Clara Deep Dive: The Record Breaking Startup
Welcome to Scenius Mexico Deep Dive. In addition to the weekly round up of what’s happening in the Startup scene, the Deep Dive editions are long form analysis of the story and business model of emerging Startups in Mexico.
For the first edition, we will talk about Clara, a Startup offering a corporate credit card, and an expense management system for SMBs in Mexico, Brazil, and Colombia.
Founded in stealth mode in Mexico City in April 2020, Clara launch day happened in March 2021. Less than a year later, the startup became Mexico’s fifth unicorn, making headlines by setting a new record as the fastest startup from Latin America to reach a US$1 billion valuation.
Startup Profile: Founding Year: 2020
Industry: FinTech - Corporate Spend Management
Founding Team: Gerry Giacomán Colyer, Diego Iván García Escobedo
Funds Raised to date: US$103.5 Million in Equity
Investors: Coatue, Alter Global, DST, Monashees, Avid Ventures, Global Founders Capital, General Catalyst.
Mexican Competitors: Delt.ai, Mendel, Jeeves
International Competitors: Ramp (US), Brex (US), Airbase (US), Spendesk (Europe), Pleo (Europe), Soldo (Europe), Cora (Brazil)
Part 1: Whatever happens, don’t run out of cash
As vital as the Finance department is to any company, it is one of the most complex - not to say chaotic. From recording expenses, managing cards, paying invoices, tracking outstanding balances, there’s a lot of moving parts to keep in sync in order to have a clear view of the situation and be able to make realistic forecasts.
Now imagine a Startup; the finances are usually managed by one of the co-founders, probably the one showing less aversion to the matter. Add to it a never ending to-do list. Spice it up with a company growing way too fast to have well established processes and you have a recipe for a disaster.
When startups explode, you cannot track the reason to a unique error - even though the media like to simplify it as it makes for a good story. It’s usually the sum of different factors, but a sure fact is that running out of money is the end of the game for all of them.
Without being that dramatic, even Startups and fast growing companies doing fine can benefit greatly from transparent and smooth financial processes.
For example, a startup traditionally has to rely on financial infrastructure that is local and country-specific. A company with employees in Mexico and Colombia would require multiple vendors to cover its finance function in each country — a corporate card in Mexico and one in Colombia and another vendor for cross-border payments, inducing high FX (foreign transaction) fees and non-necessary complexity.
As boring as it may seem to some, finance - including accounting! - is a powerful tool to boost growth and make the best decisions.
Part 2: Overnight successes hide painful trials and errors
Don’t look at the Clara CEO’s LinkedIn Profile. Skim through it and you end up with the idea that his journey was orchestrated all along: some consulting work at a famous firm, an MBA from Stanford, and C-level positions at high growth startups before building the fastest unicorn in Latin America.
Gerry Giacomán Colyer is surely an exceptional entrepreneur and will impact the Latin America startup scene like few will do, but the story doesn’t start here.
In the beginning, he was a young Mexican that left a well paying consulting job in the US to launch a Startup in Mexico in 2010. That’s 12 years ago, during a time that the ecosystem was non-existent in the country. Proof of it: Gerry and his Startup, Cuponzote, were part of the first batch of the Startup Chile accelerator!
Eventually, he failed to build his dream and had to close it down. And that’s the beauty of this story. People believe successful entrepreneurs have been rocking it since day one, but when you start digging into their journey you get a glimpse into the reality - a lot of ups and downs with many failures, building resilience, and eventually leading to well-deserved success.
His first endeavour was still an eye-opening experience for Gerry. He then moved back to the US to study an MBA at Stanford and worked in various Startups, one of which was building an expense management system - convenient, don’t you think?
At the same time in San Francisco, another Mexican, Diego Iván García Escobedo, had made his way from Monterrey to Silicon Valley. Diego is a self-taught software developper and entrepreneur. No fancy consulting job or MBA, but a lot of hands-on experience coding projects with increasing complexity and taking risks to follow his passions.
One of his passions was to participate and organize Hackathons, first in Mexico City, and then in San Francisco. That’s where he got his start in the Startup world and met many other Mexican and latino founders. After years living and building in the Bay Area, Diego went back to his natal region to manage the technical teams of a Mobility Startup in Brazil and Mexico.
And that’s how we get to the genesis of Clara - Grow Mobility (formerly Grin). When Gerry left Silicon Valley to come back to Mexico, he launched a new Startup called Uva Scooters that got acquired after only 3-month of operations by Grin. This freed up Gerry to spearhead the growth of this newly formed Startup and began his working relationship with Diego.
Clara’s beginning in April 2020 was made possible by the Grow Mobility fallout, ending in a sell-off for the symbolic value of $1 to Mountain Nazca in June of the same year, as the startup was heavily indebted and facing the Covid crisis.
Free from their duty at Grow Mobility, the duo met a few times to lay down a plan for their next endeavour. As the story goes, the two co-founders got the idea of building Clara while enjoying a roasted carnita at a friend’s place. Although certainly romanticized, who doesn’t enjoy a good founder story?
Part 3: Walking on eggshells - How to build a complex product while growing in two countries at the same time
Corporate spend management startups can be complex to understand. A quick view at Spendesk’s website says it all: The 7-in-1 spend management solution. So, there’s a lot of room for differentiation, but also for confusion.
Clara decided to focus on 3 core elements - corporate credit cards, B2B payments, and an expense management platform. They got their first traction with the corporate credit card offer. A key element to their strategy is that customers can request as many cards as they need - virtual or physical - for free. So, how does Clara make money, you may ask.
For the most part, fintech companies make money in one of two ways: interchange revenues and software incomes. Clara chose to charge interchange fees on each credit card transaction. It makes sense as the Mexican interchange market is more lucrative than other markets in the world, Europe to name one. You then get into a growth loop where the more your customers use your service, the more you make money - automatically. Smart.
Let’s get back to April 2020, working in stealth mode, Gerry and Diego raised funds from Business Angels to set up a small team to build their MVP. Executing like machines, the team succeed in getting their first users in no time, get accepted into YC, go on to raising a hefty $3.5 million seed round and thus say no to YC before the batch began. In March 2021, only 9-months later, their baby was ready to be shown to the world.
Based on their experience, the team knew they would be walking a tightrope. On one hand they would have to find focus on an endless list of potential features for their product. And on the other hand, find the right balance between growing at light speed without exploding along the way.
Strategically, Clara should have headed up north to compete for a share of the US market, like most Latin American Startups used to do. Instead, they raised a US$70 million Series B in December 2021 to expand into the Brazilian market. It’s was an interesting move, which might become more and more common as the Latin American market matures.
But, balancing this multi-country growth strategy, while prioritizing features and competing with a well-founded international competitor wouldn’t be an easy ride.
Part 4: Reach for the stars without blowing up the rocket ship
To get some insights on what the future holds for Clara, we can look at similar companies in Europe and the U.S.
From a valuation standpoint, Ramp (the co-founders are Angel Investors in Clara) announced, in March 2022, $200 million in new financing that doubled its valuation to $8.1 billion That same month, Jeeves announced a $180 million Series C round that valued the company at $2.1 billion. Brex followed suit with a $300 million Series D-2 round for a valuation to $12.3 billion (decacorn status). In comparison, Clara’s last round was on December 2021 with a $70 million Series B, and recently a $150 million debt facility from Goldman Sachs.
These massive rounds are yet another example of how competitive — and lucrative — the corporate card and expense management category has become. While Ramp can be seen more as a partner for Clara, Jeeves is clearly competing in their territory with an aggressive growth plan for Latin America.
On the expansion side, the plan is quite straight forward; doubling down on Mexico and Brazil while opening new markets in LatAm. Gerry and Diego have learned their lesson with Grow Mobility and are walking the fine line of rapid international growth without burning themselves. They have a strong network and experience in Mexico and Brazil and recently opened Colombia with a dedicated $10 million budget.
On the customer side, they focused on SMBs in Mexico where in Brazil they got more traction on the mid-market size. The broader their solution becomes, the more it makes sense to go after bigger customers with cross-border and complex financial needs. As a benchmark, Ramp’s biggest customer spend is “in excess of $10 million a month.” So, Clara should not only expand its customer base, but also its average customer value.
On the product side, the sky is the limit. Competitors are exploring the following verticals: revenue-based financing, working capital loans, smart accounts payable, accounting, or going the M&A route, like how Ramp acquired a negotiation-as-a-service startup (Buyer) and invested in regional-focused competitors Pluto (for the Middle East), Karbon (for India), and Clara.
The good news is that the TAM (Total Addressable Market) is growing year over year with more business across the world going online and digitalizing their processes. And the winner will be the one offering the best infrastructure layer where they actually own the stack and can start extracting efficiencies that would not be possible if they were just a provider plugging into the local bank.
In short: Every corporate spend management Startup’s ultimate goal is to becomes the financial operating system for global businesses.
Proof reading and editing by TransPerfect