reasons…

• It’s Mexico’s first ever unicorn
• It’s revolutionized the car buying experience in LatAm
• It was last valued at $8.7 billion after doubling revenue in ~4 months (!!)
• It’s led by a charismatic CEO that investors love
• It’s investing $500 million to win the Brazilian market
• It’s made a gutsy move by expanding into Turkey
• If public comps are an indication, it might be meaningfully overvalued

To dive into the story of Carlos Garcia Ottati and his quest to conquer the world, click the link below.

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KAVAK: THE DRIVE TO CONQUER

Actionable insights

If you only have a couple of minutes to spare, here's what investors, operators, and founders should know about Kavak.

• Kavak is a full-stack car marketplace. It handles buying, selling, and financing vehicles from end to end. Its success is thanks to its impressive data capabilities, logistical expertise, and customer obsession.
• It has benefited from a fractured Latin American market. The regional market is highly fragmented, with no company holding even a 1% share. Transactions are often peer-to-peer, increasing the potential for fraud.
• Financing arm Kavak Capital makes car ownership accessible. While leasing a car is common in the United States, it is often unavailable in LatAm. By offering affordable financing, Kavak Capital helps many consumers buy their first vehicle. Car ownership improves a broad range of economic and social outcomes.
• Kavak’s model is capital intensive. The company buys and renovates cars. Its product relies on manual labor, physical space, and real-world logistics. Scaling supply and reach takes meaningful capital.
• Carlos García Ottati is a generational founder. Few entrepreneurs receive reviews as positive as Ottati. Investors rave about the CEO’s ability to balance an aggressive vision with an eye for detail. He has built a strong leadership team and culture of ownership.

***

In the heart of the Amazon jungle lie the ruins of Fordlandia. Once-pretty homes stand empty, their gardens overrun by shrubs. Machinery, once operated by dozens of men and women, blooms with rust. The windows of their workplace, a broad factory, offer nosy visitors a grimy, gap-toothed grin.

It had gone wrong for Henry Ford almost from the start. Frustrated by rising prices for Sri Lankan rubber, the industrialist decided on an unorthodox solution. Rather than bartering the British-held monopoly, he would extend his supply chain, developing a plant in the middle of the Brazilian rainforest. What better place could there be to produce rubber than its native land?

Though Ford’s plan had pragmatic motivation, it was also propelled by loftier ambitions. Since conquering the business world, the magnate believed his destiny was to apply his methodology to society at large. An attempt to construct an industrial city to rival Detroit in Muscle Shoals, Alabama, had failed, but he saw a blank canvas in the Amazon. Unpolluted by the pesky political intrigues that had shuttered his previous project, he could build a city in his image: Fordlandia.

His first mistake was the price. In 1928, Ford’s aides paid the Brazilian state of Pará $125,000 ($2.1 million today) for more than 5,600 square miles of land. Reportedly, the laws at the time meant Ford might have gotten it for next to nothing.

Ford’s luck scarcely improved from that inauspicious start. Despite his company's high wages, it was difficult to attract manpower to work in the jungle and perhaps even trickier to transport food and building materials down a river with a seasonal tide. Supervisors came and went, and even after the skeleton of a civilization had been set – dirt streets tracing a grid between settlements – violence broke out in 1931 between Brazilian workers and expats. Much of the colony’s early work was erased, with laborers destroying equipment and defacing homes.

Though stability surprisingly followed the uprising, with Fordlandia rebuilding and adding amenities like paved roads and a dance hall, the enterprise remained doomed. As it turned out, Fordlandia failed in its most fundamental task: to produce rubber. Even an expert botanist, flown in by Ford to oversee his wretched plantlings in 1936, could not improve on a modest crop. Less than a decade later, Ford had left Fordlandia, returning ownership to the Brazilian government.

In 2021, another automobile baron entered the Brazilian market with dreams of conquest. Carlos García Ottati, founder and CEO of used car marketplace Kavak, announced his intention to invest $500 million in the country. He began in São Paulo.

Though it may not be quite as expansive as Fordlandia, “Kavak City” is an ambitious construction. Not only is it Latin America’s largest vehicle reconditioning plant but a cathedral to a new kind of consumer purchasing experience, designed to showcase the powers of Kavak’s technology. It also represents the center of Ottati’s broader Brazilian initiative, which has already expanded to Rio de Janeiro and is expected to bring Kavak branches to dozens of malls.

So far, there is no reason to think that Kavak City will go the way of Ford’s ill-fated experiment. Since launching in 2016, Carlos Ottati and his two co-founders, sister Loreanne García and Roger Laughlin have succeeded in building a business that many consider revolutionary for its impact on the Latin American car market. They have minted Mexico’s first unicorn and laid the groundwork to become a global juggernaut, launching operations in Argentina, Brazil, Colombia, Chile, Peru, and even Turkey. If Ottati has his way, Kavak may extend beyond the automobile, becoming a financial “super app” or “ecosystem of services,” as he described it. Given that backers describe Ottati as a generationally gifted founder with a rare ability to balance vision with reality, that statement may be more than mere bluster.

But Kavak’s rapid growth and heady ambitions have come at a price, namely the sale of equity. The company has raised $1.6 billion in funding, with its most recent $700 million round valuing the business at $8.7 billion. The money Kavak has digested bolsters arguments that it is a capital-intensive business that cannot scale like a tech company. To some, that makes Kavak’s latest valuation untenable, particularly as public market competitors like Carvana have seen their market caps collapse by nearly 90% over the same period.

Kavak City represents both sides of the company behind it: the promise of what could be and a reminder of the capital demands of a business inextricably tied to the physical world. Time will tell whether it becomes a monument to misplaced audacity or another outpost in Ottati’s world conquest.

In today’s piece, we’ll explore these questions, covering:

• Origins. The premise for Kavak first came to Carlos Ottati on an airplane. It would take him three years to officially found the company.
• Market. The LatAm market was perfectly designed for a business like Kavak. Fragmentation, fraud, and a lack of financing meant there was obvious room for improvement.
• Product. Kavak goes to considerable lengths to provide a good customer experience, providing home delivery for cars that have been purchased.
• Leadership. Beyond the purported genius of Carlos Ottati, Kavak has a robust team filled with talented operators. The company relies on a culture of “participatory dictatorship.”
• Valuation. Publicly traded used car marketplaces have been savaged in recent months. Should Kavak need to tap further financing, its valuation may be impacted, too.
• Future. Kavak’s expansion into Brazil and Turkey could be followed by moves into Saudi Arabia and the UAE. Further features may bolster Ottati’s argument that Kavak is building a “super app.”

Let’s drive.

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IN A MEME
​​​​​For the pictorially inclined, here's the whole piece — all 7,300 words of it — in a single meme.

PUZZLER
​​​All guesses are welcome and clues are given to anyone that would like one. Just respond to this email for a hint.

Nick T dusted off his championship belt, responding first to our last riddle. He was joined by a merry band including Robert H, Austin V, Steven R, Dhruv S, John G, Drew M, Tim S, Attison B, Chris H, Dave T, Bobby A, Nik K, NE, Peter L, Peter E, Joshua K, David P, David J, Kunal G, Prasanna D, Jeff L, Stefanie T, Sukumar R, Tamar L, and Jai S. All unpicked this verbal lock:

The answer? A deck of cards. Many rightly noted that several other responses work just as well including fabric, a check, a deal, a diamond, a piece of wood, and the subject of a surgery. True enough!

As a note, we’ll be taking a brief hiatus next weekend for Memorial Day but will be back with a vengeance right after. Sending my best to you all.

See you soon,
Mario