Focus on local users saved us, says Brazilian startup unicorn founder

One of the brains behind ridesharing app 99 shares the lessons learned during his years developing the business prior to being acquired by Didi Chuxing and valued at over $1 billion.
Written by Angelica Mari, Contributing Writer

The focus on local users was a key factor behind the survival of what is today the latest Brazilian startup unicorn, its founder says.

Founded in 2012, 99 - acquired in January by Chinese firm Didi Chuxing and with a valuation now estimated to exceed $1 billion - started as a a taxi hailing app and later added on-demand peer-to-peer transportation to its services.

In 2014 - precisely the year 99 started to see revenue coming in - Uber entered the Brazilian market. This piled pressure on the startup, as Uber had more resources to compete and other local transportation apps, such as EasyTaxi, were well-funded while 99 still struggled for cash.

"[At the time Uber launched] we were scared, as we were always the ugly duckling of the [e-hailing] market. We were always the smallest player, the poorest ones around - especially when compared to competitors like EasyTaxi, who were getting plenty of cash to expand, let alone Uber," 99 founder Renato Freitas told delegates at an event in São Paulo yesterday.

"I doubt that a year ago, if you asked someone whether we would still be alive by now, people would say we would be the latest Brazilian startup unicorn," Freitas added.

Uber has about 17 million users with over 500,000 drivers nationwide. 99, on the other hand, has over 14 million users and 300,000 drivers in more than 400 cities across the country. That number is expected to increase significantly with the increased firepower brought by the Didi takeover.

While other local companies had an eye on international expansion and Uber's model was to expand globally as fast as possible, 99 needed a plan to survive in a context of fierce competition. According to Freitas, the company had as much as 15 rival companies operating in the rideshare space in Brazil at one point.

"We needed a strategy to focus sharply on the Brazilian market. To compete with big companies, we needed to do something special for the local audience - we built a great story and based on values I am proud of, we managed to make it even though it was scary," Freitas said.

Addressing local demands

99's plan had technology at its heart and sought to enhance user experience as well as introduce features that catered specifically to demands and issues that are particular to Brazil. This started with improvements made since its taxi-hailing beginnings, when the startup sought ways to make electronic payment verification easier when itineraries were not GPS-based and fares charged on credit or debit cards - a novelty for Brazilian taxis until transportation apps came about - had to match the value on traditional taxi meters.

As the company grew, it got closer to authorities to try and find ways to better address the urban mobility issue. This started some time before the tone of the conversation changed and got to the point the very existence of ridesharing apps was under threat in Brazil.

"What you have to do regarding regulators is convince them that you are on the same side [of the mobility debate]. Complaining about policies never helps, you have to propose ways in which you can bring something to the table to make the city a better place," Freitas said.

"The approach that we have taken, of getting closer to the authorities, has worked in the past and I believe it will in future. Before, we had no date to demonstrate the benefits of change and today we do. Startupers tend to want things right now, but dealing with the government is like doing business with a very large company - things take time," he added.

To increase driver uptake of the service and address Brazil-related issues, 99 also sought to improve its driver payment system. Often times, due to credit restrictions, those using 99 as an additional income source do not have a bank account. Upon registration, drivers now receive a prepaid card, issued under a partnership with Mastercard, which gets loaded up as rides are completed, with transaction history available on the driver app.

Another example of an improvement focused on specific local needs is the ability for drivers to enable or disable payment methods for rides. This feature was introduced to increase driver safety when dropping off passengers in dangerous locations - under that functionality, drivers can say that, for instance, they will not take cash payments after a certain time. That's because criminals targeting rideshare drivers often do not register their credit cards and say they will pay with cash.

Going forward, as well as fierce competition other technical challenges faced by 99 cited by Freitas include complex algorithms to make better use of the fleet and artificial intelligence, as well as data analytics and scalability.

Attracting international interest

While 99 was all about focusing on local needs, most of the money the startup now has in the bank did not come from local backers. According to Freitas, there is very little appetite from local investors beyond early stage.

"You start [raising capital] in Brazil then everything after that has to be obtained internationally - if we were a fintech that might have been different, but local investors [focused on expansion capital and beyond] just have no interest," he said.

Freitas hopes that the Didi acquisition of 99 will create a new wave of interest in Brazilian tech-based businesses. What is lacking, he says, is a socioeconomic landscape that reassures backers. He added:

"What is relatively small funding for an investors makes all the difference to a lot of promising Brazilian startups out there. But we still lack examples and we will need to wait for this overall landscape to improve and this current turbulence to go away."

Following his departure from 99 in January, Freitas is now working on another tech startup focused on using bikes as a way to help solve the urban mobility problem in large urban centers in Brazil such as São Paulo. His new venture, Yellow, is due to start operations in the coming weeks.

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