Andreessen Horowitz invested US$12.5m in ADDI, a Colombian point-of-sale lending startup, with participation from previous investors monashees, Village Global and Sinai VC. ADDI raised US$3.8m in 2018.
(TechCrunch) Andreessen Horowitz <3 Latin American startups. Latin America is the only region outside of the U.S. where the venture firm is routinely investing capital, and it just made another commitment, doubling down on its early-stage support for the point-of-sale lending startup ADDI.
ADDI picked up $12.5 million in new financing in April of this year as the company looks to expand its lending services online.
For an American audience, the closest corollary to what ADDI is up to is likely Affirm, the point-of-sale lender that’s raised a ton of cash and come in for some (valid) criticism for its basic business model.
Like Affirm, ADDI lets its borrowers apply for credit at the moment of purchase. The company likens its service to the layaway and credit plans that already exist in Colombia — but involve pretty onerous requirements to use. Company co-founder Santiago Suarez and Andreessen Horowitz general partner Angela Strange both commented on how, in some cases, Colombian shoppers have to have three people vouch for a borrower before a store will issue credit or agree to a layaway plan.
The difference between an ADDI loan — or any loan — and layaway is that an installment payment plan doesn’t charge interest (and even with the fees that installment plans do charge, they are often still cheaper than taking out a loan).
But financial products are coming for consumers in Latin America whether those buyers like it or not — and for the most part, it seems they do like it.
Historically, only the wealthiest clientele in Latin America received anything resembling the kinds of financial products that are more widely available in the United States, according to Strange. And the investment in ADDI is just part of her firm’s thesis in trying to make more services more broadly available in a region where a technological transformation is creating unprecedented opportunities for challengers.
That assessment is what drew Santiago Suarez back to Latin America only two years ago. A former executive at Lending Club who previously had worked as the head of New Product Development and Emerging Services at J.P. Morgan, Suarez saw the tremendous growth happening in Latin America and returned to Colombia to see if he could bring some much needed services to his home country.
Suarez partnered with his childhood friend, Elmer Ortega, who was working as the chief technology officer of the local hedge fund where he had previously been employed as a derivatives trader before learning how to code.
Together, the two men, who had known each other since they were five years old, set out to transform how credit was offered in retail shops. It’s an industry that Suarez had known well since his parents had owned stores.
“In the U.S. there are all of these gaps that fintech companies are filling,” says Suarez. “But the gaps in Latin America are bigger.”
Suarez and Ortega incorporated the company in September 2018, around the same time they raised $2.3 million from the regional investment firm, Monashees, Andreessen and Village Global . They then raised another $1.5 million in an internal round of financing before closing the most recent funding.
The company offers loans at annual percentage rates ranging from 19.99% to 28.90%. The company started with a digital solution for brick and mortar retailers because 90% of retail in Colombia still happens offline.
Although it’s in its early days, the company has already originated 10,000 borrowers and typically loans out roughly $500 since it launched on February 22, according to Suarez. He declined to comment on the company’s default rate on loans.
Now with 40 employees on staff, the company is looking to bring its lending tool to more e-commerce and physical retailers, according to Suarez. And despite the threat of cyclical political turmoil, Suarez says there’s no better time to be investing in Colombia.
“It’s the most stable country outside of Chile… Way more stable than Brazil, way more stable than Argentina and way more stable than Mexico,” Suarez says. “What we’re looking at is more than cyclical instability… those things go beyond that. Nubank was able to build a multibillion business in the worst political and economic crisis in Brazil’s history. I think Colombia is an incredibly attractive space with a deep talent pool.”