Creditas, a Brazil-based online collateral loan platform, announced on Friday that it raised a Series E infusion of $255 million. The round turns the startup into the newest Brazilian unicorn, with a valuation of $1.75 billion, one of the most capitalized fintechs in Latin America. The round brings new international partners to the fintech’s board, including LGT Lightstone, who led the investment, alongside Tarsadia Capital, Wellington Management, e.ventures, and Advent International via its affiliate Sunley House Capital. Preview investors SoftBank Vision Fund 1, SoftBank Latin America Fund, VEF, Kaszek, and Amadeus Capital also participated in the round. To date, Creditas has raised $570 million in five investment rounds.
The company will use the new resources to continue expanding the offer of its products, forming a complete ecosystem of digital financial services that go beyond secured loans and scaling operations – in addition to Brazil, Creditas has also started to operate in Mexico.
“We always say that being a ‘unicorn’ is not something that is very much the way we are,” said Creditas CEO and co-founder, Sergio Furio, in an interview with LABS. The Spanish businessman does not like the term very much. And he thinks that “becoming a unicorn” should not be so valued. “We value working with the teams more and keep growing. For me, the main growth metrics are revenue and portfolio. The valuation is a reflection of that, but our focus is there [on revenue and credit portfolio]”.
But, as a fundamental part of any startup, Creditas has an appetite for rapid growth, which requires capital. Since the Series D round of $231 million in July last year, the startup has more than tripled its revenue, reached BRL 1 billion in credit portfolio, and announced new products. After eight years, the company started taking steps towards internationalization in Latin America, starting with Mexico about a month ago.
The first international operation: Creditas wants to scale up credit in Mexico in 2021
“We decided to expand to Mexico at the end of last year when we started to hire a team. The product started to work there in the first quarter, and the first credits started to appear in a beta test version in July this year,” says Furio.
In Mexico, five products are already active: car financing; the concession of credit with cars, real estate properties, and salary as collaterals; and Creditas Store, the shopping platform that allows consumers from partner companies to buy online using their salaries as means of payments, with some regulatory differences compared to Brazil.
The complex regulatory environment of the credit market is one of reasons why the startup took eight years to debut in its first international market. “We think it is complex to launch in different countries for the type of business that we operate, regulated, with technology development,” he said, stressing that, for the time being, they do not intend expand to any other country.
Today, Creditas has a team of 60 employees in Mexico, “a market that has several similarities with Brazil and some differences”, according to Furio. “We see a huge potential for collateral loans in Mexico, a product that is equally under-penetrated as it was in Brazil,” he says.
In Brazil, the startup was one of the precursors to the expansion of the secured loan market, which until a decade ago was still dominated by traditional banks, including a type of credit well known in the United States but rarely offered or used in Brazil: home equity.
“Probably the biggest difference about Mexico is that the interest rate there seems to be lower, but at the same time, the penetration is much lower. So what is happening is that the interest is lower because it is attacking a small layer of the population, super-premium customers. The middle class ends up not being able to get the product,” he explains.
Furio sees not only the Mexican potential related to interest rates but also the increased penetration of credit products in the Latin country. “In Brazil, credit products have a lot of penetration, around 70%. In Mexico, there is 15%. There is still a lot to do.”
The choice for Mexico has to do with scale: the second-largest economy in Latin America, about 30% smaller than Brazil. “The next country to enter would be much smaller, Colombia or Peru. For now ‘we have no arm’ for that. I think we have to prioritize, and for now, we will focus on these two countries. Who knows, in three or four years we will expand again.”
Creditas has 50 employees working in Valencia, Spain, but Furio explains that the European country is just to develop technology, there is no goal of opening an office for business there. “Part of the developments for Mexico have been made from Valencia, and Spain is also working with the financial products, the Creditas Store was also made there. A large part of Creditas @work platform is being developed in Spain”.
How Creditas got here: overcoming a troubled 2020 and doubling revenue
Founded by Furio in 2012, Creditas started operations as a secured credit marketplace, which, as does today FinanZero, allowed banks to deliver secured credit in a digital platform.
As of 2016, the company pivoted its business model to launch its own products with credit lines from BRL 5,000 to BRL 2 million for consumers who have a real state property or a car to provide as collateral. As of last year, the fintech started expanding the credit platform to an ecosystem of financial solutions for customers.
“In the first quarter of this year we were still soaring in terms of growth, growing three times annually. On March 13, we sent everyone to remote work, approximately 1,500 people at the time,” he recalls.
With the pandemic, Creditas started to manage the crisis. “Less because of what we were experiencing and more because of economic risk”, explains Furio. “There were two main risks in terms of credit: the portfolio, which has been performing well, and the liquidity risk, but the capital market has continued to function for our securitizations, which after all is how we fund our clients.”
In March, Furio froze 90% of the investment in marketing and managed to make the company positive, that is, it started to generate cash. “Creditas’ cash position in June was higher than in March. We generated cash in those three months, something we had never done before,” he says, attributing it to a slowdown in growth: the startup stopped growing 10% every month, as it had been doing, to grow 2% to 3% each month. “The second quarter was very stressful,” he said.
In July, fintech stepped on the accelerator again and the credit portfolio exceeded BRL 1 billion, the highest securitized value in the entire history of the startup. The fintech ended the third quarter with a growth similar to that of the first three pre-pandemic months.
In September, October, and November the fintech registered records of origination, new customers, and revenue. “It was a year that started very strong. We held up growth as a precaution and ended the year with a very high growth rate”, summarizes Furio, who believes in a “spectacular” first quarter of 2021, as the demand for credit traditionally grows in the first quarter.
“The fourth quarter is the weakest, and the first is the strongest. And what we are seeing is that at the pace we are going in the fourth quarter, the first one is going to be an incredible quarter.”
In July, Creditas announced that the revenue for the last 12 months (since July 2019) had reached BRL 260 million with a net customer margin. In nine months of this year, the value was almost exceeded: BRL 232.1 in revenue. September was the best month in fintech’s history, with monthly revenue of BRL 30.4 million and the third quarter with BRL 78.8 million.
The startup will end 2020 doubling its size in all metrics: revenue, origination, and portfolio size, according to Furio, in addition to more than doubling the number of employees compared to 2019, ending the year with 1,800 professionals. The goal for the next five years is to at least double the revenue each year.
Transparency and a future IPO
Unlike most startups, three months ago Creditas began to focus on presenting its results in a more transparent way, in a very similar way to that of publicly traded companies. Asked if the new process is part of a strategy for a future IPO, the CEO replied that an initial public offering of shares makes sense for Creditas, but that is something that is not on the startup’s roadmap in the short term.
“We are disclosing the results because it is a symbol of our maturity as a company, we think it makes sense for everyone, for our investors, but also for our clients, FIDCs investors (a type of fund composed of receivables from different types of issuers widely used in Brazilian credit market) and the capital market. Everyone always asks. So instead of having to answer one by one, we do a quarterly communication, providing more transparency.”