Bloomberg Línea — The president and co-founder of SoftBank-backed unicorn Rappi said that the startup has no plans to go public, not even if the window for IPOs (initial public offerings) reopens again.
“It is not in the plans and it is not a decision made by anyone more than Rappi, its team, and its founders,” said the Colombian Sebastian Mejia, in an interview with Bloomberg Línea.
“We are a company that has a scale and sustainable business, that has cash and doesn’t need money from anyone outside,” said the entrepreneur, who added that the startup has reached breakeven and ruled out plans for new funding.
Rappi announced on Monday the acquisition of Brazil-based Box Delivery, a last-mile delivery startup, for an undisclosed amount, with payment in cash and mainly in shares.
According to the co-founder, the deal represents an exception and not a new strategy of inorganic growth. “[Acquisitions] are not part of our DNA [...] We have not built Rappi by making acquisitions. It’s simply not our story. This is the only major acquisition,” Mejia said.
The statements come at a time when the market is speculating on which startups are best prepared to go public as soon as market conditions allow.
In late March, one of the investors in Rappi, SoftBank’s managing partner for Latin America, Juan Franck, said in an interview with Bloomberg News that “some of the portfolio companies that are in more mature stages could benefit from an upcoming IPO window, a possibility that, according to market experts, could occur later this year or early 2024″.
The investor cited companies such as Rappi, Unico, Creditas, Clip, MadeiraMadeira, and Kavak as some of the companies that are hypothetically prepared for a listing. After the interview, SoftBank clarified that its executive did not want to mention any particular startup.
SoftBank is one of Rappi’s investors, which is also backed by big venture capital names like T.Rowe Price, Sequoia Capital, Tiger Global Management, and Andreessen Horowitz.
According to Mejia, going public “is not a decision by any investor”. The company has become a sustainable business and does not need external funding, according to him.
For experts in the startups and venture capital industry, however, an IPO is the most likely alternative from a statistical point of view.
Data from PitchBook that assesses the probability of a successful exit for investors of VC-backed companies (venture capital) shows that Rappi has a 90% chance of having an initial public offering, versus a 9% chance of being acquired and a 1% chance of no exit. The percentages are generated by a machine learning algorithm, which takes into account market positioning, company performance indicators, active investors, and business activity.
According to the co-founder, Rappi will continue to generate cash to finance the operation and grow and is well capitalized. He also said that the startup is moving towards being a profitable company and that the sustainable growth is a result of “a lot of work in the last two years”.
“It’s a result of growing the business and becoming a much more efficient business. It’s not just focusing on the cost side but very much on the growth side and an operation that every time it grows generates even more margins,” he said, although he did not open up the figures.
“We are between the second and third largest private company in Latin America in sales volumes and customer base and we have very strong businesses in nine countries,” Mejia said.
According to him, Rappi has no plans to expand beyond Latin America. “We are the only company that is truly local in this segment,” he said, pointing at competitor iFood, which was acquired by Dutch company Prosus for a valuation of $5.4 billion at the end of last year.
The challenge is also to strike a balance between operating in different markets. In Colombia, for example, its home country, Rappi faces potential cost increases from a labor reform being discussed in the legislature. It is an isolated operation that today is not profitable, as CEO Simon Borrero told local newspaper Semana when dealing precisely with the effects of the reform.
Challenges in the delivery sector
Rappi’s trajectory illustrates the challenges delivery companies face in other markets as well, where raising capital can be fundamental to the continuity of the business, even if it means a reduction in valuation and therefore in investors’ capital.
US-based on-demand supermarket delivery company Instacart raised its internal valuation by 18% from December 2022 to February 2023, according to Information, citing a person with knowledge of the matter. The startup did not respond to a request for comment from Bloomberg Línea.
In 2022, on the other hand, Instacart cut its private share price four times. Now, even with its internal valuation still about 70% lower than two years ago, The Information said the move could bode well for rising equity prices for mature startups.
Colombian supermarket delivery startup Merqueo, meanwhile, has filed for registration with the SEC (US Securities and Exchange Commission) for an initial public offering. In the document, the company reported significant losses in recent years and it is unclear when or if it will become profitable.
Operating expenses were a key driver of the loss. In the document, Merqueo said it is expected to remain loss-making shortly as it invests in growth.
Rappi has made secondary offerings
Rappi did not disclose any external funding in 2022. Officially, the startup was valued at $5.25 billion in its last round in July 2021 after a Series F of over $500 million led by T. Rowe Price.
According to reports from Crunchbase and Pitchbook, the latest transaction would have been a secondary private offering, a kind of internal round, with investors who were already in the base selling stakes. Questioned by Bloomberg Línea, Rappi said it does not disclose information about investments.
According to Crunchbase, Rappi received $900,000 in December 2021 and $150 million in January 2022, plus an undisclosed amount in a secondary offering in September 2022.
The last investor, according to Crunchbase, would have been CrossWork.us, a fund focused on pre-IPO companies, via partner Steven Ogunro.
PitchBook data shows that Rappi would have received $108.6 million in Series F venture funding from CrossWork, Opera Ventures, and Atman Capital Partners, which would have been completed on September 30, 2022, at a post-valuation of $5.36 billion.
Also according to PitchBook, in the secondary offering that would have been the last transaction involving Rappi’s capital, Atman Capital Partners, the new manager of ONEVC founder Pedro Sorrentino, sold a stake in the company to an undisclosed buyer.
Raison Asset Management, a private equity fund focused on pre-IPO companies, told Bloomberg Línea that it invested in a secondary offering in Rappi in early 2022, but did not disclose the amount. Around the same time, Delivery Hero announced it sold its $150 million stake in Rappi. But according to Raison, the deal with Rappi was not related to Delivery Hero.
In primary offerings, the money raised from investors goes into the company’s cash flow and shares are issued. In secondary offerings, investors sell shares and pocket the proceeds. Usually, the secondary offering has a slightly lower valuation, or price per share, than the primary offering.
Equal valuation, different company
Asked about the valuation of $5.25 billion from the last round, Mejia said it “has remained the same”. “We have generated so much internal value with the people who are building and working [...] I can speak that we have generated very, very much internal value. It’s been two years since we had our last round, so we’re talking about a very, very different, and much better company,” he said.
“Valuation, as we have evidenced over the last two years, is a number. And many companies are not able to sustain that number,” Mejia said.
Latin American startups are having their valuations squeezed from early 2022 as venture capital money has become scarcer. Last year, there was $12.1 billion invested in companies in the region, down about 33% from $18.5 billion in 2021, but still more than double the $5.8 billion in 2020, according to data platform Sling Hub.
Rappi is the second most externally funded startup in Latin America since 2018, according to Sling Hub. PitchBook data shows the company has raised $2.86 billion to date, excluding loans - such as a $500 million financing from Itaú Corpbanca, Banco Davivienda, Banco de Bogotá, and Grupo Bancolombia in September 2022.