Embedding FinTech in the LatAm Marketplace

by Dan Povitsky ( 4 min read )
Mar 07, 2022

If fintech is a movement and LatAm is having its moment, then LatAm fintech is easily one of the most exciting areas for VCs today. My partner Eric and I have been investing in LatAm since 2018 and are lucky to have joined at the Seed (or earlier) in the journeys of breakout companies TUL, Habi, Addi, and Cayena. At the onset of COVID, with economic shutdowns sweeping the region, we set out to answer the question: who is building technology to serve and finance LatAm SMBs… and what is the best/scalable approach? 

The answer: b2b marketplaces.

LatAm b2b commerce is defined by a highly fragmented network of SMB retailers transacting with an equally fragmented universe of suppliers. It is a trust-based system where SMB owners prioritize doing business with folks they know. As a result, door-to-door sales reps run formal parts of the economy and influence the modes of transacting: ordering inventory in-person, accounting on notepad, invoicing verbally, and paying in cash.

It’s easy to observe the above and get excited about the prospects for a venture-backable marketplace. After all, marketplaces match supply and demand, thrive on fragmentation, and provide the most value to users when commerce is analog. But, where there is obvious opportunity, there is also cultural and economic nuance that a founding team must interpret to get the business right. 

Two teams that have done so, and as a result, captured the proverbial lightning in a bottle are TUL and Cayena. TUL’s marketplace enables the procurement and financing of construction materials (think: cement, paint, steel, etc.) by mom-and-pop hardware stores in Colombia, Mexico, and Ecuador. Cayena does the same for small restaurants buying meats, fish, dairy, veggies, etc. in Brazil. Though the companies operate in entirely different SKUs in different countries, they stand out in their shared understanding of the size of the problem and the market participants’ needs. This has accelerated TUL and Cayena’s growth and today the companies reach thousands of stores/suppliers representing millions of GMV. Vine is an early investor in both.

Notably, each company first earned a position of trust with SMBs in their core product (as evidenced by high repeat rates of purchase and growing order sizes) and then launched fintech.  TUL extends insurance and working capital to hardware stores. Cayena consolidates payment terms so that restaurants have more bargaining power, more days to pay, and a seamless payment experience.

Why is this notable? Better yet, why is this noble? Because financial services are a massive profitable industry across LatAm controlled by 4-5 financial institutions per country who have every incentive to allocate capital to large enterprises rather than the long-tail of SMBs. Marketplaces like TUL and Cayena are filling this void and doing so responsibly by using the purchase data from their marketplaces (which represents the turnover in stores) to underwrite financial products. Since the goods purchased on the marketplace are productive assets (i.e., materials used to build homes or ingredients for meals sold to consumers), these customers tend to be some of the most reliable (in a region where fraud and collection are an underwriting risk).

At Vine, we are inspired by the b2b marketplace founders we have worked with. We believe their approach is foundational to technology and fintech penetration and are happy to share our insights in the aim of helping the next generation of founders. We believe our framework captures the key cultural and economic nuances integral to building the next unicorn b2b marketplace in LatAm. If you are building in this space, don’t hesitate to reach out (and don’t be surprised if you hear from us first)!


  • Category: Does the industry you serve represent a significant portion of the LatAm economy? How fragmented is supply/demand? How durable is supply/demand during economic downturns? What percentage of SKUs in the category are commoditized vs. high margin? What are average order values relative to the cost to deliver?


  • Asset Light vs Asset Heavy: Is yours a pure marketplace connecting supply and demand (i.e., asset light) or are you also responsible for storing and fulfilling orders (i.e., asset heavy)? The tradeoff in these models is between owning the end customer experience and margin. In an asset heavy model such as TUL, the company takes possession of supply and delivers it to stores. This is important because TUL offers a superior experience to incumbent suppliers who have unreliable delivery times and questionable delivery accuracy. TUL improves its margins with scale (i.e., increasing frequency of orders and order density per warehouse/truck). On the other hand, Cayena operates an asset light model because the largest produce suppliers have already achieved 24hr delivery times. If you are building an asset-heavy model, do the SKUs you manage require special treatment or storage (i.e., perishable goods can spoil and accumulate losses)?


  • Product: How do users search and place orders on your marketplace? How robust is your product catalogue? We believe mobile-native marketplaces (i.e., an app-based catalogue) are the best product path to adoption. Technology penetration in inventory procurement and management is low, but mobile phone penetration and WhatsApp usage is high. Building a product that looks, feels, and integrates with what most store owners are familiar with increases trust. Populating the marketplace with SKUs from brands that store owners know they can sell increases the likelihood of conversion to first order.


  • Demand GTM: How do you acquire stores? Do you use sales reps like TUL and Cayena? If so, how are reps hired, trained, managed, and compensated? Is digital or offline marketing a part of your acquisition strategy?


  • Supply GTM: How do you get into the room with the most important suppliers in your industry? How do you negotiate take rates and volumes? How will terms evolve over time and what are maximum achievable terms?


  • Expansion: What are your city/country expansion plans? Which cities/countries are most relevant and how do you rank relevance? We have found SMB dynamics to be very similar across LatAm, meaning there is huge upside to expansion and the biggest economic zones reside in Mexico, Colombia, and Brazil. Large cities can be some of the most lucrative in GMV, but can also be low margin due to competition of supply. Who from your team will manage expansion and how will you ensure a unified company culture and mission away from HQ?


  • Financial Services: Which financial products are most relevant to your customers and when will you be prepared to launch them? Layering in financial services can deliver a 10x better experience beyond the transparency yielded by a marketplace, in-turn driving customer loyalty and retention. That said, underwriting, fraud, and collections introduce skills outside the core competency of a marketplace. Will this be managed externally or internally?


  • Team: Who on the team is responsible for each org. of the marketplace – from product to supplier negotiation, demand generation, rep engagement, warehousing and fulfillment, customer service, and financial services? What is the founding team’s unique advantage or insight in the industry?