Behind the Term Sheet: Meet Facily, the Brazilian Startup that’s been Quietly Democratizing E-Commerce in Latin America
By: Alex Lazarow, Jason Chen, Simon Wu
The pandemic catalyzed small businesses’ transition online. Last year, those that pivoted to e-commerce realized early success, with small retailers seeing an average of a 110% increase in online sales over the holiday season. One year later, the pandemic fueled e-commerce boom shows no signs of slowing with American’s expected to spend a record breaking $1T online in 2022.
Yet, e-commerce penetration is still relatively low for many parts of the world, especially in emerging markets and lower-income segments. In Latin America (Latam) for example, the retail market is a $2T industry but e-commerce surprisingly remains an untapped opportunity with a 3% penetration rate.
Why? There are several reasons:
1. Reaching underserved segments: Existing e-commerce platforms (e.g., Mercado Libre) have historically seen demand from higher-income segments, leaving behind the majority of the population in the lower-income bracket.
2. Delivery costs are a major friction point: Most Latam consumers are price sensitive, unwilling to pay for freight costs (especially for everyday goods).
3. Payment methods are limited: Similarly, most don’t have a credit card — which is required for the majority of e-commerce platforms.
4. First-time users: While Latam has a large online population (47% are WhatsApp users), newer digital platforms still need to gain consumer trust.
However, things are changing fast.
Crucially, Internet adoption is increasing rapidly — going from 54% to 68% in the last 5 years. Latam has quickly emerged as a hot spot for digital disruption, presenting a massive opportunity for e-commerce with online sales growing 63% in 2020 to $106.6B.
At Cathay Innovation, we’ve seen major success stories in emerging markets overcome similar barriers by leveraging these trends to develop innovative business models. One example being Pinduoduo’s explosive rise to China’s most popular e-commerce platform.
Announcing Facily
Today, we’re proud to share our support of Brazil-based Facily, which today announced a total raise of over $366M across Series A to Series D. Facily is Latam’s first social commerce marketplace, leveraging the WhatsApp ecosystem to re-invent the shopping experience for lower-income populations while connecting SMBs to larger audiences. We’ve had the pleasure of working with the Facily team since its $13M Series A last year through the latest $250M Series D alongside world-class investors such as DX Ventures, Delivery Hero, Tiger Global, Quona Capital, Luxor Capital, Founders Fund and many more.
It’s our belief that Facily has all the makings to do for Latin America what Pinduoduo did for China — not only becoming one of the leading players in the region but largely democratizing e-commerce for populations previously left behind.
Dismantling the barriers to e-commerce — the Pinduoduo story
The tools to dismantle Latam’s e-commerce barriers are not unforeseen — it’s played out in China already. In China, in 2015, e-commerce accounted for 15.9% of total retail sales and was forecasted to reach 33.6% by 2019 — one of its fastest-growing segments.
Yet, the market was still largely dominated by platforms such as Alibaba and JD, mainly servicing the upper end of the income bracket. Enter Pinduoduo (PDD) — like Alibaba’s Taobao and JD.com, PDD is an e-commerce platform that sells a wide range of products from home goods to clothing. It’s also one of the fastest growing e-commerce platforms to date, going from a less than US $10M run-rate in 2016 to more than $15B in under 18 months and eventually going public on Nasdaq in 2018 with a $30B valuation. Today, PDD is valued at $115B.
PDD both leveraged and accelerated several shifts taking place in consumer behavior at the time:
1. Mobilization: Mobile online shoppers had reached 300M with ~70% penetration rate
2. Socialization: WeChat was transforming the way people engage and shop with 70% of users buying items through the platform
3. Consumption upgrade: Rising consumption of higher quality lifestyle products and services
As an early investor, we were big believers in PDD’s unique model that leveraged the engaging WeChat community — practically defining the category of social commerce in China. It allows WeChat users to create “team purchases,” inviting others to form a shopping group to receive lower prices. This recreated online shopping by encouraging a more interactive experience — furthered by the company implementing in-app games for users to receive special discounts and prizes.
Unlike competitors, PDD got its start by focusing on the lower-income segment in lower-tier cities which accounts for 65% of PDD’s total user base — while 57% of JD’s user base comes from tier 1 and 2 cities:
The products on PDD are mainly low-ticket items and everyday goods such as groceries. Produce has specifically become a big focus to improve China’s agriculture industry. For example, PDD recently enabled millions of farmers from poverty-stricken areas, both through agronomic knowledge and e-commerce know-how, to earn produce sales revenue of more than $9.7B. By bypassing unnecessary intermediaries, PDD allows farmers to small manufacturers to offer goods to consumers directly and secure a better price for both parties. It also works with last-mile delivery vendors to reach customers faster.
With a low-cost structure and viral organic marketing through WeChat, PDD saw rapid growth in GMV and active buyers. At the end of 2020, PDD recorded 788.4M users, placing it ahead of Alibaba as the most popular e-commerce platform.
Latin America — on the brink of its e-commerce moment
The trends behind PDD’s rise are starting to play out in Latam with Internet and mobile penetration rates in Brazil and Mexico growing fast and higher than those of China and India.
In addition, Brazil has one of the most avid mobile user populations globally, with 71% of Brazilians using mobile phones to access the Internet and 120M+ using WhatsApp — a core platform in the region:
As more Brazilians utilize WhatsApp for daily activities, there is a massive opportunity for e-commerce to tap into engagement for consumer transactions and C2B (consumer to business) connectivity.
Enter Facily — the PDD of Latin America democratizing e-commerce
Like PDD’s WeChat strategy, Facily allows WhatsApp users to make group purchases for discounts. The company offers a marketplace for consumers to purchase everyday goods at low prices, share purchase links with friends and family and receive items on demand or pick up at designated points. Facily also has in-app games to enhance engagement and virality.
Importantly, given Facily targets the underserved lower-income segment (most being first-time e-commerce users) — it doesn’t require customers to have a credit card. By accepting payments via cash, PIX (central bank digital payments platform) or boletos (a popular voucher-based method), this kind of optionality opens e-commerce access to a greater population.
One of Facily’s unique characteristics is its network of pick-up points for distribution — this not only reduces logistics costs, but it increases foot traffic at locations as a major incentive for merchants and partners. Today, Facily has over 11,000 pick-up points across Brazil and counting. In addition, the company works directly with suppliers and manufacturers to maintain low prices while empowering small, local suppliers to reach greater audiences through its marketplace.
Parting thoughts — the people, the platform & the potential
Despite the economic climate during the pandemic, Facily has demonstrated impressive growth in GMV and user engagement — multiplying orders by 43x in less than a year and becoming one of the top 3 downloaded apps in Brazil. We see this as a testament to the value and impact of the platform for both underserved consumers and small businesses in Latin America.
However, none of this could be possible without the people behind Facily. The team is led by Diego Dzodan (CEO), previously the VP of Latam for Facebook and Instagram, along with CMO Luciano Freitas (previously at Uber) and CTO Vitor Zaninotto (previously at Infosys). While at Facebook, Dzodan worked closely with the regional WhatsApp team to establish a keen understanding of the platform’s social activity while studying PDD’s success story in China. What was immediately apparent (and impressive) was the team’s in-depth knowledge of global e-commerce paired with a driving hunger to adapt successful models to the unique market needs in LatAm.
At Cathay, we’ve seen first-hand how innovation can traverse and transform continents worldwide (a theme Alex wrote about in his book Out-Innovate: How Global Entrepreneurs — from Delhi to Detroit — Are Rewriting the Rules of Silicon Valley) and we’re honored to be part of the Facily journey. Similar to Pinduoduo, we see mass potential in Facily as a disruptive, impactful e-commerce platform that stands to decrease the friction in commerce, grow the local economy and bring more affordable goods to families across the region.
In short, we’re confident that Facily can revolutionize and democratize commerce throughout Latin America.
