Launch HN: R2 Capital (YC W21) – Working Capital as a Service in Latin America
We come from entrepreneurial families in El Salvador and Honduras, and understand the impact small businesses have in terms of job creation and economic security. We’ve also witnessed our families struggle accessing capital for their businesses in both good and tough times. In fact, SMBs generate ~60% of jobs but only 25% of GPD in Latin America. They often can’t grow because it’s really difficult to access capital - not enough assets, tedious paperwork, onerous personal guarantees - and the onset of the pandemic only made it worse as banks retrenched from financing this segment. We started R2 last year when many SMBs in the region were forced to sell digitally in order to survive.
Banks tend to underwrite small businesses according to their total assets or the creditworthiness of the owner. Banks don’t, however, analyze SMBs based on their daily sales and underlying customer base. By partnering up with processors and marketplace apps, we access underwriting-rich data and figure out what companies to fund.
In the US, platforms such as Stripe, Square, and Shopify have all started capital programs recently. Our goal is to equip comparable platforms in Latin America with their own capital program, so that they don’t have to build out this service internally from scratch.
I previously worked at Reef, which operates dark kitchens in the US, where all orders went through marketplace apps such as DoorDash, UberEats, and Postmates. I spent a lot of time ingesting, cleaning, and standardizing their data to determine how each virtual restaurant was doing. This type of data can also be quite useful to assess the future performance of a small business.
Using the platforms’ data, we carry out the risk assessment on their behalf. We also provide the capital, which ensures an optimal experience to both platforms and merchants. We’ve done the legal setup in Mexico, Colombia, and Ecuador, and make sure we’re following local compliance which removes any risk to our partners. We also handle the marketing, servicing and capital management in order to scale each program.
We don’t charge the platforms we partner with. Instead, we invite them to participate in our financing upside so that they can activate a new revenue stream. More importantly, they get to provide a valuable financial service without having to take on the financing and regulatory risk.
We’re just getting started but excited to be working with platforms such as Rappi and Sr. Pago already. We’d love to hear your thoughts on what we’re building and on how we can improve so that we can finance a lot more SMBs in Latin America.