Latin America (LATAM) technology investment offers a unique opening to those that seek opportunities as it is fairly mature technologically but still underfunded. Counterpoint’s Market Monitor shows that LATAM’s smartphone installed base was more than 61% of the population at the end of 2017. Internet World Stat shows that in the same period, more than 66% of the LATAM population had access to the internet. Indexes higher than both the Asian and world average, and investors are acknowledging it. According to LACA (The Association of Private Capital Investment of Latin America) in 2017 VC tech investment totaled USD 1.1 billion, more than double the previous year.  This trend continued in Q1 2018, suggesting the investment in 2018 will be around USD 2.5 billion.

Rappi is benefiting from this investment spree. Rappi, is an on-demand delivery company and the most recent startup to join the exclusive unicorn club in LATAM. The region has had 12 unicorns so far and Rappi is the only one that is a sharing or collaborative economy enterprise.

Rappi was founded in 2015 by three veteran Colombian entrepreneurs. They used their previous experience to obtain funding to accelerate the growth of the new venture.  In its early phase, Rappi received investment from Silicon Valley VCs and graduated from Y Combinator. It recently received funding from VC firms such as Sequoia Capital, Andreessen Horowitz and DTS Global, which has increased Rappi’s valuation to more than 1 billion USD.

Rappi is currently established in 27 cities across six countries: Colombia, Mexico, Brazil, Argentina, Chile and Uruguay. It is a marketplace with around 10,000 participating stores and restaurants across six countries, with deliveries direct to customers.  Customers can order almost anything, from wireless headsets, to groceries, they even deliver cash. One of the founders, Simon Borrero, said that, “Rappi aims to be a store that delivers everything”.

Rappi value proposition

• Rappi charges a delivery rate between USD .80 to USD 1.8 depending on the country and the exchange rate. This rate is what the rider receives as payment for the delivery. Rappi takes a percentage of the sales total. Rappi also offers a premium subscription, with unlimited deliveries, for around USD 3 per month.
• The store must be located within 3 to 5 Kms of the client and Rappi riders only utilize bicycles or scooters. Once the customer places the order, it takes between 20 minutes – 1 hour to receive the order.
• The software Rappi uses sometimes gets confused and assigns orders that are located up to 10 kms away. This results in late deliveries and the rider not getting paid for the delivery, which increases rider discontent.
• Rappi is benefiting from the global gig-economy trend where increasing numbers of people would rather have an independent job, instead of a 9-5 dependent job.
• LATAM cities tend to be big, overcrowded, with heavy traffic and long transit times. By using scooters and bicycles, the delivery can be much more agile, which is what is driving Rappi’s swift growth.

Rappi will facilitate ecommerce growth LATAM, as it solves one of the biggest problems in the region – last mile logistics. In a survey conducted at the end of 2017, by CACE, Argentina’s e-commerce association, users stated that only 44% of all online sales are delivered.  The other 56% are either picked up at the store or from a central logistic location.  Courier services are quite expensive in the region, and not sufficiently reliable.   Rappi sharply decreases the cost of the logistics, which could unleash LATAM’s e-commerce potential.

Ranking based on numbers of monthly orders

Rappi is facing increasing competition in each of the countries it operates in. iFood, a Brazilian food delivery company, currently receives more orders that Rappi does, as it has been in the market longer.  However, it has so far failed to attract enough investment, partly because it only focuses on delivering food. The other competitor is the Spanish company Glovo, which entered the LATAM market in 2017.  Glovo offers multi-delivery on demand which is a slightly different service proposition, and the cost is calculated slightly differently.

The success of these local startups over global companies is their deep understanding of the local culture and tackle their needs.  They also know how to adequately get around local regulations, a key trait of successful tech startups in LATAM.  However, lack of funding has been one of the biggest growth barriers for LATAM tech ventures, as international investment firms have only recently started to take notice of potential opportunities in the region; Rappi was the inaugural investment in LATAM for Andreessen Horowitz.

Latin America is therefore offering a unique opportunity to investors to develop next generations startups.