Brazilian car rental startup Kovi announced on Wednesday that it has secured more than $100 million in a Series B round co-led by Valor Capital Group and Prosus Ventures, formerly Naspers, a South African fund investing in Movile, which owns Brazil‘s delivery app iFood. Kovi will use the money to expand in Latin America and take its pay-per-mile and insurance service beyond ride-hailing drivers.
Venture capital funds Quona, GFC, Monashees, Ultra Venture Capital, Globo Ventures, Maya Capital, ONEVC, PIPO Capital, and Norte Ventures also participated in the investment, as well as investors such as Justin Mateen (co-founder of Tinder) and the family office of PayPal‘s co-founder Peter Thiel.
Kovi was born in 2019 when two former directors of Brazil‘s ride-sharing app 99 (now owned by Chinese Didi Chuxing), Adhemar Milani Neto and João Costa, realized that people who wanted to work as partner drivers in Brazil had difficulty accessing cars. The problem was: unbanked drivers who couldn’t get financing with traditional banks wouldn’t be able to buy a car to work. That’s when Kovi was born and Bruno Poljokan, now partner and CRO of the company, entered the business as an angel investor.
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In its founding year, Kovi raised a $30 million Series A round. Poljokan tells LABS that the traditional rental car format was a problem for automakers, who typically sold cars to large rental companies at 25% to 30% discounts, which reduced their profit margin.
Kovi’s idea was then to offer the car to the driver partners on an asset-light model, i.e. a non-capital intensive model. That means Kovi didn’t buy the cars and then resell them, but worked with the big rental companies and carmakers in a format in which the startup rented the car from these companies and added its own technology services to the operation. The company launched a short-term subscription car rental format, meaning weekly charges, and the app driver could return the car at any moment.
But over time, Poljokan says the company realized it didn’t make sense to “label” the rental service just for app drivers. “Actually, you are not necessarily an app driver, you are being an app driver. Some choose to be an a driving partner for a long time, but there are many who end up becoming a driver for apps like 99 and Uber out of a momentary need, either job change, loss of a formal job, or supplementing income,” he said.
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Kovi part 2: car rental is for everyone, but the focus is on the gig economy
Over the past few months, Kovi has expanded the range to work with the general public, not just app drivers, and started creating long-term products, such as the so-called Kovi Max of new auto rentals. “With this, we naturally expanded the range of customers a bit more because there are added services on top of the new cars as the auto exchange in case of an accident, preventive maintenance coverage, insurance, that is, a range of options on top of the vehicle subscription.”
The company works with cars connected by its own technology. With an IoT (internet of things) chip, Kovi can manage the fleet, predict where the vehicle currently is and point driving behavior scores, besides best routes to dodge accidents or refuel, for example.
“We were the first company in Latin America to start charging what we call pay-per-mile. Normally in the traditional market, the renter has to choose a mileage plan and you usually don’t know how much you are actually going to trip. You can use it less and pay more for it, or travel more and have to pay higher rates for the additional mileage,” he explains.
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In the rental model per mile, Kovi has a minimum price of BRL 299 or a maximum of BRL 489 per week. The big bet of the startup is in the so-called gig economy associated with companies such as transport by application or deliveries of platforms like Mercado Libre or iFood, for example.
In a year when demand for cars is high with the return of mobility, but the supply of cars is low, with a lack of new cars on the market due to the shortage of semiconductors (computer chips essential for car manufacturing), Kovi’s prices have also been affected.
“On the supply side of the product, we had a little more difficulty in expanding our fleet, due to this scenario of not having so many new vehicles available. This ends up affecting the price of the service we offer,” he adds.
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Kovi is aware of the “no car ownership” movement, i.e. the new generation that uses the car as a service rather than an asset. “The car is an asset that naturally depreciates over time, so it’s not necessarily a good investment,” says Poljokan. “We also see a huge trend of urban mobility changing. People are accessing other methods of getting around like e-bikes, scooters, I think it’s a big change. We are guided by these macro-trends.”
Leveraging the fleet management technology base that covers more than 10,000 subscription car customers, Kovi launched a vehicle insurance option in March this year.
“As we were already doing this monitoring for our fleet management, we thought of ‘unplugging’ the internal service and offering insurance for theft and robbery in a segregated way, very similar to what we do for our fleet,” he explains.
In the case of the insurance product, the focus is on people who already own a car, but according to Poljokan, the product is a gateway to Kovi’s ecosystem, in this case, eventually, the customer sells the car and wants to sign a car rental. “Today 70% of the Brazilian fleet is uninsured, much because of the high cost and poor-risk profile analysis. It is a potentially big market”.
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It’s such a big market that has been explored by fintechs such as Creditas and the insurtechs (insurance techs jargon) that are increasingly growing in Brazil. Born as a mobility startup, Kivo also considers itself a “fintech” because it offers access to an asset, which is the car. “Historically in the market, the way to access a car in Brazil is either by financing or through the big rental companies that accept credit cards. Today in our base we have many unbanked people, so we offer other payment models. We can analyze the risk with all the technology we have created and we can do this not only with access to the car by subscription but also with insurance.”
Kovi expands across Latin America
The startup began operating in Mexico at the end of 2019, but with the pandemic in 2020 the business did not move forward. In recent months, with the return of mobility, Kovi has seen a six-fold growth from the fleet of cars it initially had in the country and is already the largest app driver car rental company in Mexico.
Counting Brazil and Mexico, the company grew its customer base by 70% in the pandemic year of 2020. In the three years of operation, Kovi has reached a fleet of 12,000 vehicles and has a team of 700 people. By the end of 2021, the goal is to reach 20,000 cars and more than 900 people on the team.
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“We see that our business has a global potential, not only Latin America but also in countries where the income disparity is very large and a part of the population has little access to mobility assets in very large cities,” says Poljokan. Meaning: besides Latin America, South Africa and Turkey are also markets the company intends to explore in the future.
Brazil is home to large consolidated rental companies such as Unidas, Movida, and Localiza, but for Poljokan Kovi’s main rival is the financing methods of the incumbents, which is where much of the population access vehicles.
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“Of the 45 million cars in the Brazilian fleet, only 1% is related to subscription service. In general market reports, in Europe, the forecast is that in the next few years this will reach 20%, so here in Brazil in the next decade, it should be something similar. We will go from 1% of the fleet to 20%, which is 10 million cars. This doesn’t come from the big car rental companies, it comes from changing habits and how people access cars.”