Brazil’s financial technology (fintech) sector is booming, but many of the leading start-ups and early-stage businesses have a problem – infrastructure providers have not kept pace with their innovation. Enter capital markets fintech Kanastra, which is today unveiling a $13 million seed funding round as it seeks to further develop the infrastructure solution it has developed.
Kanastra is specifically focused at fintechs and other originators that lend in one form or another – to small business borrowers, perhaps, or even to consumers. Unlike banks, which provide such credit from their balance sheets, these firms must raise money from investors in order to make loans. However, the infrastructure through which that debt finance is arranged is out of date and fragmented; fintechs have to work with a string of service providers all operating different tools, often dependent on spreadsheets and even paper-based documents, and with variable levels of customer service. The effect is to make the process of raising debt finance cumbersome and time-consuming, holding fintechs back as they seek to increase lending to their customers.
Kanastra’s solution is a technologuy platform that provides a one-stop-shop solution for both the fintechs and originators themselves and finance providers. “Effectively, we operate as an interface between the two sides,” explains Gustavo Mapeli, who co-founded the business with partner Manuel Netto. “The aim is to take all the complexity out of the debt financing process.”
It’s an ambitious project. Kanastra’s platform offers services ranging from fund administration to debt issuance, enabling fintechs to work with each of their finance providers far more autonomously. “It should be a seamless, efficient and cost-effective experience,” adds Mapeli.
The idea for the business was born out of the founders’ own frustrations with the debt finance sector. Mapeli, who has previously worked in roles at Softbank and Boston Consulting Group, and Netto, formerly of ZX Ventures, founded Kardinal, an asset management group in Brazil, three years ago. As they expanded into the private credit sector, they began to run into all the problems that have dogged fintechs. “We encountered all sorts of issues in the industry, from low-quality service with poor communication to non-existent technology, which results in daily errors and limited visibility into fund data.”
That underwhelming experience sparked an idea in the two founders. A tech-enabled platform able to offer a smoother process would have huge potential in a fast-growing market, they reasoned. Brazil’s private asset market has grown 12-fold over the past decade or so, the company points out. “It’s a market that has reached critical mass and is poised to continue its robust growth for many years to come,” predicts Netto.
The early signs are encouraging. Since its launch last year, Kanastra has signed up 35 clients, accounting for around $400 million of assets under management, with both originators and investors on its customer roster. The company makes its money through fixed monthly fees or by taking a percentage of the client’s assets under management.
Now, however, Kanastra has plans to further develop the product, with today’s fundraising earmarked for investment in evolution of the platform. The $13 million investment was co-led by Valor Capital and Quona Capital, alongside QED Investors, Actyus, Collaborative, Crestone, Grão, Endeavor, Clocktower, Latitud and Norte. A number of fintech founders also took part in the round.
Jonathan Whittle, co-founder and managing partner at Quona Capital, believes the business has emerged at just the right moment. “This is an enormous market with very real pain points, and we believe that Kanastra has the right approach to address this opportunity,” he says.
In the short term, Kanastra will focus on building market share in the Brazilian market, which dominates the Latin American economy. But there is potential for the company to expand internationally, both regionally and in North America and Europe. “This is a pain point in every market,” Mapeli insists.
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