Pod Insights The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch 20VC: Why Market Size is Everything | Three Signs of a Bull Market and How To Remain Disciplined | Why Investing is a Young Person's Game | The Secret to Negotiation | Missing a $200M Opportunity in Nubank and more with Martín Escobari, Co-President @ Ge About this episode Martín Escobari is Co-President, Managing Director and Head of General Atlantic’s business in Latin America. Martín is Chairman of the firm’s Investment Committee and also serves on the Management and Portfolio Committees. Before joining General Atlantic in 2012, Martín was a Managing Director at Advent International. Prior to that, he was Co-Founder and CFO of Submarino.com, a leading Brazilian online retailer that went public and was sold to Lojas Americanas in 2006. Martin started his career as a management consultant at The Boston Consulting Group. Thanks to Seba Kanovich @ dlocal for the introduction today. In Today's Episode with Martín Escobari: 1.) From Bolivia to Harvard to Leading General Atlantic: How did Martin make his way into the world of venture from a small town in Bolivia? How did being an operator going through a bust impact how Martin invests and works with founders? How does Martin advise young members on his team about surviving through a bust? 2.) Market Matters: Founders, Product or Market: Why does Martin believe the single most important element when investing is the market you are entering? How does Martin assess both market size and market growth? What does Martin believe makes a "beautiful business model"? What is the difference between good vs great? Why have we seen a generation of bad business models? How did Martin's analysis of Nubank's market lead him to turn them down? How did Martin change his approach to investing on the back of turning down Nubank? 3.) The Venture Landscape: What made Martin believe there was a downturn last year? What three signs always suggest we are in a bubble? As a result, how did General Atlantic retain their discipline when others did not? Where did they lose their discipline and invest at the top of the market? How does Martin analyse the performance of the crossover funds in the last 24 months? Who did well? Who did not? Do they remain in the market? Is Martin concerned by the exodus of capital out of South America with the bust? 4.) Martin Escobari: The Investor and Board Member: How has Martin's style of investing changed over the last decade? How does Martin reflect on his own price sensitivity? Does Martin engage in outcome scenario planning? What has been Martin's biggest hit? How did it change his mindset? How would Martin analyze his own style of board membership? How does Martin advise young board members gaining their first boards?
Transcript Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:00 Speaker 00 The most significant size of the market. Because no matter how good a team and a model is, you will never outgrow your market.
0:06 Harry Stebbings? I mean, what an insanely great show we have in store for you today with Martín Escobar. Martín is one of the ultimate gentlemen of venture, one of the kindest, wisest and funniest guests I've had on the show in a long time. I so love doing this episode. So Martín is co-president, managing director and head of General Atlantic's business in Latin America. Before joining General Atlantic in 2012, Martín was a managing director at Advent International. Prior to that, he was on the operator side of the table as co-founder and CFO of Submarino.com, a leading Brazilian online retailer that went public and was sold to Lojas Americanas in 2006. I'm sure I butchered that pronunciation, but we'll roll with it anyway. And I want to say a huge thank you to Seba at DLocal for the amazing intro and questions today,
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3:00 Harry Stebbings? And if that wasn't good enough, head over to Squarespace.com/20vc. Not only do you get a free trial, but when you're ready to launch, use the offer code 20vc to save 10% off your first purchase of a website or a domain. But that is enough from me, so now I'm so excited to hand over to Martin Escobar, co-president at General Atlantic.
3:24 Speaker 02 You have now arrived at your destination.
3:27 Harry Stebbings? Martin, I'm so excited for this. Thank you so much for joining me today. I was sitting with Seba the other day from DLocal, and he was telling me how wonderful you've been as a partner to him. So thank you so much for joining me today.
3:37 Speaker 00 Harry, I love your podcast and I'm honoured to be here.
3:40 Harry Stebbings? That is very kind of you. I also love the artwork behind you. It's much cooler than what I've got in my background. But I want to start with a little bit on you. So now, co-president of GA, where did it start? And how did you make your way into the world of venture?
3:53 Speaker 00 I come from a tiny town, population 10,000, in the middle of the Bolivian jungle. And I was born in an oil camp to two doctors' parents who were communists. So the first lucky break in this journey that got me from there to here is against their best thinking, they decided to send me to the American school and I learned English. And that was amazing. When I came to college, I couldn't afford universities, so I was limited to only people that offered scholarships, and that happened to be the good universities in the United States. So I got into Harvard, and Harvard was life-changing. And I was the first Bolivian in 354 years to come to Harvard College. Revolutionary, life-changing. It's an institution that I'm eternally grateful for. But that was sort of lucky break number two in my life. I did college and business school at Harvard.
4:35 Speaker 00 After business school, I decided to go live in Brazil, because I found Brazil fabulous. Exotic, it's tropical, it's beautiful, the music. And I had fallen in love with my Portuguese instructor. So then twenty years in Brazil. And my first tour of duty in Brazil was an entrepreneur. I was co-founder of the number one e-commerce company in Brazil in the nineties. A company called Submarino dot com, which became the first tech Brazilian company to go public. And in the context of building Submarino, I met General Atlantic. And we had met about two hundred investors. And General Atlantic was different. And I fell in love. Unfortunately, they didn't fall in love with me. And they didn't invest in Submarino. They should have, but they didn't. And so be it. We built Submarino, we took it public, we sold it.
5:18 Speaker 00 But after that, I got a call back from General Atlantic. And the second time around, they did love me. And they hired me to run their Brazil office. We expanded it to Latin America. Latin America is now about fifteen percent of what we do. We've done very well over the last ten years, thanks to people like Seba and Cesar Jimenez and some of the people that you've interviewed. And about five years ago, they invited me to be chair of our global investment committee in New York. For some reason, they thought I was qualified. And that's what I've been doing for the last five years. So the GA is massive, right? We manage eighty billion dollars, fifteen offices globally. We've been around for forty-one years. Fabulous firm. And I'm proud to be a partner in the firm.
5:52 Harry Stebbings? I have to ask, it's such an incredible story. When you think back to your upbringing, you mentioned kind of the humble upbringing there. If we're all a function of our past, what are you running from? And what are you running towards, Martin?
6:05 Speaker 00 Bolivia is a place of limited possibility. Because of its history, because of its poverty, because of its lack of infrastructure and opportunity. A stereo-eyed dreaming boy is claustrophobic in a world of limited opportunities and gets a little crack in the door in a world of limitless opportunities. In the US, at Harvard. And as I've seen my life transformed by the opportunities provided by the universe in the US and elsewhere, I want to help other entrepreneurs and other people globally tap into that little door into a world of limitless possibility. So that's my journey.
6:40 Harry Stebbings? When your parents saw you scale, go to Harvard, they must have been immensely proud.
6:44 Speaker 00 They don't know what Harvard is. They had never been to the United States. I didn't know what Harvard was. Actually wanted to go to Yale. It was ranked number one in some ranking I had seen. I was like, I can't tell apples from oranges. I need to go. Harvard was number two, Yale was number one. I got into Yale, I got into Harvard. And then a very famous guy from Bolivia, the governor La Paz called me and said, you are going to Harvard, right? And I said, sir, I'm sorry, it's number two, I'm going to number one. And he convinced me. I had no idea. I landed there. I was like, okay, fine, whatever. And so, yes, now they understand and they're very proud. At the time, it was, okay, scholarship, okay, you can go.
7:19 Harry Stebbings? Did you feel a little bit out of place when you first arrived? VCs often talk about imposter syndrome. Did you feel a little bit like it didn't belong?
7:27 Speaker 00 So Harvard has sixteen hundred people as freshmen. And when I arrived, and interestingly, in Bolivia, you have to do military. So and it's very short because most people get disqualified on medical grounds because they can't afford to have everyone do military. But I did spend a week in the military, so they shaved my head. So here I was, and I don't have a small head. It was shaven. And I dressed rather modestly and I was thrown into Harvard College. And I had the feeling I was the dumbest of the sixteen hundred, the absolute dumbest. And it took me two weeks to find someone that I thought was probably at my level. And I relaxed at that moment and I said, oh, I'm not alone. It takes a while for you to build self-confidence, but it was an overwhelming experience. Harvard tries its best to make you feel less overwhelmed. It is impossible not to be overwhelmed.
8:09 Harry Stebbings? This is like one of my favorite stories. Most people like, I grew up in Silicon Valley and I went to Stanford. And then I became a VC. It was so surprising. And I'm not really surprised, not really surprising, actually. You mentioned Submarino there and the incredible journey there, taking it public. I didn't see the boom times of the nineties, not meaning to age you, but what are one of the two of the biggest lessons that you have? From that incredible journey with Submarino, going through what was such a fascinating nineties period?
8:35 Speaker 00 Two sets of lessons. One is around what it's like to operate in a bubble. And then there's other sets of lessons around what it's like to be an operator. So let's do the operator one. I think it's a fabulous school to spend time as an operator before you become an investor. And the two things I learned as an operator, first of all, is how hard life at startup is. And you hear people talk about it, you hear Steve Jobs talk about it, when you feel it. You understand and the big conclusion of understanding that pain and suffering and toil is you recognize that the heroes of the entrepreneurial journey are the managers are not the investors. We are the supply lines. We provide occasionally a good idea. We support, but the people on the front lines are the true heroes of the story.
9:16 Speaker 00 We owe them our success as investors. What they do is hard and nothing would upset me more that coming to a board meeting as an entrepreneur, bloodied in the hands of the things I had to do and a twenty-three-year-old snotty guy complained about us meeting a working capital of targets for the quarter, not understanding the complexity of all the things we were trying to do.
9:35 Harry Stebbings? Martina, you're having a go at me because of the age joke.
9:39 Speaker 00 I'm getting back at you because of the age joke, but if that's a mistake, I counsel all our teams not to make because life on the other side is really hard. The second realization is in the process of human learning, you read a theory, you understand it, but when you feel it, you internalize it. So we read that working in a expanding market is better than working in a stagnant market. We read that there are certain business models that have moat and that have competitive differentiation. Those are better than commoditized. When you have lived the difference of what it's like to swim against the tide and for the tide and what it's like to run a business that has competitive differential and one that is not. It is a different appreciation of the beauty of market growth and the elegance of business models.
10:21 Speaker 00 I invest in things that have two things on for them, beautiful business models, winning their sale in terms of market growth because I felt what it's like when that's not the case.
10:30 Harry Stebbings? How much of a role then does the founder play? I lost money recently. Amazing founder, terrible market. And actually, the centrality of market has become a lot more poignant to me as I invest more and more. How do you think about the balance between market, founder and business model?
10:45 Speaker 00 We have forty-two years of data at General Atlantic and we've done over four hundred transactions, we know, and across the entire world in six sectors. Over the forty years, ten percent of the transactions lead to fifty percent of the gains and it's been consistent throughout time. And we lose money on three percent of the gap and that has stayed also consistent. When we were looking at the common characteristics and we have all this data now, there are seven things that matter in terms of your probability of being in that ten percent, that lucky ten percent. The three more statistically significant, size of the market, defensibility of the business model, the quality and the capabilities of the team. The three things equally significant, but the most significant, size of the market. No matter how good a team and a model is, you will never outgrow your market. We are lucky as investors. We don't need to choose situations.
11:30 Speaker 00 We only get two of the three. We can be picky enough to only invest in things that have the three things. Don't compromise on these three.
11:38 Harry Stebbings? The hard thing I find is what do you do in a case of market creation or extreme market growth? When you looked at some things like Twilio, often in B two B this happens, like Twilio. Everyone predicted this would be a two to three billion dollar company at best. In the pandemic, when prices were high, it was a forty, fifty billion dollar company. But we always underestimate the size of our winners because they lead to market growth. How do you think about that as an ancillary point?
12:00 Speaker 00 Anton, my friend, Anton Levy, co-president of the firm, invited me to look at Uber in the two billion dollar round because of the international opportunity. And we went and we met Travis and the entire black market industry. And at the time Uber was just Uber, the premium Uber, was less than two billion dollars. So we were like, we can't pay two billion dollars for a business that's going after a TAM that's two billion dollars. It just doesn't work. So we passed. Of course, Uber redefined what it does, launching Uber Eggs and Uber Eats and all the extensions that Uber did. And we missed it. One of the hardest things of an investor is to look at these three variables and their other variables. But to run simulations in your mind of alternative universes where those things change dynamically. So the team is augmented to fill in a gap.
12:45 Speaker 00 The TAM is expanded to change in a different way. The experience curve is so strong that the moat is built through experience, not through structure. So it's just, it's a dynamic puzzle that requires a leap of faith. Certain situations are easier for such extensions to happen and you lean on those. Sometimes it's not as easy and great managers are very good at redefining their markets. So you're absolutely right. It's not as simple as seeing what the current market is today. You have to sort of imagine alternative universes.
13:12 Harry Stebbings? The other really challenging thing that we have to do, we have to prevent biases from infiltrating our decision-making process. And what I mean by that is when you lose money in a certain space, you just inherently think that space is shit. It's a bad market. It's got bad business models. Often for me, that's healthcare. How do you prevent biases from past investment successes or failures impacting your future decisions?
13:34 Speaker 00 Understanding your biases, not just based on history, but based on psychology, is one of the greatest challenges of our profession. And no matter how pure your heart is, you have biases. And if you don't admit to them, you're lying to yourself. So I admit to my biases. And when we discuss a transaction with the team, it's like, I know I have this bias. I have this opinion, but I'd like to explain to the team that my opinion would be wrong because I know I have this bias. And then we challenge the opinion, then we come to the conclusion. Voicing out that you have this bias helps you address and mitigate the bias. But it's hard. We are all victims of our upbringings and our experiences and our successes and our failures.
14:12 Harry Stebbings? That's being kind of hard. I've never seen a downturn before, Martin. Thank you for that sympathy. And there are many others who have not seen one before. I spoke to Cesar at Gimpart in particular, and he told me that you predicted the downturn and kept disciplined. What made you think the downturn was coming? And in what ways did you keep disciplined?
14:29 Speaker 00 One of the problems of the venture capital community and the growth community is we're extremely procyclical. We drink our own Kool-Aid. We overinvest in the peak of the bull market and we lose all discipline. And it happens time and time again. Why it happens? Because the technology is exciting, because people begin to make lots of money as more and more people join into a trend. Because some of the best companies only raise money and come up for air when the valuations are very high. So the incentives, and we all suffer from fall, the incentives are all wrong. And we've seen it enough times at GA that we build guardrails to protect ourselves from the siren songs of this fake bull market and not do silly things like a lot of our competitors did. And we can talk about those guardrails.
15:11 Speaker 00 But it's beginning to be the end of the bull market when three things happen. First, everyone's making money, even the least talented people in the market. That's a clear warning signal when everyone's making money. Secondly, traditional forms of valuation are disregarded. We make up new metrics. It's not EBITDA, it's not profit, it's not cash flow. It's ARR adjusted for growth. And it's not ten times, it's twenty times. And then the third one, in the peak of FOMO fever, deal velocity spikes to the point that deals are getting done in weeks, not months. When those three things happen, last dance. So what did we do? Twenty twenty one, we were liquidity minded, we had record liquidity. But more importantly, we told all our companies, get to fully funded plans. In twenty twenty one, our portfolio raised twenty billion dollars of primary capital,
15:56 Speaker 00 nineteen of which from other parties. Today, we have two hundred companies, ninety seven percent of them fully funded plans. The world is doing what you just said, the world is nervous. A lot of entrepreneurs are nervous. The vast majority of our entrepreneurs have a full tank of gas and are ready to capitalize on the opportunities that happen when everyone else is nervous. It is the most fun time. This is a lot more fun than twenty twenty one.
16:16 Harry Stebbings? I don't think this is fun because as you said, the good companies don't need the money or have raised from existings who are willing to give them more money to extend their runway. And so the only companies that are actually raising today are companies that need to and I think lower quality. And I think Q three, Q four next year, you'll see the repricing of good assets who've run out of extension periods. But right now, it doesn't seem fun. Why am I missing the trick? Why are you having fun?
16:41 Speaker 00 Fun is a strong word. Rationality has been restored. Companies that did their homework are efficient, have cash reserves, will consolidate their industries and reimagine and redefine what it is they came to do in their markets. Reimagining industries and taking advantage of you having done your homework? It's a lot more fun than competing for deals on two weeks' notice and paying twenty times the error. I find that irresponsible with the capital of our capital partners. Redefining industries or potentially redefining industries is a lot more fun.
17:10 Harry Stebbings? Can I ask, what did you do within GA to prevent yourself falling victim to the same hype, excitement and FOMO that everyone else really engaged with so heavily in twenty one?
17:21 Speaker 00 Listen, we're not perfect. But what we did learn, we learned this in two thousand is the two ways you get hurt is you spend too much of LP's money at the peak of the market and then you have too many unfunded business plans who need to raise money when everyone is frozen. And either that money is very expensive and your shareholding gets diluted or the company is done. So the two things we said is we're never going to run our commitments faster than three years. And we want to make sure the vast majority of our companies have fully funded plans. And we got that done. And it's really hard because every one of our competitors was running their funds in 12 to 18 months. Deploying capital three times the rate we were. And a lot of the young guys were like, we're not getting enough reps. We're missing the boat. This is a new market. The new venture capital market has been transformed by a new way of doing transactions. You guys are not keeping up with the times.
18:05 Speaker 00 And we're like, calm down and think the data is still out. But I think the more measured strategy yields better returns over the decade.
18:12 Harry Stebbings? It's so funny. You kind of come to the realization that actually very little changes over time. I remember when people were saying it's the end of cycles. And now you're like, really? You lied to me. Martin, me and you are sitting down. I'm a young member of your team and I'm nervous. How do you advise me as the wise elder, young elder, of course, advising the young investor on this new market and how I should operate?
18:35 Speaker 00 I remember when my wife was pregnant with our first kid. We have two girls and it's so nerve wracking. Our doctor said it's been done before. When you put it in that context, there's billions of births been done before in humanity. You're like, yeah, okay. So living through the cycle you're living through, Harry, has been done many times. And the most important objective you should have as a company, as an entrepreneur, as a founder, as an investor in this period of adjustment is to not die as a company. Have a fighting chance at the new day. The wheel of fortune always turns. It's never sunny always and it's never rainy always. It always turns and you just have to be alive for the next sunny time. If you do, you're going to do great. So Submarina, which I told you the short story, the loan stories, we ran out of money.
19:20 Speaker 00 So we had raised $200 million. We were three weeks away from IPO in 2000. The market crashed. We had opened Submarina in five countries. I had personally opened four of those countries. We ran out of money. We had to shut down the four countries, focus just on Brazil, put ourselves for sale. Strategic buyer offered $25 million for us. We were about to go public at a billion. Three months later, $25 million. And after due diligence, left us at the altar because he said we were more valuable dead than alive. We spun off a business unit to raise some cash. We worked really hard in efficiency and we broke. Given and then the market returns and we went public. And that same buyer that left us at the out there for twenty five in a merger transaction ended up paying close to two billion, two years later.
20:01 Speaker 00 So the wheel of fortune always turns. You just can't die. You can't shut down. So Harry, just stay alive.
20:07 Harry Stebbings? That's a relief and I love that story about your wife and the pregnancy. That's fantastic. You mentioned kind of like retaining a sense of rationality and discipline. Every big fund was going, oh my God, we're getting eaten alive by Tiger and SoftBank in every deal. What did your internal discussions look like when SoftBank and Tiger were running rampage on growth? And actually winning good deals, often beating a lot of great growth players because of speed and price. What did those discussions look like?
20:37 Speaker 00 In growth and in emerging markets, you often get tourists. Tourist capital shows up when it's sunny and they're very excited, they're very loud. But as soon as it gets a little rainy, they always leave. So we knew this was a temporary phenomenon, but we didn't know how long it's going to be and we lost to them. Here's a sort of wise, seasoned manager that adds lots of value, but requires three months of due diligence and pays forty percent less than a guy that gives you a check in three days. Hard to compete. So it was humbling and we did lose some opportunities, some great opportunities. But the damage that these tourist capital do is twofold. They encourage a mentality of growth at any cost, which is not healthy for the development of companies.
21:19 Speaker 00 If you grow measured in a measured way and focus on unit economics and focus on fundamental, the feedback loops come in time so you can fix your strategy and make your company even better. But when you're doing things so quickly, that feedback loop is noise. And you just burn through the a hundred million dollars without having the benefit of learning. And companies lose themselves when they stop listening to the signals and just ride the noise and spend money like crazy. And that's the real damage. We lose market share, that's fine. Companies losing discipline and losing their soul and ending up in situations where they don't have business models that can survive is the real danger. And that's what we're going to have. The hangover of a period of excessive abundant capital globally, not just in Latin America,
22:03 Speaker 00 is that you have a large percentage of the companies who got lost in this abundance of liquidity and today don't have viable business models and will unfortunately cease to exist.
22:12 Harry Stebbings? The hard thing is I do feel for founders because it's like if they don't accept the term sheet for a large amount of money, their competitors will and then they'll just outspend them on every channel. And so the capital kind of forces you into it without a choice, no?
22:25 Speaker 00 There's only one situation where being outspent by a competitor is dangerous. It's in a winner take all market. If you are in a winner take all market, you're trying to be the search engine of Brazil. You're trying to be the Alibaba marketplace of China. And it's very clear the network effects are such large that the winner captures everything. Then your logic is absolutely correct in that you want to suck in all the capital and make sure you are the winner. Even if you end up being diluted to a 5% stake as a founder, the winner is so valuable, number two is not valuable. So you go all in for the winner. Only 3% of business models are winner take all. Most business models are winner take most and that's fine. And in most situations, it is often the follower that does even better because they learn from the mistakes of the leader
23:09 Speaker 00 who spent all that money recklessly without listening to the signals. And you're listening to the signals and you're being wise. These guys get exhausted and you win. Google was not the first search engine. Facebook was not the first social media.
23:19 Harry Stebbings? You mentioned losing a couple of times to the players that we mentioned. Most often they won because of price. When you think about kind of pricing, what have been like some of your biggest lessons on pricing? Because I always think when it gets to growth 500 million plus, this is when price really matters. From your experience, how do you reflect on your own price sensitivity and the importance of price?
23:39 Speaker 00 Price matters, especially in the later stages. Everyone who says price doesn't matter hasn't been around long enough to experience that it does matter. In negotiating price with an entrepreneur, it is often that the investor has a lot more information than the entrepreneur. And it is often that the investor has a lot more experience negotiating terms than an entrepreneur. One of the things I have done since the beginning of time is I believe in paying the fair price. And I start with the fair price and I don't really move very much from the fair price. And if it works, if it doesn't work. The fair price is the price that allows me to get at least a 25% return in five years based on a P multiple exit by the time I'm in exit. And I backtrack into what I can afford to pay today on a base case. And sometimes we do scenarios because it's weighted average base case. And that's the price I'm willing to pay. And it's hard sometimes to negotiate and sometimes it's not hard.
24:24 Speaker 00 But I think that's the point at which a partnership starts. And the partnership with the investor and entrepreneur should start at a fair position.
24:31 Harry Stebbings? I heard that you are a master of negotiation as well. So while we're on price, what is the art of successful negotiation? What are your tips?
24:39 Speaker 00 It's not a win lose game. It's a dance to get to a fair price and begin to build the partnership. Over the last three years, and you've talked to people who've become partners of GA over the last three, four years, which was crazy La La Land. We looked like tough negotiators because we were pricing things twenty, thirty percent below the tourists. And to get there, it's hard and you have to convince them and you have to be tough and you have to be resilient and we were that. If you do the same interviews three years from now, because all the tourists have left and it's just us, we're overpaying for assets all across the world. It's just it looks a little more rich now than it did before. So I don't think I'm particularly a good negotiator. I am committed to only doing things that are a fair price. And something that really helps is at GA, we meet ten thousand companies a year. We invest in fifty.
25:22 Speaker 00 So we say no a lot. At GA, our most valuable resource is our time. My time is so precious. Your time is so precious. On earth for so few years, we're at the peak of our capacity for even a small fraction of those years. If we want to maximize impact, let's do it with people that really want to do it with us. So I have no patience for people who don't want to start that kind of partnership with me. If you don't agree with me that we're the right partner and this is a fair price, I'm okay. I have many other places to spend my time with people that do agree this is a good match. And that's probably a better match for us anyways. So I'm okay. So this willingness to walk away is important. And people sense it and they know it's genuine. It's not an act. I honestly have a million things I'd rather do than haggle over price with someone who doesn't believe in the fair price. Oh, okay. That's okay.
26:06 Harry Stebbings? How does GA make decisions? You mentioned the fifty investments there, the eighty billion under management, the big team, the global team. How do you make decisions?
26:15 Speaker 00 So this is a good story. So when Bill, our CEO, invited me to be chairman of the year, I see, I got the imposter complex. I am a little guy from Bolivia. I've been faking it. I could trick the Brazilians, but I'm not going to trick the New Yorkers. I go to New York and I interview the founders of our firm, Steve Denning and Dave Hodgson. And Steve is chairman emeritus and led the firm for the first twenty five years of its history. Former Navy man, McKinsey guy. And I said, help me think through decision making of such a complex global organization. And he said, you need to create a checklist. Look at our, at the time it was thirty five years of data. Look at our best performance. Come up with the checklist and make sure that everyone uses the positive and the negative checklist. I was like checklist. Oh, obvious. We should all use a checklist to simplify notes.
27:00 Speaker 00 Okay, good. And then I go to Dave Hodgson and I say, Dave, same question. And he says, the first thing he says, resist the temptation to use a checklist. And I'm like, Dave, you guys were partners for thirty years. You made decisions that were brilliant and you can't agree how to make investment decisions. So I was like, this is paradoxical. And then it turns out when you do the academic research, and you know, I don't know if you've read Thinking Fast Thinking, it talks about different parts of the brain and how one is primitive and one is sophisticated and how we have biases. And actually, the inside of the book comes from the author was a psychologist in the Israeli army developing the interview guidelines for the special forces. And he developed a checklist because the checklist is a way of curing the biases. So he's a believer of the checklist. But then it's actually not in the book.
27:43 Speaker 00 I actually read this after finishing the book in another interview that he did. When he looked at the statistic, there were certain people that were better at using the checklist than others. So there were certain interviewers that had scores like ninety-nine percent. And you can tell when you've selected the right people into the right unit because they do well in the unit. He went and interviews this woman who's the master interviewer and she says, I look at the checklist and then I close my eyes and listen to my intuition. So I'm a believer that educated intuition is the best way to make decisions. And the way you educate the intuition is you ground yourselves in facts. And the checklist is a way of making sure you've collected all the right facts. And then once you've looked at all, you close your eyes, see how you feel.
28:26 Harry Stebbings? Can one person lead a deal? Do you need the team behind you? How does consensus versus conviction work for you?
28:32 Speaker 00 So we have a four-person investment committee. You need three people to vote yes out of the four, and it's the co-presidents and the CEO. Deal teams are staffed, trying to get the best of the local expertise with the global expertise. We're the most global of all investment organizations I've come up with because more than half of our people and more than half of our assets are outside the United States. But we partner in every deal. The sector experts typically in the US or Europe partner with the global teams. So we get the local and the global sector expertise. We all get paid out of the same pot. So no one gets paid out of their individual performance. We get paid out of global performance. More importantly, we have a culture of extreme transparency. We go to the investment committee not to sell the deal, but with the three things that are keeping up a night.
29:16 Speaker 00 You saw the memo and the memos are standardized and the checklists are standardized. But like, these are the two, three things I struggle with. Let's make this decision together. And it's typically two partners on a deal plus the four of us in the committee. And we discuss things three, four times a committee. And it's hard.
29:31 Harry Stebbings? How do you create an environment of safety where younger people in particular feel that they can say, Martin, I actually don't agree with you on that. I see it differently, but can challenge you in a positive way. But it's how do you create that environment where people can speak up and feel safe to?
29:47 Speaker 00 You listen when they do speak up. That's all. And you create the forums where they can speak up. So our investment committee is open to everyone in the firm globally. And you can hear everything. And if you're a partner, you can even go into the executive session and look at the voting and see why people voted against your deal or in favor of your deal. Extreme transparency. And if someone speaks up and you listen, everyone knows it's acceptable. In my region, for example, when we're looking at a deal at the initial level, we start with the youngest person at the team to give their opinion. If I start with my opinion, it's over, right? The risk is the hierarchy is preserved and everyone wants to please the hierarchy. But if it starts with the youngest person, occasionally you get brilliant insight. And as a young person, I'll tell you another thing. When I started in the investment profession, one of the mistakes people make is they just crunch their data
30:32 Speaker 00 so that someone else can make the decision. I always tell the young people is, I gave you the homework and the data, but I want you to start with the conclusion. And then you show me the data. Come to me with the conclusion. As I was growing up as an investor, not only would I get to the conclusion when I was preparing it, I began to try to understand how the people in the investment committee thought. And I would predict not only their vote, but what their question was going to be. And after a couple of years, I was able to predict 90% of their questions because I knew how their brain worked and I knew what their things they're focused on. And by doing that, by having your own opinion and understanding the opinion of people you respect, your own judgment gets better and better. And this is the judgment.
31:05 Harry Stebbings? So the reason I don't like thesis-driven investing is because I fear that it's exactly what you just said, which I mean respectfully. But it's like you have an opinion and then you find data that supports your opinion. And leads you to confirmation bias. Do you not worry about that if you start with the conviction and the opinion?
31:23 Speaker 00 I agree with the statement you made, but we love thematic investing. But I'll tell you how thematic investing works. We look at a trend and I'll give you an example of a trend. The banks ought to be disintermediated in the distribution of retail financial products because they're doing a horrible job in the United States in the 90s. That was the theme. And then we went to market and said, who's going to benefit from this idea? Who's got the best mousetrap to eat this business away from the banks? And we landed in E-Trade and E-Trade multiplies market by the 27th. And the banks with 80% share in the United States went to 10% share in a deck. The same theme in Brazil 12 years ago, a company you should meet, XP, market cap went up from 300 million to 20 billion, doing the exact same thing E-Trade did, except in a market where the banks were at 99%
32:07 Speaker 00 and now are at 82 and dropping. So that thematic investing does work. Being more granular, saying the way you're going to disrupt the cyber industry is by doing this type of technology. And I think we should find a company that does this type of technology. No, decide that cyber is going to become more important because systems are more interconnected and bank actors are getting more sophisticated. Go out and meet the people who are on the front lines who are really doing that. And then you invest. You need a macro theme, not a micro theme. And you just need to be surprised by the people on the front lines who are writing that macro theme and doing it elegantly and effectively.
32:36 Harry Stebbings? Have you lost money? Have you had a zero?
32:38 Speaker 00 I have lost money, not frequently. And people always say my loss ratio should be bigger. And I don't need it to be bigger. As a firm, we lose money 2% of the time. As an individual, I think I'm not far from that.
32:49 Harry Stebbings? Have you ever had a period where you've lost confidence in yourself as an investor?
32:53 Speaker 00 There was a period of time where I drifted away from technology-led disruption, tried my hand at traditional private equity. I discovered it's not my cup of tea. And we didn't make a lot of money in those two transactions. And I went back to my roots. I like technology-led disruption and I should stick back to that. And that was a period of time in 2013, 2015.
33:13 Harry Stebbings? You've mentioned the global nature of GA. One thing that I am pretty worried about now, I've invested in Latam and Brazil, actually, a number of times. I'm worried about the exodus of capital that we've just seen over the last six months. All of the US funds who were there so actively in 2020 and 21 have largely retrenched. You see it generally when markets contract. I think this is bad for Brazilian entrepreneurs and I'm worried for them. Do you share my concern about the exodus of capital away from Latam and Brazil?
33:38 Speaker 00 It's less bad than 2000 and we came out okay in 2000. And the reason it's less bad because in 2000, the tourist capital provided 98% of all funds that were invested in the region in 1998 to 2000. And it was the same names, different generation, but same people, same story, just it rhymes. It doesn't repeat, but it rhymes. This time around, at least 30% of the capital came from people who are permanently committed to the region. And those guys are going to make the restructuring and consolidation and path of profitability a lot less painful than it was for us at Submarino. We had to break even with all new capital. That's hard. Now, there's going to be someone to step in and make sure that you can break even with some capital.
34:16 Harry Stebbings? Has your investing changed over time, Marty?
34:18 Speaker 00 One of the views of the investment profession, you accumulate experience and pattern recognition. And provided your mind doesn't get old, and we can talk about what it takes for your mind not to get old because it's really hard, you get better. You can get really better. I've become a better partner to entrepreneurs through accumulated knowledge and experience and I'm fighting age like crazy in my brain so that I don't fossilize and become old fashioned. What excites me today is a little different than what excite me five years ago. Five years ago was all about finding the big problems of Latin America and finding technologies that can fix those problems because the bigger the problem, the bigger the value of the technological solutions. And if you talk through all my companies, the running theme is they're solving big problems and they're making tons of money doing it. And they're going to create, I think, a lot of value doing that.
35:01 Speaker 00 In this phase, as I'm stereyied, another door opened and I'm in New York, I want to find emerging market entrepreneurs that are taking on the work, like the founders of Bitas, like Cesar and Chimpas, like Seba at Deloco. They want to eat the world and show the world that you can create a world-class company and you can be born in Minas Gerais or in Uruguay or in the suburbs of Beijing. That is fun. How I define my purpose has changed a little bit over time and that's affected the kind of investing I'm.
35:29 Harry Stebbings? You said there about the challenges of keeping youth or a youthful mind or to prevent an aging mind. Why is it so hard and what does one do to retain that youthful mind?
35:38 Speaker 00 Young minds are playful. Young minds wander. Young minds make silly mistakes and laugh at themselves. Old minds are preachers of the truth. Old minds are moralists. You gotta remain playful and humble and experiment and it gets harder. It gets harder, but it's a lot better than aging, I'll tell you that. Trying is harder than aging and I'm trying because I think if you can combine the wisdom and experience and the pattern recognition with the playfulness and the ability to wander and avoid the preaching, you stay relevant longer and you can have a better positive impact.
36:10 Harry Stebbings? Often as you age and gain experience in venture, you also become more financially successful and the drive to get on that plane at 6am or 10pm or chase every person that you think is world-class goes down. How do you retain both for yourself and for your partners the same drive and hunger when you don't need it anymore?
36:30 Speaker 00 Hopefully we'll find very quickly that you satisfy your material needs with relatively modest amounts of capital and they are diminishing returns to spending more money in material goods because it turns out it's kind of a pain to maintain infrastructure. You have to think of what your purpose is. If your purpose is impacting thousands of people, finding shining lights in the emerging markets that create world-class companies, that drives you. It's not the extra hundred thousand dollars, it's the passion. And then of course the money comes, but if you think of yourself not as a vessel that's accumulating money and there's money just spewing over, but as a tube where you're getting money but you're allocating to the great causes that are meaningful to you through philanthropy or through investing, there's never an overflow of money because you're just a vessel through
37:13 Speaker 00 which money is, energy is just passing through you and it's just endless and it's beautiful. And think of yourself as a vessel, not a kettle.
37:20 Harry Stebbings? I love that. I'm a vessel to Chanel's annual revenues, that's my mother's spending. But I'm like, you're like, you can fix your happiness with little money. I'm like, have you ever seen Chanel Martine? It ain't wholesale. Final question before a quickfire round, which is you have two wonderful daughters you mentioned earlier. How do you think about retaining that same love? Of hunger in that when they're brought up in a different financial situation, environment to which you were brought up in in Bolivia and with much more humble beginnings.
37:48 Speaker 00 It's really hard. Most driven people have a chip on their shoulder built on deep trauma related to something that happened earlier in their lives. And if you're a successful, well-to-do parent, the last thing you want is a traumatized child. We do our best to protect our children from trauma. And I've seen some people try to create fake trauma, false austerity. So the conclusion I've gotten to is the universe will provide the journey. For as much as I've protected my two daughters, they're experiencing trauma, not in the way I experienced trauma coming out of Bolivia. They're experiencing trauma in different ways. Their journey, they are stumbling blocks that to them feel very traumatic. And it's shaping their lives and their drives in ways that are different to mine. And that is beautiful and I need to accept and support them. And they will climb the mountain that's relevant to them and it's going to be different from my mountain.
38:33 Speaker 00 And it's so humbling to understand that I have no idea what that mountain is because they're very young, but I know it's coming.
38:39 Harry Stebbings? I absolutely love that. You are poetic with words. You should do many more podcasts, Martín. You're fantastic.
38:46 Speaker 00 I actually have done a few in Portuguese, but not in English. So thank you. Thank you for providing me the opportunity.
38:52 Harry Stebbings? I'm so enjoying this. I want to do a quick fire round with you and then we'll rock and roll. Does that sound okay?
38:56 Speaker 00 Let's do it.
38:57 Harry Stebbings? So what's your favorite book and why, Martín?
38:59 Speaker 00 Two books, Man in Search of Meaning, Viktor Frankl. I've read three times in my life. It's great. It should be read many times in our life. Good to Great, Jim Collins' book, paired company analysis is the ability that to truly drive an insight about a business. You can't just look at the success story. You need to look at the alternative story, the alternative reality to know if that's just lucky or it's due to something that action. That idea, which is alive in genetics, when you study twins that have been separated at birth, had never been done in business. And he did it so beautifully that I actually copied it. I wrote a book just Good to Great for Brazil. It was written by Martínez Covari. It sold 29 copies. Mom bought 10 of them. So there's 19 people that have have read my book. But it was exactly the same idea, paired company analysis, and I love those.
39:41 Harry Stebbings? I actually bought the other 19 just in preparation for the show. Sorry, I didn't want to ruin that one.
39:47 Speaker 00 You've cornered the market just in case there's ever a secondary market.
39:51 Harry Stebbings? It's a monopoly, my friend. Tell me, what is the best investment advice you've ever received?
39:56 Speaker 00 Rule number one, don't lose money. Rule number two, remember rule number one. I'm sorry, I know it's not what the Silicon Valley thinks. I'm old fashioned in that way.
40:04 Harry Stebbings? What is the most common mistake that you see made in terms of investment mistakes?
40:08 Speaker 00 Hubers after a home run, a lot of people, and it almost happened to me, except I had a nightmare about this. Think they're invincible after they make their first billion dollar gain in a company and their next large transaction reckless.
40:20 Harry Stebbings? What was your first billion dollar gain?
40:21 Speaker 00 XP.
40:22 Harry Stebbings? Did it change your mindset?
40:23 Speaker 00 Oh, I thought I was invincible. I almost spent five hundred million dollars in buying a company in Argentina. And then the day bids were due, I woke up and said, what the hell am I doing? And I'm glad we didn't buy it because the country went where it went.
40:35 Harry Stebbings? What do you want entrepreneurs listening to this podcast to take away?
40:38 Speaker 00 Dream big, you can.
40:40 Harry Stebbings? What piece of advice do you often give but find it hard to follow yourself?
40:43 Speaker 00 In business, I don't do that because I police myself. I only give advice that I'm willing to live by. Personally, Sabrina, eat your vegetables.
40:51 Harry Stebbings? Do you think boards actually add value?
40:54 Speaker 00 Very few.
40:54 Harry Stebbings? What makes a great board?
40:56 Speaker 00 Small, diverse group, a conversation where the CEO opens his heart about things that mattered to her.
41:02 Harry Stebbings? Who's the best board member you sit on a board with?
41:04 Speaker 00 Bill Ford.
41:05 Harry Stebbings? Why?
41:06 Speaker 00 He listens and when he speaks, it's insightful.
41:09 Harry Stebbings? Imagine XP being a billion dollar gain there. What's the biggest investing miss you've had and did it change your mindset?
41:14 Speaker 00 I should have backed David Velez at Nubank. David had worked at GA and he left to Sequoia and I tried to bring him back when I got hired into GA. And he called us in our Series A, Series B, Series C that he stopped calling because he kept saying no. And in the emerging markets, there isn't a single credit institution that has survived the credit crisis, meaning survived more than 10 years, without deposits. And Nubank in its original inception had no deposits. So I made a dogmatic decision that this has never happened in the emerging markets ever. And I failed to anticipate that someone as smart as David would figure out a way to build deposits by disrupting the money market. Which wasn't in the original plan, was hard to do, required regulatory changes that were hard to anticipate. He did it. It's a 20 billion dollar company. I could have bought a 200 million dollar wish.
41:58 Harry Stebbings? Oh, well, you've got many other winners. Don't worry about it.
42:01 Speaker 00 I know, I know. This one hurts. It's the one that got away, the big one that got away. He's a good guy.
42:05 Harry Stebbings? Yeah, he's a great guy. Loved him. What have you recently changed your mind on?
42:08 Speaker 00 When I moved to America, a good friend, Rick Elias at Red Ventures, was a fabulous guy. He told me to forget my instincts. My emerging market instincts are a handicap to understanding how to work in the United States. And I thought he was right. And then we hit a crisis and I just understand my instincts are pretty good. Just needs to be recalibrated, not reinvented.
42:27 Harry Stebbings? What would you most like to change about the world of venture?
42:30 Speaker 00 Make it more global. Just watch us create five $10 billion-plus companies, global companies out of the emerging markets. It's gonna happen automatically.
42:37 Harry Stebbings? Final one, what's the most recent publicly announced investment that you made? And why did you get so excited?
42:43 Speaker 00 So we recently announced two deals on the same theme. I believe one of the things that are very present today is the authentication of trust. With COVID, full online digital on board, it became a digital online fraud. Identity fraud has exploded. We invested in a company in Brazil, a company in Mexico, who are solving that problem in those two countries. And if there's one thing world-class in Latin America, it's fraud. So if you can solve this issue in Latin America, you probably have a mousetrap that can solve this issue globally.
43:09 Harry Stebbings? Martín, I've honestly so, so enjoyed this show. You are a wonderful storyteller, guest, so many great nuggets here. Thank you so much for joining me today, and I've loved it.
43:20 Speaker 00 Thank you so much for the opportunity, Harry. I enjoyed it too.
43:24 Harry Stebbings? I mean, I just love that episode. For me, episodes where someone's really been through the trenches, seen so much in so many different situations. It's why I love what I do so much. Martín, I cannot thank you enough for being such a great guest. But before we leave you today, holiday gifting for your friends and family can be hard. And for your business, it can be even harder. And Open helps companies of all sizes deliver better gifts, and they make it super easy. Their platform is filled with best-in-class brands. There are no bad gifts ever. They source locally and operate globally. You don't even need an address. Simply send an email or DM with a unique gift link. Ready to put the ease and joy back into your company's gifting? Head over to andopen.co/20vc.
44:09 Harry Stebbings? That's andopen.co/20vc to get started today. And speaking of amazing tools, which really take complex processes and make them super easy, AngelList has been a key partner for me in managing my investments. I love using the AngelList platform because it abstracts away all the complexity and operational burden of fund management, whether you're running SPVs, a traditional venture fund like me, or even a rolling fund. AngelList has you covered. The team is also just exceptional. They're great, great partners. Also super excited about their new product though, Angel List Stack, which is purpose-built for founders. With Angel List Stack, you can create a fundraising-ready startup in just a few clicks. Angel List handles all your company's incorporation, banking, cap table, and fundraising process, all in a single place. This allows founders to really focus on building.
44:55 Harry Stebbings? If you're a founder, you can launch your company at stack.angellist.com/20vc. Whether you're a founder or a funder, you're in great hands with Angel List. And finally, from websites and online stores to marketing tools and analytics, Squarespace is the all-in-one platform to build a beautiful online presence and run your business. There are three things for me that really stood out about Squarespace. First, mobile-optimized websites. All websites are optimized for mobile. Content automatically adjusts beautifully, so your site looks great on any device. Second, email campaigns. Squarespace makes it super easy to grow and engage your audience with Squarespace email campaigns, so you don't need any other tools or providers. Such a relief on that one. And finally, SEO tools. You've got to be found on search engines.
45:39 Harry Stebbings? And Squarespace takes the guesswork out of SEO, so you'll get found by more people more often. And if that wasn't good enough, head over to squarespace.com/20vc. Not only do you get a free trial, but when you're ready to launch, use the offer code 20vc to save 10% off your first purchase of a website or a domain.
45:57 Speaker 02 As always, I so appreciate all your support and woof, we have an amazing show next Monday with Cathy Wood at ARC.
Previous 20 Product: Hugo Barra on Lessons Building Hardware Products at Android, Xiaomi, Oculus, and Detect; Feature Kings vs. Budget Kings; 996 Work Culture in China; There Are No MVPs in Hardware; The 3.5-Hour Recruiting Interview Next 20VC: ARK Invest's Cathie Wood on Why ARK Has Not Had More Outflows Despite Performance, How the Global Tech Equities Market Will Go From $7Trn to $210Trn in 8-10 Years, The Future for Facebook and How Elon Musk and Jack Dorsey Could Create the Biggest Di Page updated September 29, 2026 · transcript and summary are machine-generated
