Why we invested in Arado (f.k.a. Clicampo)
We are proud to announce that our portfolio Company Arado (f.k.a Clicampo) has finalized its USD 12m Series A round, led by Acre Venture Partners, with participation of Syngenta Group Ventures and Globo Ventures. After having led the B2B marketplace’s Seed round back in December 2021 alongside MAYA Capital and later SP Ventures , we are thrilled to keep on supporting the company in its new growth cycle (and now, with a new name). Arado is just at the beginning of its journey of revolutionizing the Brazilian Fruits & Vegetables supply chain, empowering SMB farmers/suppliers and food service operators to transact in a more sustainable and efficient way.
Why Arado’s thesis is a perfect fit for the Brazilian Market
In VC, it’s common to try to find companies elsewhere in the world with a similar business model to the one we are analyzing. This can be a good way to assess a company’s potential, and a good exercise to learn more about which characteristics (be them in the market or company-specific) made a startup succeed or not.
However, in several cases, some of the most exciting and category-defining Companies are created with the purpose of solving very particular problems that are present in some parts of the world while inexistent in others. Understanding the structural pillars of a market might give us indication of whether or not a certain thesis might succeed in a given region.
In Arado’s case, for example, we can find some comparable companies in markets such as India (DeHaat and Ninjacart) and others in China (Meicai). In both countries we can see why the thesis would make sense – these are highly fragmented, massive markets where the producing end still captures a small part of the economic benefit in the chain. On the other hand, it is hard to find a clear comparable in countries such as the United States, which despite being a massive country with enormous agricultural and retail markets, is in a very different structural position. Below we will dive a bit deeper on what we mean by this:
- Brazil has a Geographically Decentralized Production of Fruits and Vegetables: according to CNA (Confederação Nacional da Agricultura e Pecuária do Brasil), the 3 top-producing states of Brazil concentrate a little less than 50% of the produced value of Fruits & Vegetables in the country. The United States, on the other hand, has 83% of its production value concentrated in the top 3 producing states. This creates in the US the need for a much more complex supply chain by design – a densely populated country will need to have these highly perishable goods delivered, regardless of the distance from which they were produced. This is not the case in Brazil: most of our largest cities have small producing regions nearby, which resulted in the creation of a much more informal (and highly fragmented) supply chain. In this fragmented chain, a company like Arado can thrive by building the only unified data layer for production and pricing in a highly informal chain. This also creates the opportunity for Arado to leverage technology to reduce the required number of middlemen to deliver goods to end-buyers, better understand price asymmetries across regions, and process capture substantial margins.
- Brazil Has Most of its Population Concentrated in One Single Region: the country’s top 3 most populous states (São Paulo, Minas Gerais and Rio de Janeiro) are neighboring and concentrate over 40% of the Country’s population. We saw the emergence of a tech-enabled player that is able to monitor production and pricing in each of these states and could leverage their proximity to guarantee the supply of fresh goods with extremely competitive prices in all States – something that was impossible before, due to the chain’s fragmentation. Drawing a parallel to the US, the country’s top 3 populated states (California, Texas and Florida) are each much farther from each other, making it much harder for the country to have one unified operation for a Fruits and Vegetables distribution before attaining strong levels of scale.
- There are almost no massive Fruits & Vegetables Distributors Getting Direct Supply and Selling Directly to End B2B Buyers: Brazil’s Fruits and Vegetables are often produced by the ~3 million small and micro farmers in tier 4 cities located near the big urban centers of the country. Though production is geographically scattered on a regional scale, the producers lack space and logistical capabilities to deliver goods to distributors, creating the need for an informal logistical network within rural areas. This makes it extremely hard for logistics companies / distributors to procure directly from farmers. Arado has created small, asset light hubs that aggregate production and has streamlined the flow of production from small producers to the cities. These issues are not present in the US, due to the type of farmer (the average fruits & berries farmer in the US has ~USD 63k of average net cash income per year, with 140 acres of farm size. Brazilian orange producers, for example, are 80% smaller, on average) and because of the best logistics infrastructure the country has.
In summary, the Brazilian characteristics of a fragmented supply chain combined with a concentrated demand market and an inefficient chain with massive fragmentation enables the formation of a tech enabled company that is able to gather production with asset-light farmer centers, distribute goods efficiently and to capture margins by cutting the excessive number of middlemen in the chain. A multi-billion dollar opportunity exists and is ready to be captured.
Arado is Playing in a Massive and Overlooked Market with Massive Optionalities
Fresh food is a USD 20bn+ market in Brazil alone. Margins, differently from other retail spaces, are higher (precisely because this is a difficult product category to produce). These are essential goods with fairly low seasonality (and cyclicality on a relative basis). The productive and supply chain is highly fragmented. And still, there is a very limited number of companies targeting the space, with no established player concentrating more than 2% of the market potential.
Arado is not only tackling the space, for which there is huge demand, but is also developing the right capabilities to become a full ecosystem for producers of Fruits and Vegetables – a partner through which one sells goods, but also buys inputs, assesses credit and insurance etc. To date, this has been a highly underserved producer category, despite the relevance of agriculture for the Brazilian economy. Large input retailers reach up to mid/small-sized farmers, but small producers (with over 3m in Brazil), lack partners to offer inputs, credit and insurance. On top of being underserved, producers suffer with a highly fragmented chain with multiple intermediaries, which makes produce’s prices be up to 10x higher to the end buyer versus the price for which it was initially sold by the producer.
Because Arado is developing a close relationship with these producers, offering fairer purchase prices to them, it will create a strong long-term moat to offer services to the persona that is currently solely acting as seller in the platform. The trust that Arado is building with producers will create a great pathway to new strong monetization opportunities.
In other words: the current supply side of the thesis has the potential to also become a heavy component of demand for agricultural inputs and financial products.
Real Problems Being Solved with Real Technology and Real Business Model
Arado’ scale was only possible because of (i) the size of the pains it is easing on both ends of the marketplace; (ii) the way the Company has been able to insert technology into a rudimentary ecosystem and (iii) a great team executing the strategy .
Restaurants and food retailers have a very hard time buying Fruits and Vegetables – quality is not very reliable, pricing is opaque and delivery times are inconsistent. Producers are often harmed by predatory pricing made by legacy distributors, suffer from unnecessary waste and are paid in bad terms.
One of the key reasons for this poor experience for both ends derives from the low shelf life of the produce and lack of technology to solve it. Waste is as high as 40% in the supply chain, and the slow movement of goods from the field to end consumers makes the economics in the space highly complex.
Arado has fully digitized its operations, optimizing procurement, routing, picking, packing and delivery and obtaining only 4% of waste in this chain. This is a key point to our thesis, which we can break down into 3 main areas where Arado is creating a true edge in terms of technology in the space: Ecommerce, Operations & Pricing and Fulfillment-as-a-Service.
Firstly, Arado has already integrated with OpenAI/ChatGPT to offer the best possible experience in B2B ecommerce to end-customers. Today, lists are automatically translated into Arado’s SKUs base, and OpenAI already powers the company’s conversational commerce features.
From an internal operations perspective, Arado is changing the way fresh produce is handled with its proprietary tech. The company has developed its own Warehouse Management System and Order Management System, tailoring its operations to the type of order being fulfilled while keeping efficiency at a maximum. This, tied to highly accurate pricing and demand predicting algorithms, is what enabled the company to deliver very strong growth coupled with extremely low levels of waste/losses.
Finally, the company has developed its Fulfillment-as-a-Service product, in which it connects directly to retailers’ inventory data to replenish fresh food as needed. The company has already closed contracts with some of the largest retailers in the country. This highly complex operation is only made possible due to the extreme efficiency Arado was already able to attain at its operations.
This enables the company to offer better prices to both ends and attain superior economics versus incumbents.
Apart From the Social Impact Arado is Creating, the Company is Reducing Emissions of the Supply Chain as Well
In only a little over 18 months of operations, Arado had already prevented 1,300 tons of food from being wasted. Just to put things into perspective: if the whole Brazilian market reaches the same levels of efficiency, the country could be saving 2.6m tons of food per year. But the environmental impact does not restrain itself from waste reduction.
A considerable number of restaurants and food retailers source their produce from large distribution centers located in Brazilian cities’ outskirts. By delivering directly to buyers, Arado reduces gas consumption significantly, unifying the supply chain and reducing the overall emissions required for food procurement. Arado estimates that the reduction of required mileage in the industry saves up to 38 tons of CO2 annually – this could mean a reduction of 76k tons in the industry, applying the same levels of reduction for the whole chain.
The company does that while paying 30-40% more to producers with improved payment terms, allowing them to have more food on their own tables. Arado is maybe one of the most promising companies to deliver real decarbonization effects with storing social responsibility, while in the process creating a multi-billion dollar business.
Spectacular Execution and Team
When we first invested in Arado (then, still named Clicampo), the company only operated in Belo Horizonte, with a single farmer center supplying its operations and a few people in the team. Now, the company has over 4 farmer centers, caters to 4 of the country’s largest markets, concluded one M&A and has stellar levels of margins and cash conversion cycle.
Since then, the company grew by over 12 times in 12 months, gained several percentage points of margins with a very lean team and clear focus on technology and execution.
This has obviously been achieved through the assembly of a very special team that is committed to improving the livelihoods of small farmers and foodservice / retail operators in Brazil: we were impressed since the very first interactions we had from Victor Bernardino (CEO), former Head of Operations for Rappi in Brazil, and José Noblecilla, former Engineering Director at Wildlife, besides a spectacular founding team formed by Bruno Mengatti, Yuri Janotti, and Luiza Batista, and the management team. From early on we saw the ease with which Arado’s co-founders were able to attract top talent in areas such as Tech, Data, Operations and Growth.
We are very excited with Arado’s round announcement and with the transformation it is spearheading in the industry. Looking forward to the years ahead!