Julio Vasconcellos & Mate Pencz - Investing in Latin America - [Invest Like the Best, EP.296]

My guests today are Julio Vasconcellos and Mate Pencz, who are partners at Canary and Atlantico, leading early-stage investment firms in Latin America. They’re also both successful entrepreneurs. Mate is the co-founder and CEO of Brazilian real estate unicorn, Loft. Julio was Facebook’s first country lead for Brazil, an entrepreneur in residence at Benchmark, and the former founder of Peixe Urbano which sold to Baidu. This conversation was a great opportunity to dive into the state of investing and business in Latin America today, what it looks like on the ground, and cover the most interesting findings from Atlantico's annual report on Digital Transformation in the region. Please enjoy my conversation with Julio and Mate. For the full show notes, transcript, and links to mentioned content, check out the episode page here. ----- This episode is brought to you by Canalyst. Canalyst is the leading destination for public company data and analysis. If you're a professional equity investor and haven't talked to Canalyst recently, you should give them a shout. Learn more and try Canalyst for yourself at canalyst.com/Patrick. ----- Today's episode is brought to you by Brex. Brex is the integrated financial platform trusted by the world's most innovative entrepreneurs and fastest-growing companies. With Brex, you can move money fast for instant impact with high-limit corporate cards, payments, venture debt, and spend management software all in one place. Ready to accelerate your business? Learn more at brex.com/best. ----- Invest Like the Best is a property of Colossus, LLC. For more episodes of Invest Like the Best, visit joincolossus.com/episodes. Past guests include Tobi Lutke, Kevin Systrom, Mike Krieger, John Collison, Kat Cole, Marc Andreessen, Matthew Ball, Bill Gurley, Anu Hariharan, Ben Thompson, and many more. Stay up to date on all our podcasts by signing up to Colossus Weekly, our quick dive every Sunday highlighting the top business and investing concepts from our podcasts and the best of what we read that week. Sign up here. Follow us on Twitter: @patrick_oshag | @JoinColossus Show Notes [00:02:39] - [First question] - A broad perspective on what is interesting in Latin American investing today - Latin America Digital Report 2022 [00:05:15] - What makes up the existing 1.5% tech penetration index in Lat Am [00:06:11] - Florian Hagenbuch, Mate Pencz - Everything Will be Bought Online (Loft); David Velez - Building the Branchless Network (Nubank); How important it is to parse by country when it comes to building businesses in LatAm [00:08:31] - Overview of LatAm as a microcosm of fintech innovation happening really fast and what is most exciting in that sphere [00:12:28] - Why the adoption of PIX was so successful and how it maps onto the banking system [00:14:27] - What PIX’s widespread adoption will enable for the coming wave of entrepreneurs [00:22:30] - Shifting to remote work and how it’ll affect LatAm workers and talent [00:30:06] - What it feels like for an entrepreneur today compared to when Loft launched [00:32:36] - Deeper themes and what needs to be unlocked for LatAm’s tech sector to look more like the US or China with big tech giants [00:40:12] - Sources of available funding for venture and private equity [00:42:54] - What valuations look like and whether or not there’s an entry multiple discount [00:45:12] - Seeking evidence that crypto is used in more valuable ways in emerging markets [00:48:00] - Areas where LatAm is operating in a future state more so than elsewhere [00:50:28] - What the right amount of global firm participation in capital partnerships looks like [00:52:38] - Big standout lessons from their operating days [00:55:53] - What is most exciting and concerning about their investing style and investing writ large in LatAm [00:58:51] - The kindest thing anyone has ever done for Julio

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Patrick O'Shaughnessy?

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• 0:43Patrick O'Shaughnessy?

  updating models, Canalyst is now used by over 400 institutions, including the largest money managers globally and by a number of guests on the show. With detailed company-specific models and data on virtually every public company, Canalyst's clients are able to ramp up faster, update models instantly and incorporate the highest quality fundamental data into any workflow. If you're a professional equity investor and haven't talked to Canalyst recently, you should give them a shout. Learn more and try Canalyst for yourself at canalyst.com/patrick. That's C-A-N-A-L-Y-S-T.com/patrick. Today's episode is sponsored by Brex, the integrated financial platform trusted by the world's most innovative entrepreneurs and fastest-growing companies. With Brex, you can move money fast for instant impact with high-limit corporate cards, payments,

• 1:28Patrick O'Shaughnessy?

  venture debt and spend management software, all in one place. Ready to accelerate your business? Learn more at brex.com/best. That's B-R-E-X.com/best. Hello and welcome, everyone. I'm Patrick O'Shaughnessy and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, stories and strategies that will help you better invest both your time and your money. Invest Like the Best is part of the Colossus family of podcasts and you can access all our podcasts, including edited transcripts, show notes and other resources to keep learning at joincolossus.com.

• 2:09Speaker 01

  Patrick O'Shaughnessy is the CEO of O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaughnessy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of O'Shaughnessy Asset Management may maintain positions in the securities discussed in this podcast.

• 2:35Patrick O'Shaughnessy?

  My guests today are Julio Vasconcellos and Mate Panch, who are partners at Canary and Atlantico, leading early-stage investment firms in Latin America. They're also both successful entrepreneurs. Mate is the co-founder and CEO of Brazilian real estate unicorn Loft. Julio was Facebook's first country lead for Brazil, an entrepreneur in residence at Benchmark, and the former founder of Peche Urbana, which sold to Baidu. This conversation was a great opportunity to dive into the state of investing in business in Latin America today and what the opportunity set looks like on the ground. Please enjoy my conversation with Julio and Mate.

• 3:13Patrick O'Shaughnessy?

  So Julio and Mate, great to have you both here to talk about the investing landscape in Latin America. It's one of those funny places that I have somehow never been, really. I've never been in South America, been in Central America, and have just developed a fascination with the whole region with a number of amazing companies that have been built there, like Loft. Mate, you and Florian and I had a conversation before about what you're building there, but just more writ large, I think it's a great opportunity to talk about the entire part of the world, the interesting opportunities, the interesting challenges that present themselves there. So Julio, maybe I'll begin with you to just frame this whole thing for us from your perspective. You're now running Atlantico Partners, which is a firm entirely focused in this region and are one of the leading investors down there.

• 3:55Patrick O'Shaughnessy?

  Maybe you can just give your broad perspective on what is interesting about Latin American investing today, and then we'll go into tons of interesting data that you guys have put together on why it's so distinctive.

• 4:06Speaker 02

  Latin America is obviously a huge region, over 600 million people, talking about a GDP of $5 trillion. Also, a region which is pretty globally leading when it comes to thinking about economies and access to technology, right? We have internet penetration that's higher than China and India. I think digital usage and adoption, that's one of the highest in the world. So definitely fertile ground for technology and innovation. And the reason I would say that we're super excited, I spent nearly half of my 15-year career in Silicon Valley and decided to pack up my bags and go all in in the region, thinking about it from the long term of what's next, in the next 10 years, 15 years, what's going to happen here.

• 4:49Speaker 02

  And when we look at all the value that's been created and all the companies that's been created in Latin America, and we compare it to other regions in the world, we see that tech penetration is significantly behind where it is in developed countries like the US, but also in even more developing economies like China or even India. Just to give you a few stats that we collect, that we track every year, if you look at just the size of all the public tech companies in the US, and you compare that to the US GDP, just to level set a little bit, it's a little bit over 50% that tech penetration index. Even somewhere like China, it's 20% and India's 15%. Latin America's 1.5%. I've no idea whether Latin America is going to be as big as the US, but certainly I think

• 5:33Speaker 02

  we have a great shot at being at the same level as India and China. You're talking about an order of magnitude increase that when you consider how much that's worth, that's measured really in the trillions of dollars when you talk about the next 10 years. And that's a little bit of the opportunity that we've been chasing here.

• 5:48Patrick O'Shaughnessy?

  What is that 1.5%? I mean, that's shockingly low relative to the others. What makes up that existing 1.5%?

• 5:54Speaker 02

  So when you look at the main components there of those big public tech companies, there are some names that have been around for a while, right? So MercadoLibre is by far the biggest one.

• 6:02Speaker 03

  You now have out of Brazil, New Bank that went public at the end of last year is probably the poster child for that. But even the last couple of years since we've started investing here in a more institutional capacity, you've had companies like Stone go public, Teguciguru, Vtechs, which is a big e-commerce platform. So you have about a dozen or so publicly listed large cap tech companies out of Latin America that comprise that. But you probably have about three or four times as many companies that are in that unicorn or soon unicorn scale that when you look at the next five years, probably going to go public and are going to make that one and a half look a lot more like 5% than when you add a few more years and that starts going into the double digit percentages of tech penetration.

• 6:45Patrick O'Shaughnessy?

  It's an amazing stat, a great one to open with. And it also makes me wonder about how we should parse by country and how important it is to parse by country. I remember my conversation with Mate about Loft and then also with David at New Bank about what they were building, how important it was to take into account the different situations, whether they be cultural, regulatory, economic, whatever they are, demographic in each individual country when expanding a business there or when building a business. We're talking about LatAm writ large, but is that the right frame? Or is it more important to zoom down into particular countries? And if so, which countries do you think are most important to focus on?

• 7:23Speaker 03

  Taking that high level number that Julio put out there, if you zoom in on that GDP number across Latin America, it's important to note that about half of that GDP is in Brazil. So if you take 50% out, then you've got the other 50% basically divided between Mexico, Mexico being half of the other half. So 25% of the total and rest kind of breaks down into a longer tail of Colombia, Peru, Chile, Argentina, and other smaller countries. So from an order of magnitude perspective, Brazil is really the massive domestic consumption economy in the region, followed by Mexico. I mean, I think there's some nuances when it comes to internet penetration and when it comes to tech penetration more generally. And then I think in second place,

• 8:07Speaker 03

  there are very significant regulatory and cultural differences. And I think oftentimes When we speak to American, European, or even Asian investors, people kind of look for parallels with regards to kind of how these nuances are delineated versus what the US, for example, looks like. And certainly, Mexico differs much more from Brazil than like Texas differs from California. So it is important to note that we're not talking about sort of one very homogeneous block here. We're talking about a lot of regional nuances. Again, most of the divide between Brazil and all of the Hispanic countries, but then also within Latin American block, you've got large regional differences that depending on the type of business can be very significant, especially when you talk about fintech,

• 8:50Speaker 03

  which is probably the number one category amongst the publicly traded, but also, as Julius said, sunicorn and unicorn businesses. That category is a highly regulated category and differs very much by country and by region.

• 9:04Patrick O'Shaughnessy?

  It seems like digital payments, just in general, is one thing that is a huge and important trend happening in Latin America. I'm thinking of the Brazilian payments system, I think it's called PICS, that's been rapidly, rapidly adopted. Give me a sense of LatAm as a microcosm of fintech innovation happening really, really fast. And what is most exciting in that sphere? Is it payments? Is it something else? Obviously, the new bank story has been remarkable from an enterprise value standpoint. But what are the bigger underlying trends of just technology adoption through the financial lens to begin with, through fintech?

• 9:37Speaker 03

  We think a lot about this first wave of fintech innovation in Latin America. And like you mentioned, Patrick, I think we've been leaders globally as far as producing some of the most meaningful fintechs. Again, New Bank is being the case for probably the world's largest and most successful neo-bank. And that first wave was really a B to C consumer-focused fintech revolution of the new banks, of the more efficient digital payments, of investing online. A lot of those basic consumerization plus technology of financial services, which until that point were mostly dominated by oligopolistic players that provided comparatively lower quality and higher cost services than I think was comparable around the world.

• 10:23Speaker 02

  We've now shifted what I would probably say is really kind of a second wave of fintech innovation that's much more focused on B two B and thinking about how businesses pay each other and give each other credit and credit for businesses. And that's probably a lot of what we're seeing and a lot of what we're investing in, a lot of obviously embedded fintech, embedded credit type businesses, and especially when that intersects with software. And to your point around the instant payments, and I do want to talk about that because it's actually probably one of my favorite topics of what's been happening here the last couple of years. You've had probably two other things that have accelerated the level of fintech innovation that we've seen. One is investments in infrastructure that came out of the B two C wave. And now, in the same way that you have in the United States, if you want to build a

• 11:05Speaker 02

  fintech today, it's much, much easier leveraging existing infrastructure and infrastructure businesses that have come up and really scaled. But the other thing actually has been this regulatory tailwind, mainly driven by the Brazilian Central Bank that has had this very pro-innovation agenda over the last couple of years and pushed forth this agenda of open banking, which they now call open finance. And as part of that innovation agenda, this instant payment mechanism called PICS, which is a 24/7 free-to-use instant payment mechanism that has probably become the most successful launch and case of digital payments probably anywhere in the world. Just to give you a sense, we likely now, in the last month, crossed something like

• 11:47Speaker 02

  a trillion reais, which is roughly about $200 billion of payments every month that people are transacting through PICS. This is just two years into the launch of the service. And that actually makes PICS the largest form of digital payments in Brazil. I had a credit card, just a set of bank transfers, debit cards. It doesn't just stop at digital payments. It actually goes beyond digital payments and PICS is now the most frequently used form of payments on a daily basis tied with cash in Brazil. So really, it's about PICS eating not only digital payments, but really PICS eating all payments. And folks have often talked about the success of UPI in India. It's a big other successful launch of digital payments.

• 12:32Speaker 02

  Curiously, we looked at the data and it took PICS about a quarter as long as UPI to reach a billion transactions. And this is in a country of Brazil, which has a sixth of the population of India. Really a phenomenon when you think about this success. I'd probably put the central bank and the central bank president is probably the most successful fintech, if you could categorize it as that, in the last year in Brazil. And I think that's really telling of the nation's mindset around of innovation in the financial services.

• 13:01Patrick O'Shaughnessy?

  What are the nuts and bolts of that system and why it's worked so well? So like, how does it map on to, let's say, the banking system? Why was the adoption so fast? If we were to use this as a case study for the rest of the world, given, I'm making the assumption here that like a digital payments rail or infrastructure like this allows for all sorts of other cool stuff to happen on top of it or alongside it. So if the rest of the world wanted to adopt this, what could it learn from the system itself, how it's architected and how it's integrated with existing systems like banks? And also how it was rolled out?

• 13:32Speaker 02

  A lot of other countries are consulting with the central bank here to clone the system here because it's been so successful. Let me just start by explaining how it works from a user standpoint. So any of us as Brazilians or as people living here, you can register to get a unique identifier key, right? And that can be your email address, it could be your phone number, it could be your personal identification number, or just a randomly generated key. And you take that key, let's say you choose your phone number, you could have multiple keys, and you attach it to a single bank account or a single digital wallet address. So you say, look, if anyone ever sends money to my phone number, I want it to be deposited to bank account A. Or if they send it to my email, I want it to be deposited to wallet B.

• 14:13Speaker 02

  And this can obviously all be wrapped into a QR code for easy payment on the street and all that kind of stuff. So all I have to do to send you, Patrick, 10 bucks for the drinks that we had last night, is I just need to get your phone number, your email, I'll go into my bank account app or my digital wallet app, type in your phone number, put 10 bucks and send it off to you with an optional message. And the way that the central bank bootstrapped that, which is obviously very convenient, once you have regulatory power, is that they just did it in a very top-down way. They mandated all the banks and all the digital payments and look, you need to have a prominent button on your home screen that enables people to access PICS. And that's how they solved that challenging chicken and egg scenario, which is how do you bootstrap a network?

• 14:53Speaker 02

  And that's kind of the advantage of being the regulator. And they were able to launch this for, you know, an investment that was less than $10 million from the government's standpoint.

• 15:00Patrick O'Shaughnessy?

  It sounds so good. It makes me wish it existed here. Like, I wish I could just email people money and that they were set up on the back end. I know they'd receive it. What does that enable most directly, do you think, in Brazil, I guess specifically, in terms of other technology being built? How does it make you more or the same amount excited about the coming wave of entrepreneurs building in light of PICS's adoption? What does it change for you?

• 15:25Speaker 02

  I love that question because I don't have an answer for it. And I think that our role as early-stage investors is less to kind of try to predict the future, but more have our doors open for when people come through them with that vision of the future to be able to back them. And we do think that this adoption, advent of PICS, is such a tectonic shift in the way that payments are going to get done in Brazil, that it's going to open up a lot of interesting wedges and entry points for people to innovate on top of. And we don't know exactly what that is, but just to give you a few use cases that we have seen. We've seen big B2B banks use this as a wedge to allow banks to collect and pay in a much quicker, easier, programmable, and instant manner than they have today.

• 16:09Speaker 02

  And that's allowed those banks to have enormous traction when it comes to Brazil. What we've also seen, and the central bank president has publicly said this, is that you now have a competing payment rail to what you had with Visa and Mastercard. It's a competing rail that's as efficient and it's actually more fraud-proof because all the transactions are irreversible. It's a programmable system, very similar to what you've done on blockchain and what a lot of cryptocurrency to try to do, but in a way that was done by the government here. And what that enables you to do by having access to these free bootstrap rails is that you could potentially build synthetic credit card, for example. So I think that although PICS has eaten debit cards and cash today, who's to say what's going to come next?

• 16:53Speaker 02

  The evolution of PICS is also not done. The central bank has already allowed you to do installment PICS. So think about buy now, pay later in a way that you can actually program into the system for you to do credit, and the credit can be done on the fly from any competing financial institution to that. Mate and Loft, they've probably thought a lot about this in terms of how to integrate these evolutions into PICS, and I'll let him talk a little bit maybe about some of the ideas that he's seen.

• 17:16Speaker 03

  One of the things that we've noticed here is the central bank is really taking a long view here. We've made massive step changes here on the adoption side, but when the central bank kind of thinks about the long arc of this evolution, they really think not just about reducing costs on transactions that Julia mentioned that are very quick and short term and ultimately displacing cash, displacing credit cards and debit cards, but they're going as far as thinking about securitization, thinking about collateralized transactions, thinking about how to ultimately bring down the cost of credit. If you look at the Brazilian market for personal credit, credit generally, it's one of the largest and one of the most profitable markets in the world. The banks here, and this is no secret, but the banks here are significantly over earning versus international peers.

• 18:01Speaker 03

  And a lot of that has to do with just structurally how focused the market has been on personal credit and how relatively levered people are on the personal credit side as opposed to on the collateralized or securitized side, be it auto loans or be it home equity or be it mortgages. Mortgage penetration in Brazil today hovers in the mid to low teens versus GDP, whereas markets like the US or Canada, you're talking about 50, 60% plus mortgage penetration versus GDP. And even regional peers like Chile, you're talking about 20% plus mortgage penetration. So it's a market where securitized credit is still on an evolving arc. And I think the central bank very much sees an opportunity to bring down costs on very short duration transactions,

• 18:45Speaker 03

  but also longer transactions like home equity. So that's one of the big stated objectives of the central bank president. And we're starting to see early proof points of that in the real estate market and I think in other high GMV transactions in general. Again, auto loans being another category where there's significant pickup already.

• 19:04Patrick O'Shaughnessy?

  Just to round out our picture of the LatAm market overall, before we get more deeply into some of these opportunities and what companies might start to look like, I think the other three big things to maybe focus on are demographics. It's a very young, not quite at African levels of youth, but a very young relative to a lot of the rest of the developed world. Things like GDP growth, where I think it's been probably a less compelling story, certainly in Brazil over the last 10, 12 years than other parts of the world, say like China, that's grown much faster. And then things like poverty and inequality, which I think are bigger problems in LatAm than you might see in some other areas of the world. So maybe we could go through those three, just to sort of round out the big picture. We've talked about the scale and scope of this and things like digital adoption.

• 19:45Patrick O'Shaughnessy?

  But Julia, maybe you could talk a little bit about those three demographics, GDP, growth rates and things like inequality.

• 19:52Speaker 02

  Demographics, as you mentioned, the population is younger than most developed countries. I think we're hitting that demographic boom, hitting the peak of that. So we're in prime time in terms of making the most of it, but it is rounding a corner. Different than Africa, for example, as you mentioned, but obviously much better than Europe and even the United States. That's very positive. I think one thing that we've seen in tying this a little bit to poverty and inequality is that you still have a comparatively high level of informality. Informality in terms of work, a lot of independent workers that don't necessarily are registered in the system, aren't necessarily paying taxes, don't have all the benefits. So that obviously provides a lot less security and that also disproportionately affects the younger population,

• 20:34Speaker 02

  which almost sets up this vicious cycle where you don't have a formal job, you don't build up your curriculum and your work history. And then that prevents you from getting another formal job and you end up in a cycle of informality for a long time, which is a big problem we have. And you touched on, at least in my opinion, really the main constraint that we have here and the main issue that we should be looking at as a region, which is a, a high level of poverty, obviously compared to the United States and Europe. The middle class had been growing for quite a while in Brazil, most of the countries here, but with COVID, that's kind of flattened out and actually we've lost a couple of years because of the big hit that we all faced from COVID and access to education and a lot of things that came with that from lockdown,

• 21:15Speaker 02

  where poorer economies like we have here in Latin America have just taken longer to bounce back compared to richer economies like the United States and Europe. Not only do you have a higher level of poverty, but you also have a higher level of inequality. If you look at the amount of wealth that's concentrated in the top 10% or the top 1%, there's a higher degree of concentration of wealth amongst the rich in Latin America than there is in a lot of other places in the world. And I think that serves to explain a little bit of why in recent years, you've had a shift towards more left of center governments throughout the region that are trying to help a little bit with that distribution. You've seen elections in Mexico, Colombia, Chile,

• 21:58Speaker 02

  going to more redistributive, more social leaning, I would say, programs. I honestly think are quite healthy, given what the local economies have, a lot more investment in health investments and access to education, which I think are the right long-term investments for the region to be able to grow. And that leads me to the last point, GDP. We had, again, taking Brazil as the largest economy of the region. We had one of the worst, I think it was the second worst recession in history in that period of 2014 through 2017, following the impeachment of the president. And that's really led the GDP growth in Brazil to be a lot more volatile and going a lot more sideways over this last decade than

• 22:40Speaker 02

  other promising countries from a decade ago, call it China or call it India that you mentioned. That's been a little disappointing. In local currency terms, there's definitely been growth. But if you look at that on a dollar basis, the GDP growth has looked even less interesting. And it's something that appears to be stabilizing now and hopefully turning a corner. But there's definitely something that has plagued us over these last few years.

• 23:03Patrick O'Shaughnessy?

  If you think about the shift in remote work, I'd love to hear Mate your perspective on this as someone running a company where there's lots of engineers involved. I've heard a number of interesting stories recently, including in one of our portfolio companies, where their by far most productive engineer is in Brazil. And it's just become the norm that working where you live is acceptable now. And I wonder how much this, and the company's thrilled with this. He's in Brazil, they see him occasionally. But more than anything, what they love is how incredibly productive he is from a product standpoint. And it just seems like the whole world has gone this way. How do you think this affects Latin American workers? Generally speaking, like it seems like the world has become more open to this type of engineer being a key part of a business.

• 23:47Patrick O'Shaughnessy?

  It's a Delaware C corp based in New York City. What does this feel like to you, Mate, as someone employing lots of engineers and Julio, someone investing in companies where there's so many of them as well?

• 23:57Speaker 03

  At the very highest level, Patrick, I think there is just a very glaring gap in earnings, very glaring gap in wages between, on a productivity adjusted basis, between somebody who's sitting in San Francisco and working as an engineer versus somebody in Latin America. And to some extent, also Eastern Europe, Africa and other regions of the world. So there is today, this massive arbitrage opportunity. If you're open to hiring engineers or technical talent more generally across the globe. And I think that regional companies like MercadoLibre have taken advantage of that. Over the years, there are companies like Globant, which is also publicly listed and has been a tremendous success sort of exporting Argentinian and South American engineering talent into the world.

• 24:40Speaker 03

  But I think what we're seeing now is that besides just working in an outsourced capacity, working through large firms like Accenture, people are going direct and hiring these engineers directly. And hence, I think slowly but surely leveling the playing field when it comes to this wage gap. So I do think that overall, this is very favorable trend for the region because it feeds into a broader flywheel of more wealth generation locally, more investment into education and just wealth disparity. More generally, that Julio was alluding to closing faster over the coming years and decades. Now, as an operator, it's certainly a new reality that we're facing that we're benefiting from because we're also hiring in a fully distributed fashion across the country.

• 25:20Speaker 03

  So we have engineers also nationwide and I think we in many ways are first movers here and closer to culturally speaking, at least closer to a lot of this talent than perhaps a US company would be. But it is also something that we have to be very aware of because obviously our revenues, our top line is generated in local currency, whereas some of these global firms are earning in dollars and able to pay in dollars. So there is certainly sort of cat and mouse game that people are playing in. At the end of the day, the value proposition of any given employer is not just compensation. It's a broader basket of a lot of intangibles as well. We certainly try to play to our home field advantage.

• 25:58Patrick O'Shaughnessy?

  Julio, as you think about the next 10 years, now starting to put your investor hat on, we've talked about some of the things that make this so interesting, incredibly low tech market cap penetration. I think e-commerce penetration is like 6% or 7% in Brazil, which is much lower than, say, the US at high teens or something. There's tons of opportunity for these things to grow, for shares to grow. The population's young, GDP's big, if not growing very fast. These are all good things. What are the conditions that you think are most important to continue to get better for you to earn a great return as an investor? What are the macro things that you zero in on? Like, if this doesn't go a certain way, it spells trouble for us. What do you hang your hat on? What tailwinds matter?

• 26:39Speaker 02

  Let me start with a few things that don't matter. They're critical, and I think they tie to your previous question around macro and GDP growth. I actually think that macroeconomic and political and a few of these factors, they impact less the micro results that you end up seeing at the early stage and eventually as these companies scale. We talked about how Brazil went through its worst recession in that three-year period starting in 2014, but that's also when companies like New Bank were started and scaled. Other unicorns like Quinto Andar and Wildlife, they were all getting founded right before this and kind of scaling right through this. So I do think that you do have these secular tailwinds that are actually quite separate and independent from the macro economy, because a lot of these

• 27:20Speaker 02

  companies are really surfing this wave that is the digitalization of the economy and of the society. And whether GDP grows by 3% or shrinks by 3%, really, the vast majority of their growth is coming from stealing share from incumbents that maybe haven't innovated the same way. So that's the first thing that I would say is that just digital penetration and digitalization as a whole is going to be the main driving force for the next 10, 20 years as far as the growth in companies. But what has to happen for these companies to exist? First and foremost, and I think this is today at least, a solved problem, but when I started as a founder over 10 years ago was definitely not the case, is access to capital. You have now multiple local and regional funds that are active, are on later

• 28:05Speaker 02

  vintages and have significant dry powder To continue to invest, you now have also a lot of attention from international mid-stage and growth-stage investors to get these companies, helping them go from the Series A, Series B, all the way through IPO. And that's something that we didn't have 10 years ago. That I feel, even though we've probably had a drop from the peaks of last year's exuberance, we're still at levels that are way, way higher than we've ever seen in the past. So I think access to capital used to be a constraint. I don't think it's one today. And I think that the largest one that I think is still TBD exactly how it develops. And I think today is probably the biggest bottleneck on the rate of growth is access to human capital. So it's both breadth and depth of human capital,

• 28:47Speaker 02

  especially people that are experienced working with technology and scaling technology companies. If you think about Mate and I, before I started at Planchico three years ago, we were partners in starting Canary five years ago, which is today the dominant seed fund in Brazil. And five years ago, there were no unicorns in Brazil, just to give you a sense of how recent all of this is. And the fact now that you have all these unicorns, they've all scaled over the last 10 years. And the people that started there as analysts and grew to mid-level managers or VPs are leaving and becoming founders. You now have the depth of talent to be able to start companies and then also hire middle management to be able to build out tech companies the same way that you've had

• 29:29Speaker 02

  in Silicon Valley for decades. And I think that for a long time, that was a big bottleneck. And that's a bottleneck that you can't solve by just throwing more money at it. You just need time. People need time to develop their careers, to learn, to go on and make mistakes and learn from them and have new companies. And I think that's probably the thing that we just need a little bit more of is just more time. And as we see more and more talent going into tech and staying in tech in the long term, that's most likely the engine of growth for the long term that's necessary. Just to give you one final point here, from an optimistic standpoint of how we think about this. We actually run a survey every year with graduating students of the top universities

• 30:07Speaker 02

  in Brazil or Brazilians abroad. And we've seen over the last couple of years, but including this year after the big market downturn that you've had, both working for big tech and startups. The number one destination of the top college students that are graduating ahead of historic competitors like banking and consulting and traditional companies. So if you think about the future of Brazil and the future of Latin America wanting to go into tech and growing through tech, we think that's going to be the main motivator and main motor for the value creation that we expect in the next couple of years.

• 30:40Patrick O'Shaughnessy?

  Mate, what does it feel like from the entrepreneur's perspective? I'm especially interested for you to contrast what it felt like in the region when you started Loft to what you think it feels like today for the new entrepreneurs that you're backing, that you see through Canary, that you see through Atlantico. What are the major differences from when you started?

• 30:59Speaker 03

  I would say the number one difference by far is the point that Julia also alluded to, which is just more experienced founders, more experienced employees, more experienced folks, just in general. We have an investor here at Loft, Hans Tung from GGV. I've known him for about a decade or so. He's also supported us informally in our prior company and he's obviously invested a lot in other emerging markets. And he once told me that a lot of US and European investors underestimate the amount of pattern recognition you build around the red tape that exists in emerging markets and how much intangible value there is of having had one or maybe even two runs at bat in emerging markets versus the US where the playing field frankly is just a lot more level.

• 31:43Speaker 03

  So I think when I look back four years ago or even 10 years ago, 11 years ago, when I arrived here in Brazil, when we started our e-commerce company that then led us to finding Loft, there simply wasn't any talent that was educated in what it takes to build a tech company or even a tech-enabled business. So I think a lot of that flywheel, as Julia mentioned, has kicked in over the last five to six years and has really started accelerating in the last two to three. Today, when I look at our total hack count at Loft, almost about a third of all our employee base is in some shape or form, coming from a prior tech experience. And that eight to 10 years ago was just impossible because that pool in and of itself didn't exist. So there had to be some exits, there had to be some.

• 32:28Speaker 03

  Companies that got to a certain level of scale, but now you're talking about a lot of this pattern recognition, a lot of this intangible value. There's interesting data out of India and out of China as well, showing how once you got to a certain inflection point of a certain number of unicorns, and I think in the low dozens, once you've got one or two dozen unicorns in China, you almost have this Cambrian explosion of hundreds of others following in the years after that. Now, obviously, this was also by a large rising tide from a GDP perspective. So maybe here in Latin America, given the more muted GDP growth, this is also going to be a more muted flywheel, but it's a accelerating flywheel nonetheless.

• 33:09Patrick O'Shaughnessy?

  One of the favorite things that I saw, charts that I saw in preparation for the call today, was comparing the top 10 companies by market cap in Latin America to those in the US. And it's pretty stark how, I think it's the sixth or seventh biggest company is MercadoLibre, which you mentioned earlier, it's like a 30 something billion dollar market cap. That's the only technology company in the top 10, otherwise it's a very traditional, you know, Petrobras and Vale and Walmart and Ambev are the big companies down in Latin America. And if you compare that to the US, take each of the top four, you know, Apple, Microsoft, Alphabet, Google and Amazon, each of those is 30 to 70 times bigger than MercadoLibre on its own. So there's just a completely insane gap in enterprise value and market cap

• 33:54Patrick O'Shaughnessy?

  between what you see in the US and its index composition and what you see in Latin America and in Brazil. What do you think starts to catalyze that change? You mentioned some of these unicorns that will be coming public, but is there something deeper that's important when you think about the opportunity set as a technology focused investor? What needs to be unlocked, Julio, in your opinion, for this to start to look more like the US? And China, frankly, where if you look at the top 10, things like Tencent and Metuan and other companies like that, Alibaba also make up the top 10 as huge tech giants.

• 34:26Speaker 02

  Yeah, I think what's curious about when you look at China is that most of the tech giants are China constrained. They grew so much in China, but just China is so, so massive. And that same playbook in Latin America is just constrained by the size of the economy, which is much smaller than China's. And when you compare the delta of Latin America to the United States and these massive friends and friends, it's really because he's become big global tech companies. If you think about maybe this first generation of large tech companies in Latin America that became the regional winners, the MercadoLibre is in company. But now you have the second generation of whether it's serial entrepreneurs like Maté and Florian or people that studied abroad and worked at the best places like the Vivales and New Bank.

• 35:10Speaker 02

  They come to the table with much more of a global mindset and global ambition. You already see a bunch of the unicorns today with global ambition and actually pretty meaningful global footprints. I mentioned before Wildlife that some of us are lucky enough to be investors in is now one of the biggest mobile gaming companies in the world. Company is started by two brothers out of Sao Paulo, backed by Benchmark now with its headquarters split between Sao Paulo and San Francisco. You have Jim Pass, which is another Brazilian unicorn also that has the majority of its revenues now coming from the US and Europe. And we mentioned, you know, Loft has a big presence in Latin America and growing. New Bank has Latin American presence, but also now people speculate US and global ambitions.

• 35:54Speaker 02

  So again, I think we need a little bit of time, need a little bit of time for maturity of the talent pool and for the ambition. And I think you'll start seeing more and more of the local companies with these global views and putting, I think, points on the scoreboard when it comes to being some of the big global leaders in different technology sectors that we're good at. Maybe fintech being the first one of them.

• 36:12Speaker 03

  We talked about remote talent on the tech side earlier, but there is also a significant opportunity to just bring more senior leadership talent into Latin America as part of this remote first or work from home movements. There's several companies that Julie already mentioned. In addition to those, there's a couple like DLocal, which also went public last year at a significant market cap based out of. Uruguay with a very significant presence and Israel, very significant presence frankly, in lots of emerging markets around the globe. Rappi, a fast delivery company out of Colombia that today has significant amount of their senior leadership based in the US, Austin more specifically, from what I understand, a lot of folks that went from US fast delivery companies to work there.

• 36:56Speaker 03

  So that arbitrage opportunity, I guess, on the talent side really cuts both ways and enables local companies that are inflecting locally but have global potential to take that potential abroad as well. So I think this leveling of the playing field, if you will, is really happening in both directions. And I think a lot of folks that perhaps in the past might have been hesitant to move all the way down to Colombia or Brazil or Mexico with their families, now that they can work remotely, can really benefit from this trend as well. And it's no longer sort of a one-way street of talent from Brazil working for the US or US folks working for Latin America. It's really just how can you attract the most, and I guess globally competitive talent for your company?

• 37:38Patrick O'Shaughnessy?

  One of the things I remember distinctly about our first conversation talking about Loft was trying to compare the MLS real estate system in the US versus what you see in Latin America. We all just kind of laughed because we're explaining to us, there was nothing there when you arrived. You had to build the legibility itself. There was no system to build on top of, like you had to go locally and literally do it yourself, which brings to mind the whole idea of small to medium businesses in Latin America and the software that serves them. It just seems like there is a huge, hugely fragmented market in the SMB world in LatAm, not just within one country, but across the whole region, and that the digitization of that, you know, the Shopify-like

• 38:17Patrick O'Shaughnessy?

  business model that sells software to SMB businesses might represent a really huge opportunity there that's sort of completely untapped. What do you think about that, Julio and Mate, as a category of opportunity within this bigger story?

• 38:31Speaker 02

  The base level of it is that if you compare the US, you have about eighty percent of the businesses are micro businesses or small businesses. Compare that to Brazil at eighty-five percent and most of the rest of Latin America, it's over ninety percent of the businesses are small businesses, but different than the US where the small businesses contribute around fifty percent of the GDP. In Latin America, they only contribute about twenty-five percent. So there's a lot more of them, but they're a lot less productive. So what's missing here? And like you said, there's just a lot of need for professionalization, access to capital, access to best practices, and things that we believe software and technology are best able to solve.

• 39:11Speaker 02

  We've definitely seen explosion of growth, different B two B marketplaces for procurement, for access to credit. We've seen these different platforms to help small merchants and retail or sell online. There's a big unicorn out of Brazil, a company called Olist that takes these small businesses and helps syndicate their products out to all the different marketplaces and e-commerce shops and has been doing extremely well. And obviously, all the different vertical software plays that you've seen, you know, we invested in the big one in the restaurant space called Fudo, which is sort of a toast and square equivalent for Latin America. But what I would say, and this is a little bit piling on Maté's point about Loft, is that some of the opportunities in Latin America are oftentimes much larger than their peers or their comparables

• 39:56Speaker 02

  in the United States. And that's exactly because some of these adjacencies that are just so competed out and so occupied that exists in the US, sometimes here they're completely empty. Patrick, you mentioned the lack of an MLS. So there's a very clear opportunity for a company like Loft that maybe goes in first with kind of an iBuyer model, expands to more of a marketplace model, expands more to a listing model, now is, I think, the biggest mortgage originator in Brazil and basically has been able to occupy all of these adjacent opportunities that are each multi-billion dollar opportunities in the United States. And here, we're just greenfield opportunities. And I think that's when you look at vertical software, a lot of times the promise is that you solve a really acute need for a particular vertical, but you can then kind of expand horizontally within that vertical and capture a lot more value there than you would be

• 40:41Speaker 02

  in a more competitive and more evolved country like the United States or like you see in Europe.

• 40:46Patrick O'Shaughnessy?

  Say a little bit about just the source of funding behind some of these opportunities. I want to talk about fintech and crypto and things like that, some other areas that you think might be exciting in LatAm specifically, but how much money is there to back these things in the first place? What are the most stark differences between, I'll call it, venture funding or private equity funding in LatAm versus North America? I know that tons of North American or American firms have started to really make big investments down in the region for the first time, maybe in a long time, but what does it feel like to you down there? Like, does it feel relative to, say, the US market that listeners will be more familiar with, like some tiny fraction of the available funding? Just give us a sense for how competitive it is and how many firms like yours are trying to capitalize on this opportunity.

• 41:32Speaker 02

  Like I said, it's worthwhile putting things into a historical context because everything here is new and that's part of the excitement of it. My personal story, I moved back here from Silicon Valley about 12 years ago to start my company, a company called Pacer Bono that at the time was the largest and fastest growing tech company in the region. At that time, this is a decade ago, there was one venture fund in existence in Brazil, one venture fund for a giant country like Brazil. Five years ago, we started our seed fund Canary, there was no unicorns. So all of this is very, very recent. And if you look at the funding environment today, you're really talking about less than half a dozen firms with over $100 million of AUM, one of them being ours.

• 42:15Speaker 02

  Again, in a country that's, or in a region that's massive, $5 trillion of GDP. When you compare that to the United States where that half a dozen is probably closer to, I don't know, 6,000 or something, right? It's probably multiple orders of magnitude of difference. Even though it has developed a ton, and I think we have record levels of venture funding right now, and definitely we had last year, we're still only a fraction of where we should be when you compare to more developed ecosystems, not just the US, but even like I mentioned before, India or Israel that have just started a lot before us. That would be the first thing. And when you take that and you think about competition, you're thinking about these great businesses that have Great numbers and have great traction or going after big opportunities.

• 42:58Speaker 02

  But really very few players that are looking to invest in them. So the level of competition is just frankly lower, not because people are better or worse, but just because there's less of us going after them. And I think that's really benefited the venture ecosystem over the last few years. Because all the venture funds here have done actually quite well. They've done, I think, almost all of them performing in sort of top quartile global venture returns, and we expect that to continue because the returns can be so concentrated in a few players like we've been able to achieve here.

• 43:27Patrick O'Shaughnessy?

  What about valuations? My sense is that watching a few of these processes happen last year especially that most of the exciting startups in this region were priced crazily like so many were in North America too and around the world. What has it settled into this year in 2022? Does it feel as though there's a entry or entry multiple discount? As an investor in LatAm versus what you might see for, let's say, a similar quality company in the US?

• 43:55Speaker 02

  We started Planchaku three years ago, but Mate and I had been investing in the region for over 10 years. I've been investing around the world also for about 10 years. So I've kind of seen these different cycles, I think, in Silicon Valley and here. And we definitely saw a run up in valuations here. When we started investing here and invested the seed stage of a bunch of these unicorns, you're investing at $2 million valuations at the seed or the series A, right? Frankly, cheap investments you were going into companies that had a ton of potential. To some extent, as the market got very filled with money, just like everywhere else in the world, local funds, but also international funds coming down here. I think the valuations kind of really skyrocketed. I do think they went a little too high, even compared to the United States.

• 44:38Speaker 02

  That delta of TAM to valuation, I think, was playing against what you saw in the local markets. Because the market is thinner, if you just all of a sudden have a boom in demand, a boom in money, the prices just get affected more so than in a much more liquid market like the United States. So we had maybe overcorrection and things were probably, I would say, a little too expensive over the last year or two. Obviously, the nature of early stages such that what really matters is getting into those. Monsters into those huge home runs and whether you paid 10 million bucks or 20 million bucks doesn't really matter when it's a 20 billion dollar company. But obviously, there's a high opportunity cost of paying higher when you're going to companies like that.

• 45:17Speaker 02

  I do think that now you've started to see some international investors taking their foot off the gas pedal when it comes to Latin America. There definitely hasn't been the exodus that we've seen in the past. The international investors are still here. They're still active. But they are comparatively less active than the local funds. So I do think that'll take a little bit of steam off the market and I think it'll help us just land this in a level that's much more adequate for the size of the opportunities that we have here.

• 45:45Patrick O'Shaughnessy?

  If you think about the opportunity in crypto, it's an interesting one to talk about through the LatAm lens because there's often stories told about how crypto, its adoption, its actual uses are more valuable. The further you get away from like the United States with like the most developed systems or developed technology, infrastructure and stack. Is that true? Is there actual evidence that crypto in some way is used more in more critical ways? More pervasively across the population within Latin America than it is outside of Latin America?

• 46:17Speaker 02

  It's a great discussion because I do think that the logic is there, but the reality hasn't really proven out yet. And I say yet because I do think that there is a lot of potential, but there's just not the kind of results that you would expect at this time. When you think about the applications of them, you have this never ending discussion in the Twitter sphere about what's the use case of web three? What's the use case of crypto and kind of this never ending cycle? And what people often raise their hand and say like, these are the prime use cases for web three are ones that I think frankly, we shouldn't be proud of this, but frankly are some that Latin America is a leader in. So if you think about crypto as a store of value. We've had a lot of political turmoil, a lot of hyperinflation in the past.

• 47:00Speaker 02

  Seems like putting your money in Bitcoin could be a good alternative to the Argentinian peso for sure. We should be seeing more of that. We're not seeing it, but it does seem kind of like a great environment for it to happen. When you think about medium of exchange or transferring money, a place like Latin America where remittances are super highly used, I think Mexico is probably one of the leading countries in the world in terms of remittances. But the cost of doing so is so prohibitively expensive or so eusurious to the people that depend on the remittances and using different protocols and projects on DeFi to transfer money more efficiently and cheaper. Should again get hold and I think we're starting to see companies like Bitso out of Mexico really grow on that opportunity. And then finally, maybe the last piece of Web three, if you think about cryptocurrencies,

• 47:45Speaker 02

  DeFi and maybe NFTs being the other area of discussion. I think personally that NFTs could be an amazing solution for how creators and the creative economy allows independents to monetize their work, make a living, allow people to participate in the experiences that they provide. And in Latin America, we have the highest level of penetration of creators and influencers on social networks. And the greatest level of influence that these folks and these new kind of media channels exert on a population. But in comparison to that, they have one of the lowest abilities to monetize that influence anywhere in the world. So can NFTs be a way for that to happen? We think again, it's fertile ground for these projects to take hold, but we haven't seen anything yet.

• 48:31Speaker 02

  And I think that's just because we're in the early days of it.

• 48:33Patrick O'Shaughnessy?

  We've talked a lot about some of this story being what I'll call a catch-up story. Going from 1.5% penetration to something more like China at 20 or the market cap of the top 10, starting to get populated more with technology companies. But we also gave an example at the beginning of PICS of something where perhaps there's a story from the future, if you will, that the more developed world can learn from. Are there other areas like that, like the PICS story? Where you think LatAm is operating from a future state? And is more developed, has something that can be learned and propagated through the United States and other more advanced, technology-forward countries?

• 49:11Speaker 02

  I would say that there's no obvious answer, but there are many problems where we're leading in the world in those problems. Like, I'm gonna give you an example, and I think the companies that are thinking bottoms up about how do you solve these problems and take those solutions potentially to the world are really interesting. In the offline world, you had direct selling to be able to access the bottom of the pyramid and have new distribution channels through Natura and a lot of these beauty door-to-door, person-to-person salespeople. And a lot of this is going digital, so you're seeing a lot more of how do you do direct selling through influencers and through social media and then build these new networks of distribution to both areas that previously were untapped or social networks that were

• 49:53Speaker 02

  untapped. So when you think about the idea of social selling, like you have in China, we have a long history of that, and that's now going digital. And I do think you're starting to see really innovative models by some of the incumbent companies to how to use that in a way that no one else in the world is doing. That's an interesting one. We've seen some interesting companies in the security space. I think a lot of countries in Latin America have fought with crime as a persistent problem. We have here in Rio de Janeiro, a company called Gabriel Security that we were lucky enough to invest as seed investors. They use a network of cameras joined together by a network of homeowners

• 50:33Speaker 02

  and AI. And I think about it as like a turbocharged ring meets China's surveillance network in order to protect residents on the street and in their own homes in a country where that problem is really acute, and therefore maybe one of these kind of world-class solutions should emerge. So I do think we'll start seeing more and more of these that are bottoms-up thinkers and entrepreneurs that think about problems that we have acutely here and solve them in a very local way and in a way that could actually have global product-market fit.

• 51:01Patrick O'Shaughnessy?

  If you think about the cooperation story between native Latin American capital firms like Atlantica Partners, like Canary, and the more increasingly global platform investment, private equity firms, how much cooperation do you want? What do you think the right amount of participation is from the established global firms in this story? Or do you think it's better in this fairly early stage that the capital partnerships really be led locally? That by being boots on the ground in the countries, you'll do a better job, help them build better businesses that more respect the local conditions, traditions, et cetera? What do you think about that? How will that all shake out between established firms and much more local focused firms?

• 51:45Speaker 02

  The famous bossa nova artist, Tom Jabeen, has a famous quote that's Brazil's not for beginners. I would apply that for the early stage in particular, right? When you're trying to take a business from zero to one, you know, to the first hundred employees, that's kind of a very local, boots-on-the-ground type challenge. If you're a global fund, sitting in an office in New York City or Silicon Valley, it's going to be hard for you to help a company hire a head of sales or navigate bureaucracy and sort of day-to-day issues. And that's a little bit of where we want to kind of the local partner, the local expert, because we've all done it. We've all taken businesses off the ground and scaled them to over $100 million of revenue in the region. So we've seen it, and we know kind of all the ups and downs, all the little pitfalls

• 52:28Speaker 02

  and all the little tricks that exist in the early days that are really critical and the level of empathy you need to have for how things here at times can be harder. So the way we've always thought about it is trying to partner with global funds. We think we can be the yin of the local understanding to their yang of the global scale, and I think global expertise from a sector basis. In my own fundraising experience, I brought always a mix local funds with global funds. I did my Series A with Benchmark, and then the B with General, Atlantic, and Tiger. And we had both local partners and international partners that were able to be very complimentary. I think Batte can speak to the same kind of experience, building out Loft, and that's how we've taken sort of this partnership approach to working with international funds.

• 53:11Patrick O'Shaughnessy?

  What are the biggest lessons, Julio, for you from your operating days? You listed some of those investors, I think it was Matt Kohler at Benchmark that was your partner. Incredible roster of people, I think really fast growth rate in the business, and ultimately, I think it was sold to Baidu. What are the big standout lessons from that chapter?

• 53:30Speaker 02

  I started two businesses in my lifetime. The first one was here in Brazil. They were coincidentally both backed by Benchmark. The first one with Matt Kohler and the second one, the partner from Benchmark that backed my second business, Prefer, out in Silicon Valley, was a guy called Scott Belsky, who was both the co-founder and then the partner from Benchmark on the board. And they were very different experiences. I do think that there was one lesson that I would take away of the critical importance of focus when you're an entrepreneur. I think it's something that everyone says, but no one really understands until you try to do way too many things and try to be spread too thin, right? In our case with Petri Vana, we were across six different countries all over Latin America. We had different four business units from daily deals to restaurant reservations to food delivery.

• 54:14Speaker 02

  Truly kind of an impossible task when you think about winning in all these different markets and all these different sectors. So I think for an entrepreneur, being focused and thinking about a market and a product one at a time, winning those before you move on to the next one, I think is critical to being successful. Ironically, almost the opposite of an investor, right? An investor, you kind of have to be able to go broad, be intellectually curious and learn about a lot of things in context, which... So I think that maybe what my biggest weakness as an entrepreneur actually turned out to be maybe one of my biggest strengths as an investor. I would love to hear what Mate would say about his experience with his two companies.

• 54:48Speaker 03

  One of the reasons why I love working with Julio and why we, besides working as partners, also have become very close friends over the years is that every conversation ends up meandering off in a different direction and kind of this dual hat of operator and investor that he uniquely wears, different from anybody else that I at least am aware of in the investor community in Brazil. He can really do that phase shifting. And I think a lot of discipline comes with this experience as well. I think it's focused, but it's also disciplined. It's the fact that Julio caps his funds at $100 million and not more than that. So when folks were doing two deals every two weeks in the US last year, he was doing one deal every two months. So I think that there comes innate discipline with, again, all the red tape,

• 55:31Speaker 03

  all of the trials and tribulations of having built and having run companies in Latin America that is just hardwired into entrepreneurs here and that frankly creates... A different level of tenacity and resilience, which again, to me, that's the key component or eighty percent plus, I would say of what it takes to be successful. It's really about making sure that you can get back up after failure rather than not getting beaten down because you will get beaten down all the time. So if you can maintain a modicum of focus and you're going to be resilient, I think those are going to be the key ingredients to success here. So much of it is ultimately just about iteration, especially when you're building a large kind of tech-enabled organization, which is what most of the businesses here in the region are.

• 56:15Speaker 03

  There's very few tech companies. It's really about execution, which again, comes down to iteration and comes down to benefiting from the pattern recognition of the broader organization and again, not giving up.

• 56:27Patrick O'Shaughnessy?

  I'd love to begin to wind down our conversation with a just big perspective question. Same question for both of you. If you think about what is most exciting on the one hand, and then most concerning or worrying on the other hand, about this style of investing in this general opportunity set, what would you choose as the most exciting and the most concerning or most worrying things on both ends of that spectrum? Julia, maybe we'll start with you.

• 56:51Speaker 02

  If you take our investing style at Atlantico as being one that's much more selective, which enables us to ultimately have much more of a boutique feel when we work and support founders. I think that what's most exciting there is that you can really hone in on the companies that you feel the highest level of conviction. And I think throw all your weight in terms of supporting those founders at a partner level, both with your capital, but more importantly, your time and the support that you can give them. And I think that you can kind of really move the needle there. And I think you can be very compelling in terms of your value proposition being differentiated from most of your other competitors. I think it's

• 57:33Speaker 02

  telling that since inception, we've been able to win every single competitive deal that we've been in. And I think that's testament to how differentiated our value proposition is and What's the risk of that is ultimately that you pick wrong. If you're throwing all your weight and high conviction on a smaller number of companies, maybe you miss a big one or you pick the wrong ones. And that's a little bit of the risk or I think the reality that we have to live with. We're high conviction investors and we want to focus on those that we think are the real needle movers. It does require a level of confidence that we're applying our judgment in a way that's ultimately approved to be correct in the long term. And that's probably what keeps me up at night is that we're not missing the next Mercado Libre or the next Loft or the next New Bank.

• 58:18Speaker 02

  Because that's what really matters when you're early stage investors, especially when you have a strategy like ours where you're either going to win really big or you're going to lose big.

• 58:26Patrick O'Shaughnessy?

  Monte, how about you? Most exciting, most concerning?

• 58:29Speaker 03

  I think the most exciting piece is that there's this massive forcing function. Part of it is self-imposed, as Julio said, he wants to run a small and nimble organization with a relatively manageable fund size. But this forcing function of having a relatively small fund, which means that you've got to be successful as an investor. You're not building an asset management business. You're not building a franchise in the sort of traditional asset management sense of the world. So different from the direction that a lot of the US managers have gone into, which is diversifying products, diversifying funds within the platform. This is really a craft business here. Essentially, all of the local investors are highly focused, highly craft centric, if you will, in the venture community, which means that there's a lot more at stake.

• 59:13Speaker 03

  Theoretically, returns also should be superior thanks to that. But it does create a very different game in terms of how high the stakes are. And I think that's very exciting.

• 59:24Patrick O'Shaughnessy?

  Having hosted Monte before, Julio, I get to close by asking you my traditional closing question. What is the kindest thing that anyone's ever done for you?

• 59:32Speaker 02

  I think in the context of Starting at Lanchaku and being able to craft this kind of world-class culture we're trying to build out here, probably one of the kindest things and one of the most generous people that I know, which has been the opportunity to have Andy Ratcliffe as a mentor for us, as a good friend. And he's been extremely kind to us. I mean, I think anyone that doesn't know, Andy was one of the founding partners of Benchmark Capital, is Chair of the Penn Endowment, is the founder of Wealthfront. So extremely accomplished individual with infinite demand on his time. And I think we've been lucky to count on him as not only an advisor and an investor on the fund, but really just, I think, someone that has been, to me, over decade-plus of friendship, as I think just a kind of an inspiration of what

• 1:00:16Speaker 02

  being generous with your time and paying it forward with your knowledge and support of probably the thousands of people that have either gone through his class or have been impacted by him in some way. And I think that for me, that kind of support definitely has all this practical benefits, but probably almost has this personal inspirational benefit of trying to think about what would Andy do and how do I separate time to also pay it forward and help the next generation of founders and investors. And I think that a lot of this kind of altruism and I think generational knowledge transfer is ultimately what made Silicon Valley be the kind of place that it is today. And I do think that here in Latin America, we're starting to see the same kind of behavior come about. And I do think it's going to be what's going to help the tech ecosystem here really thrive for the decades to come.

• 1:01:01Patrick O'Shaughnessy?

  Well, I've so enjoyed the conversation. I think some of the stats are just eye-popping around penetration rates, just the scope and scale of the economies, the size of the opportunities and how early it appears to be in many of these places. So I think great for myself certainly, but also other investors like me, more US-based and US-focused, to learn a bit about Latin America today. Julio and Mate, thank you so much for your time.

• 1:01:23Speaker 02

  Thank you, Patrick. It's been great. Thank you for having us, Patrick.

• 1:01:28Patrick O'Shaughnessy?

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