Empowering SME growth – why we invested in Konfio

Last week, Konfio announced the completion of their $125m Series E round – we at Lightrock are very excited to have lead the round and look forward to support Konfio in its journey to create the “Next-Generation Ecosystem for small and medium enterprises in Mexico”.

Founded in 2013 by David Arana-Ley, Konfio has become the largest online lending platform for small and medium enterprises (SMEs) in Mexico. With a proprietary algorithm that combines data and technology to measure creditworthiness in a matter of minutes, Konfio helps SMEs achieve growth through access to credit solutions that were previously mostly limited to large corporations. Driven by the single mission to address the most pressing pain points faced by Mexican SMEs, Konfio has expanded its business model beyond lending, creating an integrated ecosystem, which includes an array of services, software tools and payment platforms, thus allowing ambitious entrepreneurs to better manage and continue the growth of their businesses.

With its innovative use of technology to help SMEs grow, Konfio is an excellent match for Lightrock, which is backing purpose-driven game-changers that pursue scalable and tech-driven business models benefitting people, planet and productivity.

Our thesis to invest in Konfio is built on few strong arguments: a large, untapped market, a highly committed a capable founder and management team, innovative and proprietary technology and, as a result, significant positive impact.

Market for SME loans in Mexico is significant and still largely untapped

For decades, traditional banks in Mexico have taken a conservative approach to SME lending, giving preference to clients with a proven track record of loan repayments, while avoiding the risk associated with many SMEs, especially if they have no credit history. As confirmed by Lightrock’s on-the-ground operational and market due diligence, many Mexican banks would only consider lending to SMEs after they provide and monitor an SME’s bank account for a period of at least two years. Opening a bank account for an SME in Mexico can sometimes in itself take years to be completed.

As a result, while SMEs account for nearly nine out of every 10 businesses, they represent only 9.1% of all the loans in Mexico, equivalent to just 3.7% of the GDP vs c. 7%-10% when compared to other economies in Latin America. Thus, the SME loan market has the potential to expand by 2.4x, going from its current size of USD 43B to over USD 100B (nearly 9% of GDP) over the next few years.

Visionary founder supported by a driven and top-notch executive team

Although he lived in the US and Brazil, David always considered Mexico home. After completing a degree in Math from MIT and spending the first part of his career on Wall Street, David turned down a lucrative contract with a large bank in New York to return to Mexico. Driven by his desire to give back and contribute to the country’s economic development, David founded Konfio under the premise that increasing data and emerging technologies at the time allowed for novel ways to measure risk and grant loans to SMEs that previously had very poor access to credit.

David has been central to Konfio’s development since its inception, not only with regards to formulating the core strategy of the Company, but also by putting together a team of top-notch senior executives with complementary backgrounds. Konfio’s upper management team is comprised of seasoned executives with experience in leading companies and training from elite educational institutions. Besides their particular skillsets, Konfio’s senior management have succeeded in creating a strong culture and positive working environment, which has in turn enabled the Company to both attract and retain highly diverse talent from Mexico and abroad.

True technology company that has created a top-of-mind integrated solution for SMEs

Being a truly data-driven company, Konfio pioneered the use of data to price clients and underwrite credit, developing robust credit models that enable full automation of the lending cycle. As a result, whilst getting a loan in Mexico is usually time consuming and/or a cumbersome experience, Konfio’s platform has already processed more than 400k applications and enabled more than 22k borrowers to receive unsecured financial products in a seamless experience that eliminates the complexity associated with traditional loans, being able to complete the full process within 7 minutes. As a result, Konfio was the only company in Mexico that was included in the list of Top Fintech Companies of 2020 compiled by CB Insights.

With more than 150 tech developers, Konfio has attracted an impressive team of data scientists and has always invested heavily in technology, automating and continuously streamlining its credit process, which in turn has resulted in increasing levels of customer satisfaction and recurrence. The combination of having a strong brand, robust credit models, and a complete ecosystem in place puts the Company in a very favorable position to continue its scaling process. Thanks to Konfio’s relentless SME focus, and its data & technology prowess, we are likely to see Konfio expanding rapidly not only in scale but also on the breadth of services it provides to SMEs.

Significant social and economic impact

SMEs in Mexico are very relevant, representing 88% of private sector employment (in line with world averages). However, SMEs in Mexico significantly lag behind what should be their natural contribution to the economy, accounting for only 32% of GDP (compared to 40%-50% in comparable countries). This can be primarily explained by the poor access to credit and low levels of productivity (Mexico has the lowest levels of productivity of all OECD economies).

Konfio’s mission has always been to boost the growth of SMEs in the region by (i) offering accessible credit to its clients, which creates an engine for further economic growth and (ii) providing a SaaS platform, which helps SMEs to manage their business and increase productivity. In 2019, Konfio’s clients grew annual sales, on average, by 28%, and the number of transactions by 14%, thus confirming the positive impact generated by the Company.

We at Lightrock are proud to be backing a leading company that is transforming financial services in Mexico and leveraging the power of data to build integrated solutions tailored to SMEs, thus playing a pivotal role in improving productivity, creating job opportunities and stimulating economic growth. We cannot wait to embark on such an exciting journey with Konfio, David and the whole team!

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