Small and medium enterprises (SMEs) account for four out of five companies and more than half of Mexico’s GDP. Despite that economic clout, only two-thirds of them have access to credit, according to Moody’s Investors Service. Konfío hopes to change that.
Founded in 2013 by David Arana, a mathematician and veteran of Deutsche Bank in New York, and Francisco Padilla, a computer science expert, the Mexico City-based company is taking direct aim at the underserved SME community.
Since 2016 the founders have raised more than $100 million in a series of funding rounds that has attracted such venture capital firms as Bermuda-based Vostok Emerging Finance and US-based QED Investors, as well as the World Bank’s International Finance Corp.
While traditional banks have been criticized for ignoring the SME market, Moody’s points out they face valid obstacles. It’s costly for brick-and-mortar banks to reach out to SMEs and difficult to evaluate risk associated with relatively small loan amounts. What‘s more, repossessing collateral assets if a borrower defaults can be time-consuming. While the rate on non-performing corporate loans is about 2%, for SME’s it’s above 5%, according to Mexico’s National Banking and Securities Commission.
By contrast, Konfío, like any fintech, gathers information online in every step of a loan application. The process is far less expensive and more consumer-friendly than traditional banks that often require extensive paperwork.
But the heart of its success is innovative credit algorithms and a unique approach to evaluating potential borrowers that minimizes risk. If one potential borrower, for example, uploads an ID photo as a simple JPEG file and another converts it to a PDF, the different approach says a lot about an individual’s creditworthiness, according to Filiberto Castro, chief growth officer at the six-year-old fintech.
The latter could be more technologically sophisticated, educated and a better manager of money—ultimately “a better client who can pay his credit,” says Castro. “All of these data points help us to optimize our credit model and reduce our processing costs and make a better decision on lending.”
SMEs that clear the screening process can apply for six-month to one-year loans of up to two million pesos ($104,000) and get the money in 24 hours, says Castro. While its lending rates are steep, starting at 24%, well above the 8% bank lending rate, “we don’t ask for collateral,” he says.
Konfío made its first loan in 2014. Now it has a multi-million-dollar loan portfolio and makes hundreds of new loans each month.
The strains on Brazil’s health-care system are visible everywhere. Public providers are underfunded and overburdened, with waits of up to three months for appointments. And rising costs are pushing private coverage beyond the means of many people. The number of people with private health plans has declined 6.6% since the end of 2014, according to Brazil’s national health agency.
Thomaz Srougi, a former investment banker, believes he has a solution: Dr. Consulta, a technology-based healthcare provider that offers a wide-range of services, from check-ups to MRIs, through a network of more than 50 clinics in Brazil.
This high-tech slant on health-care has allowed Dr. Consulta to grab 10% of the market in Greater São Paulo, home to 21 million people, and patient volume is growing 30% a month in Belo Horizonte and Rio de Janeiro, Brazil’s other big cities.
So far, Dr. Consulta has attracted more than $90 million in venture capital funding, including investments from some high-profile names. They include Jorge Paulo Lemann, the billionaire co-founder of 3G Capital, and Madrone Capital Partners, the family office of Rob Walton, the eldest son of Walmart founder, Sam Walton.
Srougi is no stranger to the health-care industry, His father and brother are doctors. As he studied the problem, he recalled how “they are putting in 100 hours per week,” but patients still had insufficient care, says the 42-year-old Srougi.
For Srougi, the first step in making health-care cheaper and accessible was to gather data. That’s when he opened his first clinic in Heliopolis, one of the biggest slums in São Paulo, in 2011.
A steady stream of patients provided ample clinical data on all sorts of maladies, from fractures to heart disease. Physicians at the clinic could track patients, studying symptoms, care and outcomes. Srougi then built algorithms to provide better diagnostic tools and treatment plans. The algorithms also identified patients at risk to certain ailments and allowed physicians “to prevent or neutralize that risk,” he says.
Such preventative care reduces costs by limiting hospitalizations that account for 80% of total healthcare expenditures, says Srougi, who conducted a year-long study of 3,000 patients and found that primary care costs fell 35% at his clinics.
Perhaps, the biggest benefit of Dr, Consulta has been affordability, Srougi says. An appointment with a physician at Dr. Consulta doctor averages 100 reais ($25), far less than the 400 to 2,000 reais common in the private system, he says.
The Not Company
How can I make the best vegan mayonnaise? That was the question foremost in the mind of Matías Muchnick when he returned home to Chile in 2015 after studying at Harvard Business School. The question had little to do with his dietary preferences but an emerging business strategy.
Muchnick hoped to launch a company that could use technology to create vegan foods that feel, look and taste like their animal-based equivalent. He imagined a range of products that would appeal to consumers seeking healthier alternatives, as well as hardcore carnivores. It wasn’t his first attempt. A previous startup went nowhere.
After some trial and error, he found a solution by marrying genetics with advanced mathematics. He teamed up with Pablo Zamora, who has a Ph.D. in biotechnology and specializes in plant biology and genetics, and Karim Pichara, with a Ph.D. in computer science. The three Chileans created The Not Company, or NotCo, a play on words to emphasize the absence of traditional ingredients in its products.
The result: A machine-learning algorithm that determines the combination of plant ingredients needed to create a vegan product. The algorithm, for example, tells them to add broccoli and goji berries into the mix for vegan chocolate, because both share dozens of flavor molecules with the cocoa and milk in conventional chocolate, the 30-year-old CEO says.
NotCo launched that vegan mayo in 2017, eventually capturing 8% of the Chilean market. It’s now available in Brazil and soon will be sold in Argentina and Mexico. Next up: milk and ice cream, Muchnick says.
In 2017, Kaszek Ventures, a Buenos Aires-based fund run by former founders of Latin American e-commerce giant MercadoLibre, invested in NotCo. Earlier this year, London-based The Craftory led a $30 million round that included Bezos Expeditions, the family office of Amazon founder Jeff Bezos. It was its first investment in Latin America.
As with any startup, there have been bumps along the way. They adjusted the algorithm so it can learn from feedback on the taste, texture and aftertaste of its creations. “We had to tell the algorithm that no one in the world would change their white milk for a green milk,” says Muchnick.
While technology is disrupting other industries, it’s only now beginning to surface in the food processing industry. Muchnick says that’s changing as consumers become more aware of the environmental impact of the food industry’s use of animal protein, which is linked to deforestation, ocean contamination and water scarcity.