Today we at Valor Capital are honored to announce our investment in Vixtra, a startup founded by an experienced team and focused on helping thousands of Brazilian importers be more efficient and competitive in their foreign trade operations. Vixtra is building an end-to-end platform for financial products and cross-border services aimed at becoming SMB importers’ operating system.
International trade: a core element of the global social and economic development
In the last 40 years, foreign trade has been a major driver for global economic development and the integration of cultures and people. While international trade accounted for less than 10% of global GDP in the 1970’s, this number jumped to ~30% in 2018, representing ~ $20 trillion in total world exports. Even after the pullback of globalization driven by factors such as the pandemic, currency volatility, and disruptions in the supply chain of several sectors, cross-border transactions are growing again in 2022.
Since the 1980’s, the world has changed a lot: supply chains have been integrated, more than 1 billion people have been lifted out of extreme poverty, and the movement of goods has become part of our society. However, this entire process has taken an uneven shape on several fronts. One example being that transacting internationally is much harder for small and medium-sized businesses, which lack access to several tools required for seamless operations.
Brazilian foreign trade landscape: a massive and under-penetrated market, full of inefficiencies and ripe for disruption
When one looks at the Brazilian market, it is easy to observe some interesting dynamics and significant inefficiencies of our international trade landscape, which brings along with it several opportunities:
- Market size and participation of SMEs: annually, the total volume of imports in Brazil surpasses $220 billion – almost $1 billion in goods is transacted every business day. Of this amount, ~40% is spread across ~50 thousand small and medium businesses. The market is massive and touches millions of people.
- Under-penetration and opportunity for massive value creation: however, despite the sheer size of the international flow of goods, the total import market in Brazil represents only a little over ~15% of the country’s GDP, well below the levels seen in Latin America (average of 22%) and other emerging markets such as Colombia (20%), Chile (26%), South Africa (26%), and Mexico (38%) to name a few. By opening its economy and at least converging to the average levels of penetration seen in LatAm, Brazil could increase its annual volume by more than $100 billion, generating economic value creation and a massive opportunity for millions of people.
- Lack of tech-driven solutions to help SMEs: despite generating a massive volume of imports, Brazilian SMEs face several challenges on their journey to bring goods from abroad. For example:
- Lack of proper financing solutions: from the perspective of smaller companies, it is burdensome to find tailor-made credit and other financing alternatives at fair prices that could allow them to, among other things, shorten their cash conversion cycle and optimize working capital needs. In most cases, SMBs either get more expensive credit via local banks or need to stress their cash position by paying suppliers upfront. The whole process of buying, receiving, warehousing and selling to the final customer can result in a cash gap of more than 180 days, bringing a lot of fragility into the companies’ cash flow and balance sheet. This is one of the main reasons for smaller companies to struggle financially and, in some extreme cases, go out of business.
- Limited access to logistics providers: another major pain point in the process relates to the challenges SMEs face to find the best logistic providers and freight forwarders across the entire supply chain, given the high levels of fragmentation and pricing asymmetry. Different from what we have started to see in countries such as the United States, where companies such as Flexport work to provide seamless access to multiple services, in Brazil, SMBs are still transacting in a much more inefficient way, dealing with dozens of parties in an asymmetric way during an importation process.
- Lack of proper access to information on suppliers and the merchandise: before purchasing goods from abroad, SMBs struggle to find out more about who the suppliers are, the successful levels of their delivery rates, levels of ESG compliance, and many other details regarding their track record and performance. But the challenges do not end there: once the purchase is made from abroad, things such as properly tracking the cargo becomes a pain, leaving customers without a clear visibility of where the goods are and when exactly they will arrive.
- Currency exchange and hedging at fair prices: when bringing goods from abroad, SMBs also struggle to access the best offers to exchange currency at fair rates. Several institutions offer this kind of service, but comparing and contrasting through a transparent channel is difficult. Also, in the case of larger purchases and longer import cycles, hedging the currency exposure is even more burdensome and, in most cases, prohibitively expensive.
There are still several other challenges, such as dealing with all the bureaucratic processes of importation, understanding, and obtaining the correct licenses, paying taxes properly, and hiring the proper insurance policy – at good prices – for the cargo being purchased. The pain points SMBs face are plenty, but the opportunity for technology adoption and innovation are even more abundant, which is why we are so excited to partner with Vixtra.
Vixtra: the comprehensive importing platform offering credit and several other services for small and medium-sized importers
Amid this background, we found Vixtra, a young startup founded by an experienced team, focused on helping Brazilian importers be more efficient and competitive in their foreign trade operations. By talking to Vixtra’s Founders and better understanding the market, we found several reasons to invest.
Vixtra is building a tailor-made financing solution to help SMBs shorten the cash conversion cycle and properly manage Fx: Vixtra’s integrated and innovative financing solution touches on several points small and medium-sized importers care about such as:
- Working capital solution: given its deep knowledge of the import market, Vixtra is able to offer trade finance solutions when they are most needed, helping small and medium-sized importers massively reduce their need to pay for goods upfront. Vixtra’s product drastically improves SMBs cash conversion cycle dynamics and helps them thrive. For example, once importers rely on Vixtra to pay suppliers upfront, they benefit from an extended payment term, in a process that also greatly benefits suppliers, who can increase sales and reach larger audiences.
- Transparency and fair prices on Fx trade: through Vixtra, importers can also have access to efficient offerings of currency exchange at a fair price, via a back end integrated with several providers. For importers, any basis point of reduction on the cost of FX directly affects the bottom line, and more importantly, the ability to do it quickly and seamlessly , saving crucial time.
- Unique credit underwriting model with a best-in-class experience: Vixtra has built a robust and tailor-made credit model for the industry that combines publicly available data with private and proprietary info that goes well beyond looking at basic financial statements. Vixtra performs a traditional credit and compliance evaluation of the ability to pay, combined with a profound analysis of the transaction, which includes variables such as the importer and exporter’s track record. The years of experience in the sector of the Founders are crucial for what is being built.
Solving some of the main financing gaps but going well beyond credit products: even though solving working capital problems and financing gaps is something of unique value to importers, Vixtra is going beyond by building a comprehensive platform that includes or will include services such as:
- Merchandise tracking and management of importation processes: small and medium-sized importers manage the entire importation process through manual controls and internal dedicated teams, who work with several analogical interfaces that pull data from multiple stakeholders. This current low-tech process is highly inefficient and creates several complexities. Through Vixtra, importers can now have access to a unified view of all the pieces of the process, such as real-time tracking of the cargo, a more accurate projection of arrival dates, payment terms, and other SLA (Service Level Agreements) in the transaction.
- Access to strategic data: Vixtra also offers SMBs the chance to access, through a single system and source of truth, an extensive track record and performance data of several global suppliers, with a complete compliance analysis triangulated from multiple sources, evolution on the costs of freight as well as the margin evolution of several types of categories and SKUs, bringing the level of expertise and market intelligence of SMBs to another level.
- Logistics orchestration: as of now, SMB importers have restricted access to high-quality and lower-cost freight forwarders, developing an asymmetric relationship with custom brokers. With Vixtra, SMBs can tap into a freight forwarder integrated marketplace that offers a much superior customer experience, with greater visibility and access to more and better data.
In summary, Vixtra is building a deep and trust-based relationship with its clients by solving some of their major pain points in the importation process.
Another major differentiation that we believe sets Vixtra apart is the complimentary background of the Co-Founders, with years of experience in the financial services – including fintech – and international trade sectors.
Leonardo Baltieri founded Vixtra after more than 5 years of experience in Investment Banking and Private Equity and an operational role at a fast-growing fintech startup, together with Guilherme Rosenthal and Caio Gelfi, each with more than one decade of experience at Sertrading, one of the largest and most respected trading companies of Latin America. Together they represent what we call the perfect Founder-Market Fit.
Leonardo, Caio, and Guilherme, we are very humbled and excited about the chance to build together Vixtra, the future leading end-to-end platform for the cross-border supply chain of Latin America!