Have you ever heard of a jabuticaba (pronunciation: ja·bu·ti·ka·buh)? If you’re not from Brazil, the answer is probably no.
Among Brazilians, the term is used to define “things that are unique to the Brazilian market,” such as Pix, Nota Fiscal, and the fact that Brazilians conduct most of their businesses on WhatsApp.
But before we dive into the tech and business side of things, let’s first talk about the fruit itself.
Jabuticaba is a small, grape-like fruit that is native to Brazil. It has a thick skin and a sweet, juicy pulp inside. (Once you visit Brazil, try it!)
Unlike most fruit that grows on trees, jabuticaba grows directly on the trunk and branches of the tree, giving it a distinctive appearance. The fruit is unique in that it only grows in Brazil, so it’s rarely known outside the country.
Likewise, in tech, Jabuticabas are the sort of businesses that only exist in Brazil due to the particularities of the market.
Now that we’ve covered the fruit, let’s talk about why Brazil’s tech industry is worth analyzing. Some jabuticabas (businesses that non-Brazilians typically have a hard time understanding) are in fact great and large opportunities. Brazil has a number of unique characteristics that make it an interesting market for tech companies to prosper.
Brazil is the largest country in South America and 5th in the world in both land and population.
Despite (and maybe because of) its size), Brazil has been relatively insulated from the rest of the world, which has allowed it to develop some unique characteristics.
— Most of the population resides on the coast and the country is geographically isolated from its neighbors. You need to drive 20 hours to go from São Paulo to Asunción (Paraguay’s capital) or 25 hours to reach Buenos Aires (Argentina).
— Brazil is also the only country on the continent that speaks Portuguese – another barrier/friction to interaction with other people, since Brazilians’ fluency in foreign languages is really poor.
— If a country is isolated and has a language barrier to interact with the rest of the world, and if it has a population of 200+ million, it is by definition fertile ground for homemade solutions. And given the country’s scale, these jabuticabas in many cases are large opportunities.
One notable characteristic is the way Brazil’s GDP is distributed. With a GDP per capita of around $6,450 in 2021, Brazil ranks lower than many other countries in this regard.
Nevertheless, the country has a substantial and growing middle class, estimated to encompass approximately 30% of the population (over 60 million people). This indicates a significant potential market for businesses that can offer affordable goods and services tailored to this demographic. Another important characteristic to notice is that Brazilians have little resistance to adopting new technologies and already, literally, live online.
Examples of Jabuticabas
So what are some examples of Jabuticabas in the tech industry? Here are a few:
Pix: Pix is a new payment system that was launched by the Brazilian Central Bank in 2020. It allows individuals and businesses to make instant, secure payments using their mobile phones. The settlement is instant, it works 24/7, it’s free for the end user and the government obligated all banks to adhere to it at the same time (they of course weren’t happy because it took away many old-school transaction fees that they were happy to keep charging forever).
Think of Venmo or CashApp user experience being used to substitute traditional bank wires and ACHs. Since this was a huge platform change in the country’s financial system, all incumbents integrated Pix into their offerings and many startups raced to create Pix-based novel solutions. Kudos to Swap who’s empowering dozens of other tech companies with its BaaS offer and raised U$25M in its last round and Dock, valued at U$1.5Bi.
Open Banking: Brazil has recently implemented open banking regulations, which require banks to share customer data with third-party companies. This has created opportunities for fintech startups to offer innovative new services to consumers, especially in the credit market, where customer history (usually owned by the incumbents) is key to pricing and distributing credit in a risk-adjusted manner.
Boleto: Boleto is a popular payment method that allows Brazilians to pay bills and make purchases using a barcode that can be printed or displayed on a mobile device. It’s rapidly shrinking due to the wide adoption of Pix, which is better on almost all fronts: speed, cost, user experience etc.
Nota Fiscal: A Nota Fiscal (NF or NFe) is a tax document used in Brazil to record the transfer of goods or services between a seller and a buyer. It serves as an official invoice, providing essential information about the transaction, such as the description of goods or services, the value, the taxes involved, and the details of the buyer and seller. Startups such as Arquivei (which helps businesses manage their Nota Fiscal data more efficiently and recently raised U$50M to accelerate growth), Espresso and Conta Simples are Brazil-only companies that have deeply integrated their products into NF and its QR-code and are becoming large companies.
Cartório: In Brazil, cartórios are public offices that handle legal and administrative matters like property deeds and birth certificates. It’s bureaucracy in its purest form! It evolved from Brazil’s colony era until today and you’d need a Phd in Brazil to understand all its functions (and inefficiencies). A number of companies serve this market, like, for example, Escriba, Ansata and Extradigital (all acquired by the $50Bi canadian SaaS consolidator Constellation Software) and NoCartorio (the independent cloud-native solution). Several startups are also creating solutions using blockchain technology to make them more secure and efficient.
Precatório: The Brazilian government has a backlog of unpaid legal judgments, known as precatórios. A number of banks and fintech startups and Mercatorio and Matri are offering solutions that allow individuals and institutions to purchase the right to receive the funds from these judgments.
Lawyer Superpopulation: Brazil has an absurd number of lawyers and paralegals (1% of the Brazilian population has a Law degree), and the market for legal services is highly competitive. This has created opportunities for companies that can provide innovative solutions to help lawyers and law firms be more efficient and effective. Some examples include Jusfy, Jusbrasil, and QConcursos.
So why are jabuticabas great investment opportunities?
For one, they’re typically undervalued in the early stages since many international investors aren’t actively looking for them.
Additionally, it can be harder to explain and create conviction in a big VC firm for these opportunities. But once they grow and call attention, their value becomes evident and self-explanatory.
The tech market in Brazil is still much smaller than it should be in terms of its share in GDP when compared against the US, China, Europe and India, but it’s rapidly catching up.
There are huge opportunities for companies that can provide innovative solutions to the unique challenges that Brazil’s economy and society present. Bear in mind that not all Jabuticabas are made equal – some are small (but have juicy margins), while others are big opportunities that can transform entire industries.
William Cordeiro and Gustavo Souza are managing partners at SaaSHolic, a venture capital firm focused on early-stage SaaS companies in Latin America.