Why We Invested: R2

oct. 12 - 2023
Why We Invested: R2

Bridging the Financing Gap in Latin America
The Latin American market has long grappled with a significant financing gap, particularly for Micro, Small, and Medium-sized Businesses (MSMBs). This financing gap in Latin America is one of the largest globally, with 87% of MSMBs' credit demands going unmet.  

The traditional financial system often overlooks these crucial engines of economic growth due to perceived risks. Banks' reluctance to extend loans to MSMBs results in a substantial financing gap that stifles the potential of these businesses, hinders economic progress, and limits market expansion, while also leaving them vulnerable to liquidity issues, delayed payments, and even bankruptcy. 

R2's vision aligns with the opportunity presented by this financing gap. They offer a white-label Capital-as-a-Service (CaaS) solution tailored for platforms such as Point of Sale (PoS) systems, payment processors, and online marketplaces.

By integrating their proprietary technology, R2 provides revenue-based financing to platforms’ sellers & merchants. This not only enhances revenue, unit economics, and take rates for platforms but also optimizes working capital management, revenue, and growth for the merchants. 

Lending is a complex process, especially when dealing with MSMBs that often lack the financial history, credit data, and formal structures required by traditional lenders. This challenge is compounded by the diverse and unique nature of these businesses, making it hard to identify clear creditworthiness signals, especially in a region notorious for having extremely high fraud rates. R2 understands that building a competent lending operation involves much more than technology – it requires a deep understanding of finance and data. 

Prioritizing tailored risk assessment models for MSMB’s, R2 acknowledges these challenges traditional lenders like banks face in developing them. R2's mission is to address this gap by constructing a robust lending stack with AI-trained credit models, bridging the divide between the financial needs of these businesses and the complexity of risk assessment. 

Revolutionizing Financing: R2's White-Label CaaS for Platforms  
R2's innovative white-labeled CaaS solution empowers platforms to offer loans seamlessly to their merchants under their branding and launch a lending program in less than 2 weeks. By partnering with R2, platforms can focus on their core strengths such as customer acquisition, onboarding, and retention, while R2 takes care of the complexities of lending.

This model eliminates the need for platforms to approach individual MSMBs, navigate their digitization challenges, deal with incomplete financial statements, train AI-based credit models, raise debt capital and build a complete lending infrastructure in-house. The benefits of this model are threefold:

  • Platforms become large-scale distribution channels for R2's lending services.
  • Platform merchants receive digital payments, ensuring they are banked and have a financial footprint.
  • Principal and interest payments are automatically deducted from merchant platform revenues, minimizing trust requirements, and streamlining the credit system.  

R2's full lending stack, including data acquisition, risk assessment, compliance, servicing, back office, and collections, ensures that they are well-equipped to provide a comprehensive solution to their partners. They have embraced open banking, harnessing large datasets and alternative data sets to make informed lending decisions. 

R2's Tech-Driven Edge: Revolutionizing MSMB Lending  
While several players have entered the SMB lending market, R2 stands out due to its comprehensive and embedded approach. Competitors often lack deep integration with platforms, forcing businesses to trust unknown third parties with their data and rely on disjointed processes.

R2, on the other hand, is a true B2B2B company that understands the intricacies of platforms and merchants, allowing them to create seamless lending experiences. This distinct positioning empowers R2 to deliver unparalleled value to both platforms and MSMBs. 

Additionally, R2's use of proprietary AI-trained credit models, alternative data sets, and technology-driven risk assessment differentiates them from traditional lenders. They're not merely focused on lending – they're focused on embedding financial expertise within existing platforms to ensure the seamless flow of capital where it's needed most. This model benefits not only MSMBs but also the platforms themselves, enhancing their transaction recurrence and revenue streams. 

The Visionaries Behind R2 
Co-founders Roger Larach and Roger Teran bring extensive experience in startups and fintech to their venture, R2. Larach's background includes roles at major financial institutions like BNP Paribas as well as leadership positions at Ualá, a LatAm neobank. His experience highlighted the importance of robust lending solutions, incorporating traditional and alternative credit data, and efficient distribution channels with low customer acquisition costs.  

Teran, who crossed paths with Larach at Boston College, studied International Relations, Economics, and Computer Science. He gained valuable financial experience at firms like Mesoamerica and Techstars and worked as a data scientist at WeWork and Reef, where he leveraged machine learning for data-driven insights. Teran now serves as Chief Data Officer and Co-Founder of R2. 

Unlocking Strategic Synergies for Growth  
R2's innovative embedded finance approach has strategic implications beyond lending. There are potential synergies between R2 and some FEMSA business units that could result in revenue growth, customer engagement, and data-driven financial services. This potential collaboration enables FEMSA to acquire unique insights within the industry or complement our comprehensive fintech services while aiding MSMBs' access to much-needed capital. Meanwhile, R2 has access to a robust distribution channel in exchange. 

We are excited to join R2 in the journey of transforming the Latin American financial ecosystem and empowering MSMB’s!