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The state of the LatAm startup ecosystem

Jan-Erik Asplund
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In the early 2010s, Latin America exported top-class founders to the U.S, like Pedro Franceschi & Henrique Dubugras at Brex ($319M annualized revenue in 2023) and Eugenio Pace & Matias Woloski at Auth0 (acquired by Okta for $6.5B).

Today, LatAm founders are increasingly sticking around, building massive companies like Rappi and Nubank—and seeding hundreds more companies rooted in the region through their vast alumni mafias.

To learn more about the biggest opportunities and challenges for LatAm startups today, we teamed up with Sandhill Markets for a panel conversation featuring MetaMap CEO and co-founder Filip Victor, Ontop COO and co-founder Julian Torres, and Base10 Partners co-founder and Managing Partner Ade Ajao.

Transcript below.

Adam:

Today, we have a super impressive group of both founders and investors in Latin America. This region and the investment here has followed a hype cycle, not dissimilar from crypto or AI, but its moment came and went. Meanwhile, a lot of companies there are still progressing in a really exciting way though it's not getting talked about as much. In terms of actual insights, right now is probably the best time to do it.

With me today is Filip Victor, co-founder and C.E.O. of MetaMap. It's an identity infrastructure for emerging markets, specifically Latin America. It stitches together data from sources like credit reports, government databases, and watch lists to help companies verify information about their customers and prospects. He’s raised from some really prominent and impressive VCs here in the States, has spent a lot of time building in Latin America, and actually has roots down there. 

Up next is Julian Torres, co-founder and C.O.O. of Ontop, a global payroll entity based out of Florida. Ontop helps companies hire contractors, employees, and is active in over 150 countries. 

Finally, we have Ade, co-founder and managing partner at Base 10 Partners. Ade was included in the Midas list (2023), has been a founder himself with an exit in 2010, and some of the names in his portfolio—Nubank and Rappi—have been heard of even if you're not super deep in the Latin American space. 

Give us a little background on where you’re focused in your day-to-day, what you are doing right now, and your involvement in the Latin American ecosystem. 

Ade, short for Adeyemi, is a Nigerian name but the accent is Spanish. I grew up in Spain, and moved to San Francisco 14 years ago. Before that, I was the founder of a company called Tuenti—like Facebook—in Spain. 

Two years after I moved here, I helped my friend Juan Antonio, launch Cabify. In Latin America, it's like Uber. We were originally present in Mexico and Chile, and then, we expanded to a number of other countries. That led me to start loving the region and investing a lot more. 

The second investment was in 99Taxis, which was the same thing in Brazil. This was followed up with Rappi or Nubank. 

Six years ago, I started Base 10, which is an early stage fund investing in automation for a real economy, in sectors like logistics, food, or transportation. We do about 20 percent of our investment in Latin America, including names like Nowports or Contabilista, larger current investments.

Julian Torres:

I'm Julian Torres, originally from Bogota, Colombia. I'm 35 years old. I'm co-founder of Ontop, a platform that helps companies hire and pay people all around the globe. We started it three and a half, almost four years ago. 

At Ontop we've raised $35 million so far. We are 250 people in over 25 countries, fully remote. We offer those remote workers hired through us, a bank account in US dollars and access to different financial services. So we're at the intersection of HR tech and fintech. We're also a client of MetaMap. We use them quite a bunch for verifications. 

I've started six companies throughout my life. The last one before Ontop was FitPal—a ClassPass for Latin America, a fitness app. Two years ago, I moved to Miami to get more involved in the U.S. ecosystem and for regulatory purposes with Ontop

Filip Victor:

I have a bit of an unusual background because I'm neither from Latin America, nor from a Spanish-speaking country. I'm originally from Poland where I stayed until I was 14 or so, and then, moved to Oxford for academic reasons. I was really interested in science and physics, specifically, and then, moved to the U.S. just to pursue, continue that trajectory. I eventually ended up in the Bay Area to study physics. I was just starting my PhD, but then eventually got really very, very excited and fascinated by the identity market. 

It's not a market people are super familiar with, but for what it's worth, companies like Visa, MasterCard, Equifax, TransUnion, Alipay, are all essentially all identity companies. To an extent, companies like Google and Facebook are also, slightly adjacent of course, but the fundamental interest in this space is the same, which is, “How do you describe a person at scale?” 

For companies like Julian's—Ontop—or Uber, DiDi, and virtually every single financial entity in the world, you have a bunch of different problems. 

One of them being compliance, but the other being simply, you want to be able to understand who the person is. You have to underwrite risk very quickly. You have probably less than 40 seconds to do that, but you're about to lend money to someone or let a stranger into someone else's apartment in case of Airbnb. So of course, doing that is super important.

The problem with this market is that really, outside of the U.S., Canada, Germany, France, and a few others, most people are thin file. So, there's essentially nothing known about them. I was one of those people. I came to the U.S. from England continuing my immigrant journey, but being in the U.S. is actually quite challenging. 

Six years in, after I got to the U.S., I still wasn't able to get a credit card. I wasn't able to rent apartments in San Francisco. I had to pay for a whole year upfront every single year. So, little by little, my frustration turned into just curiosity. What is going on in this space?

The way I got to transition my focus to Latin America is simply that I was very dedicated to emerging markets, and I knew that's essentially in the future. You have six billion people—outside of even China and the U.S., Canada, and a few others—in the U.S. that still want access to the services like credit cards, insurance, and essentially the entire formal economy, but can't because identity is not well established. Originally, our first market was Mexico, and we expanded all the way throughout Latin America and Africa—countries like Kenya, Nigeria, and so on. I hope to add some value to this discussion as a person who didn't grow up here.

Adam:

I want to start with your interest, specifically, the bear case for Latin America. What do you think is most interesting about it not just as an emerging market, but the emerging market that you chose to start and build in? What makes Latin America more of an opportunity than other emerging markets? Ade, as an investor, how do you frame it?

It is obvious that it is a very big market. When I say that it's funny because a lot of U.S.-based VCs think about LatAm as, "Oh! Is this one thing?". The first time I got introduced to Simon and Sebas at Rappi, when they were in YC, the investor that introduced me was like, "Oh! They're from your country." And I'm like, "No.”

But one thing that is true and Adam, you've mentioned before, is that companies tend to expand internationally faster than, let's say, in Europe. So, Colombia and Brazil are close, and Spain and France are close, but it's actually significantly easier to expand from Colombia to Mexico—to make it clearer—than from Spain to France. That comes to a lot of things, language, cultural distance, cross-breeding demographics of the populations and prior to that, cross intersectionality of the existing enterprise tissue. So it really is from the get-go, a bigger market in terms of people. 

It is also younger. My observation has been that it is hungrier. There is a sense of like, "Hey! We're young. We're growing. We have a lot to prove in a very good way." The percentage of Latin Americans in YC has been growing and growing incredibly over the last 10 years. I think that speaks when compared to other countries like Spain. It's a combination that makes it quite interesting. It reminds me, in a lot of ways, of my other country, Nigeria, but institutionally, Latin America is in a significantly better position. If you know Spanish and Portuguese, which are not that dissimilar in terms of languages, and we have Portunol for all of us, then, you're pretty much set to begin.

Adam:

Julian and Filip, on the operator side, what has been your journey to building in Latin America? Did it just happen? Was it, "Oh! I could build"? How did it start for you?

Julian Torres:

I was born and raised in Bogota, Colombia. So, naturally it's been the market that I've been starting companies in. When we started Ontop, the rationale behind what we were trying to build was, let's try to build a global company that stems out of Latin America. There are very, very few cases of such companies. 

A lot of companies in LatAm are building for LatAm because it's a big market, 650 million people, total population. There's a lot of opportunities around several industries. It's a very interesting market per se. But we wanted to create a global company that stemmed out of Latin America. 

However, the reason behind having Latin America as its first expansion hub was, Latin America is positioned very well to serve the world's largest economy, the U.S. So time-zone wise, it makes much more sense for companies to hire and contract people and do business with people in this part of the world than in India where traditionally, outsourcing was done for developers and customer service and whatnot.

There's a very cool phenomenon happening right now. As edtech companies have emerged, and new technologies and the internet penetration comes to play in Latin America, there's a growing class of people that is getting educated via non-traditional ways; that could not access education before because we're in developing countries. Now with the internet, they can get educated and be able to access better opportunities, not in their country, but for companies abroad. This remote work phenomenon has really, really put something interesting at play because there are companies in the U.S. with cash flow pressures, operating in an environment with high interest rates, high inflation, whatever, and they have cash flow pressures where they need to try to find where to cut costs and expenses from.

When you take a look at technical talent, if the average developer in San Francisco earned 140K per year, then, companies started discovering, "Hey! Maybe I can get an equally qualified person in Argentina, Brazil, or Colombia for 40K a year." That's a third of the cost. That started to happen. That's actually why we started Ontop. We saw this coming. 

We said, "Hey! There's a big opportunity here in the first place where it's going to happen in a very strong way is Latin America. Let's use this as our base case towards global expansion." Then, we eventually moved out of Latin America to Miami because we wanted to be in a hub that aggregated different places in the world.

Adam:

Filip, you were in the U.S., having trouble with and ultimately discovering the problem. Then, you went to Latin America because it was where you felt it the most. The emerging markets thesis points to maybe just general opportunity there but did you think about going back to Europe, or Africa, or was it always Latin America? What was some of the logic for you when you were getting going? 

Filip Victor:

I've been an immigrant for so long at this point that I don't feel like a national identity to any single country. So yes, when I came to the U.S., it was to pursue an academic career and research in physics. I did some physics and genetic engineering research, so I was really not thinking about business. I wasn't thinking of how to start a company or where. I just got excited about the identity issue based on my own personal experience, of course. But it very quickly transitioned to if I have this issue, I had friends in companies like Airbnb and Coinbase where I was personally stuck as a consumer for months. I couldn't really get the answer of why this is not working. But they essentially told me, "Hey! We're using these providers, these KYC companies, and they're not very good. We have no idea what's happening with your profile. And by the way, this is super common."

My instant reaction to this was, "If this is common here in the U.S. where it's an issue, this must be a nightmare elsewhere." So I started looking into what other economies look like, and obviously you have to look at some proxies and indicators. What I was looking at was, “How does trust look globally?” 

Having come from Eastern Europe, I can tell you that credit distribution, for instance, is really difficult to come by. So if I'm 20 years old and I want to rent an apartment, I need my parents to co-guarantee that rent with their actual physical house collateral otherwise I just can’t get credit. That was the experience there. Of course, in the U.S., I didn't have access to this either for different reasons, but I wondered, “What does this look like?”

I looked at metrics like GDP growth over credit distribution, consumer credit penetration and saw countries like Brazil, Argentina, Mexico, Indonesia, Nigeria, India, etc. that are super fast-growing, where the population is really young, and poised for a lot of innovation and growth. Yet it’s where something like consumer credit penetration is really stuck. So you have to answer the question of why is this stuck? What's wrong here? 

There's a lot of capital waiting on the sidelines either from local or international companies who would love nothing more than to be able to expand, but they really can't. So it's almost like the trains are there, but the rails are not. 

We essentially had a big spreadsheet. I was not tied to Latin America as a specific place that I wanted to move to or start a business in. It was more about “Where can I do this? Where can I really get involved in this problem of essentially characterizing a person really quickly and figuring out who this person is?” The simplest question you can ask is, “Is this a ‘fraudulent’ versus ‘not fraudulent’ person?” This is the most basic identity question you can ask. And it's a question that Visa and Stripe and many other payment companies answer. But the more you want to answer, the more resolution you want to get to for things like, KYC—“is this person over 18?? “Are they allowed to work in a country, for instance, to be hired as a driver or as some call center person?” Then you can get deeper and deeper, and there's really no end to this. You can keep getting assessments, further and further. I call this the trust economy. It's not exclusive to financial services, but of course within financial services, it's a good proxy of “Can you lend to a person or not?”

We settled on Mexico ultimately as the first market for a number of reasons. 

One, that the card not present fraud. So this is essentially chargebacks and fraud perpetrated online. It was the highest in Mexico of all the countries in the world. So, companies like Stripe, Riskified, Visa, and MasterCard really struggled. I talked to a bunch of them and they were like, "We're not sure what to do here. It's just a massive problem." To give you a sense of the time, Visa sent out a big market study and they showed that something like 40 percent of payments are rejected—that's almost half of the transactions. In my personal experience of traveling around different countries, I definitely could feel that I would go to the same shop for the second or third time and all of a sudden, my card just would not work. They estimated that out of that 40 percent, 70 percent is false rejections. So it's their model that was deciding whether you're fraudulent or not. It was extremely sensitive and not very good at the same time. It wasn't exactly their fault. It's just that the data was not operational. So it's as if you're trying to operate a risky business, whether it's Airbnb, Uber, or some lending company or payments with a blindfold on. 

Of all the countries we looked at, India, Indonesia, Singapore, Nigeria, Kenya, and many others, Mexico had a bunch of very attractive features. 

The first is, it was right next to the US., like Julian mentioned. 

The second was that they were sort of like a gateway to the rest of the Spanish speaking Latin America. Most of the other countries here copy what Mexico does with the regulation. Once you figure out Mexico, you can relatively easily transition to other countries. It’s similar to how most countries copy what GDPR does for data privacy. That same thing applies for most other regulations in Latin America.

Adam:

What is the worst part or the challenges to investing and building in Latin America? Tell us from both, the investing and operating points of view.

I just wanted to touch very quickly on one thing—regulations. I feel this very deeply having grown up in the EU. You will think the EU will make it so you have more similar regulations across countries. It's the opposite. LatAm countries are actually quite good about sharing best practices. It's one place where we particularly see that. Pix is always the best in class.

Anyway, the worst part I would say is two things. 

One, it is predominantly an SMB market from the enterprise point of view. So having a Workday, a Salesforce emerge in Latin America—it definitely happens. We are investors in Book that has started in Chile, and we think it's in route to becoming Workday. But it's harder because you need to really be able to serve SMB and then, go mid market and eventually enterprise. 

A lot of the enterprises have conglomerate to big family status and that is something. So you need to understand that. I can say that because when I was at Workday, I sold one of my companies to them, and we were looking into LatAm. It's like, "Whoa, that's a completely different motion." That I think is beneficial for local champions because a lot of U.S. businesses don't get this, but it is something that needs to be understood.

Second, and I'm sure we're going to talk about this at length, is funding, which comes and goes. After Mercado Libre it was like, "Oh my God, let's put a lot of money in there." "Oh, just kidding, just kidding, just kidding." 99 IPOs, "Oh my God." Every time we don't go back, we go to “It's a local minimum and local maximum,” but you need to know like, “Oh! Suddenly Tiger Global cannot put enough money in Latin America” and things like that.

Julian Torres:

Yeah, we have Tiger Global.

Adam:

Julian and Filip, from the operator perspective, what are the specific challenges in the LatAm market? 

Julian Torres:

There are several things, and I've had this experience first-hand. My last startup, before Ontop, was doing pretty well. We were growing at a fast pace. We had everything, but we couldn't manage to fundraise. I couldn't wrap my head around why we couldn't or what was happening exactly. Then when we started raising for Ontop and it became quite easier, it became very evident. By the way, Ade, Sebas and Simon from Rappi are angel investors in us, and very, very important mentors, at first. What they told us once we decided to quit Fitpal was, "Hey! Now you're going to do this correctly. So, go up and set up an entity in Delaware." Our previous company was legally incorporated in Colombia. Big mistake. "Go set up an entity in Delaware, open a bank account in the U.S., and now you're ready to fundraise." We were like, "Wow! I didn't expect that." I honestly didn't know that, and actually that's true.

One of the challenges is actually knowing that the first step to be able to fundraise is just to open the entity in the U.S. and a bank account because if you are legally incorporated in Latin America, a lot of VCs don't understand that. They won't get into that. It's weird for them. So you have to make it easy for those vehicles to invest and for safes to be possible in the way that they're possible in the U.S. It’s just quick money at first, which is what you need to start building. So that's definitely a challenge. 

I would say regulation around creating companies, closing companies definitely needs an overhaul because in a lot of countries, including Colombia, it's a pain in the ass. You open up a company, then try to close it down. It's painful because there's a lot of aversion towards risk, and we're not yet at that pace where we want people to open companies and close them and whatnot.

The other challenge includes the currency that you are selling in. At Ontop, we sell in dollars and we're serving U.S. customers. But when you're selling and collecting in Colombian pesos and then need to report to investors in U.S. dollars, and your currency is devaluing at 20 percent over a year, I know there's ways and financial ways to represent that, but it's still a pain in the ass having to do all that juggling to be able to show growth. There's no growth that compensates for currency devaluing so fast. So, that's another pain. 

In the end, Latin America is a very, very attractive market to solve a lot of problems, but the setup and the architecture around it is not yet there, especially for LatAm founders. The dream is to build a company and then build it hopefully big enough that you get to sell it to someone or IPO. There's a non-existing IPO market in virtually all of LatAm. 

Your dream is to go to the New York Stock Exchange and IPO and exits are very limited. So the dream does not get fulfilled, and that's why people decide to build legacy business or family businesses that last for years and are done in a very different way, not the venture kind of way. I think that limits our attitude towards aggressive growth and just being risk-takers.

Adam:

Filip, what's, what's the hardest part of being in Mexico City/LatAm? For you, ultimately, your business operates internationally, but are there pros and cons to being Mexico based?

Filip Victor:

We operate internationally and with very sensitive data. So while we are not a fintech company, we operate just like one. While a fintech company has to report  ultimately to a banking association, we report to a lot of other entities. So it's very regulated. We have a very complicated legal structure—11 entities—all of it hangs off of, of course a Delaware Corp, but it is difficult. So, I would say my part in three parts. There's fin ops, go-to-market, and talent. I think that those are the three main challenges that I've seen.

On fin ops, echoing what Julian said, hedging currencies, is just complicated. It's conceptually easy to understand, but for instance, we have a lot of customers like enterprise customers and small startups in places like Nigeria, Argentina, and so on. Nigeria had something like a few hundred percent inflation over the last 18 months. So your product, even if you don't do anything, becomes multiple times more expensive. While it is true that companies like SAP and Oracle sell in dollars, you're not Oracle or SAP when you're a startup. You're also serving a startup segment that may have raised money in their local currencies.

So, it's a very similar issue to what happens in crypto sometimes where you're holding some reserve you thought was pegged, but it isn't now. This is a really big challenge, and you have to set up a lot of different intercompany lending agreements and so on. That's a really difficult thing and getting money out of countries like Argentina so that you can pay payroll in Columbia, that's just challenging, operationally. Your GNA team ends up being much bigger and more sophisticated than some small public companies in the U.S. So that is just an operational overhead that you have to accept.

Second, on the go-to-market, I’m echoing exactly what Ade said that just the procurement process is very, very different. I'll go for a second to a different region, just to make my point. When we were looking at Southeast Asia, we started growing organically and had a lot of customers in places like the Philippines and Indonesia. At some point, around 2021, 2022, we started seriously looking into that market. I got a little discouraged about that market because the structure there is that it's almost entirely that the GP is owned by massive companies. Those massive companies are ultimately owned by 30 families. So, it's a conglomerate where one family will own a bank, a telco, a grocery shop, a chain and a car rental, and 20 other businesses. There's very few startups that ultimately have to cozy up to one of those families or not actually succeed. So, the market didn't have the long tail that places like the U.S. have where a company like Stripe can emerge by going to the long tail or companies like Shopify and so on.

So Latin America is nowhere near as bad as that. But it is also true that most companies here are family-owned conglomerates. There's a lot of companies that look new, but they are actually spun out and owned by one of those companies. We work with a lot of these companies and they're great customers. They're ultimately interested in the same thing—in growing a lot of ecosystem and making sure that their end customers have a better experience. However, their procurement is just really different from enterprise companies in the U.S. They have dev shops. They often don't have technical teams and so it's just a more complicated, more prolonged process that you also have to just learn. Usually what you have to do is have go-to-market teams in the region who actually understand this, who come from companies that have large books of business like SAP and Oracle and whatnot. So this is just a complication that you have to navigate, and most advisors or investors in the U.S. will have never experienced that. So, you have to figure it out on your own.

Lastly, talent is challenging here. I started this company and we launched in Mexico as our first market, but being from Eastern Europe, most of my engineering was there. It later expanded to India as well for other reasons. We were connected to that ecosystem quite well. But I would've loved nothing more than to have our entire team be in Latin America. People from here, serving customers from here, but we found it to be really challenging to find architects, backend engineers, machine learning talent and whatnot. A lot of very talented people simply leave and having a large enough pool is an important consideration if you're building something technical.

Adam:

Let’s talk about the rise and fall of available capital in Latin America. This is a common phenomenon throughout markets. Can you all describe how it was versus how it is now? Does it always happen like that? Was it something special? What was that transition like? Ade, from your fund perspective, you've been active, seen the whole cycle, and been in it for six years, so how would you describe it? What do you think of it?

I think that generally, the nature of investing is always going to be cyclical. But again, I will look at local minimums and local maximums. If you just do the straight line, vastly more capital is available at every stage of the LatAm startup journey now than 10 years ago. So, that is positive. That will continue to be the case for an angel to later stage.

What I think is particularly challenging is the scaling part. When you get to series Bs and series C's, there is just not a lot of dedicated growth capital that has significant experience in the region helping companies scale at that stage when you compare it on a percentage basis with others.

In the U.S., you have significantly more capital investing on series Bs and beyond—specialized growth capital, that early stage capital. That is actually not true in LatAm. So you might get great help to get off the ground, but most of the people that have done the B to IPO, actually have more international funds to invest in the year than local. In the international funds, often it happens that there is one particular partner that loves the region and is all in, but that partner might transition at any given point. So tactically what we tell companies is, "Okay, yes, as the firm that is investing, how many other deals have you done in the region? And what is your general plan as a heuristic?"

Adam:

Julian and Filip, you've obviously been in this space , so how much have you had to think about the lack of IPO market? Does that play a role in the South American specific growth capital because where does it go from there? What's your experience been, before and in the current period from a fundraising or a lack of fundraising perspective?

Julian Torres:

I've definitely seen quite a bit because I started Fitpal in 2014, 2015, right around when Rappi was starting out.I got to see how there was virtually no capital and then boom, just something came up with Rappi and people started to talk about venture funds.

I actually worked at a VC, one of, I would dare say the first VCs in Colombia per se, from one of the big families. I worked there as an analyst and as an entrepreneur in residence. So I had to scan the market constantly, and I saw all the action in Europe and in the U.S. of course, but in Columbia, it was still very, very low. Then came Rappi, a bunch of money flowed through them and things just started to pick up.

But once we started Ontop on August 2020 with my co-founders, one thing that I look back and see and it's amazing was how the angel ecosystem had really developed because during those years from 2016 to 2020, very good, talented founders had already built up enough capital to become angel investors. 

Our first round of capital in Ontop was with 30 founders from the region. So all of the guys from Rappi, the guys from Platzi, the guys from Owi, the guys from... A bunch of them. And then it was just a weird time in history because we launched, collected the money, and then 2021 came and it was crazy. We got Tiger, we got everyone, and we saw the hype. All that hype was an anomaly and time. Due to market conditions, there was virtually free money everywhere, and it was like someone giving out free chips at a casino.

So anyway, that's what happened. Then well, the correction comes, but I agree with Ade. It's a net effect. Latin America has seen a bunch more investment. It has cooled down to normal levels but it's just the natural cycle, especially after a crazy time in time. 

What I'm seeing right now is, we've felt it. There's a lot of more disciplined investors asking for better fundamentals, not just funding whatever comes by their way. I also think that when the United States is in economic distress or whatever, that ripples through Latin American. Naturally it becomes a less attractive market right now because of macro conditions than before. But I think it will come back very quickly as things normalize.

Adam:

It’s almost like a whiplash. I think that that would hold true in alternatives where if things are going well, it goes really well in some of the higher risk markets or higher risk assets. If it's going bad, it goes really bad. It’s interesting that the general ecosystem of angels was not even a thing when you started your first company compared to when you got out and started your second one.

Julian Torres:

It's still a thing right now. I became an angel as well. I never thought I would become one.

Adam:

That's ultimately the story of Silicon Valley in so many ways with technology and founders funding other founders. Filip, what was your experience when you went through your raise for MetaMap? Did you raise specifically from the Latin American market?

Filip Victor:

No, we did not raise any capital from LatAm. We had some angels here and there and some other places like India and Europe, but most of our capital just came from Silicon Valley-based investors. I really never thought of Latin America as a source of capital though and in any case, I didn't have a network. We were always very clear that although we are a B2B SaaS business, we are a network ultimately. It's a growing network. So, I can't simply be a global company. 

Consider our company like Notion that's a B2B SaaS business, but it's not really geographically-based. I was very explicit with investors that I'm not interested in the U.S. or Europe as markets, although we had some customers and still do. That we're fundamentally interested in Latin America and then slowly are beginning to be interested in Africa and potentially in the future, Southeast Asia and India, but not the U.S. 

Right from the get-go, we were looking for partners who had a point of view on emerging markets, and that meant that most of the investors were either uninterested or didn't know anything about emerging markets and were not curious to try. That essentially crossed them off our list.

However, some funds, especially the growth funds, like Ade was saying, were open to exploring, in the 2021 period, the emerging markets and quickly retreated. We were looking at funds by their track record. So for instance, funds like Tiger that we know well and Insight and others who had been investing in emerging markets for 10-plus years, those were very important considerations for us. 

What I would say is that once you get to a series B, series C and beyond, your business just has to be dead obvious. Your metrics have to be very clear. Of course, you have to have good fundamentals everywhere, but your business just has to be simple to understand. If it's not, you're essentially attracting a far smaller supply of capital and you have to be positioned for that.

Adam:

It's interesting to hear how from the founder perspective, looking at what capital you take on and being mindful of the fact that investors can come and go. It's almost like if you're an AI founder in the current hype cycle, you want to take an investor who's been investing in AI for a really long time, rather than the person who just found out it was cool a second ago.

Filip Victor:

It's your business ultimately, not your investors’. These people are your business partners and you have to be very careful about how you choose them. But you're totally right. It gets complicated the bigger you scale, and you just have to think about that upfront.

Adam:

As a segue out of that, tell us about this term that gets thrown around a little bit—leapfrogging. The idea of leapfrogging, more generally, would be where people skipped to mobile more directly and there was not a lot of desktop computers or infrastructure in place. Africa would be an example of this. The same sort of thing can be said for Latin America and a lot of emerging markets. 

Ade, how much does the term come to mind with regard to Latin America and emerging markets? How much does it allow for Latin America to actually follow a different growth pattern than the tech ecosystem in the U.S.? 

I always say the same thing, which is that ‘necessity is the mother of invention.’ If you believe so and you try delivering a pizza in Sao Paulo, then you see that a lot of inventions are going to happen to make that process better. There is no surprise that a lot of innovation in sectors like logistics or fintech have actually happened in Latin America before in the U.S. I would say that also because of the capital constraints, they often tend to happen in a more capital efficient way. I think that both consumer banking and business banking are clear examples of that.

And pound by pound, the best neobank worldwide is Nubank. That was hard-earned. I would also say that on top of the infrastructure availability, I continue to think that one of the factors contributing to that is youth. How much more—you just have more young people—and that's only a good thing for the adoption of technology. 

But I would temper that with, “Hey! That is true, but Latin America is a very different place from the U.S. It's a very different place from Europe.” If you just copy-paste, it will not work. You cannot draw the same conclusions. It will get adapted locally in its own way. That is what, I think, is a little bit harder to predict and some investors don't really make that mental jump.

Adam:

Julian and Ade, you both said something similar using Facebook and Uber as examples. While it's not wrong to think that you can apply some of the lessons, if you purely copy-paste, you're going to get lost in the local. It is a separate place, a separate market.

Julian Torres:

The counter to that, I would say, I read a book called How Innovation Works. Pretty interesting. It actually says that innovation always starts with copying. So you take China, the masters of copy. Just spent years copying, copying, copying, copying, and then eventually they get innovation. The same was true for Japan for some time. So you start copying, copying, copying, and then eventually that sparks what we call originality or innovation, which is just like a bifurcation of several ideas.

Adam:

That's exactly what contributes to the exciting part of LatAm and of emerging markets where you can copy, maybe to start, and get the basics down, but then ultimately the new thing is the innovation. You think of some of the new things that they push forward, but ultimately maybe built off of some of the best practices of before. 

I love this quote from Picasso or at least attributed to him, "Good artists copy, great artists steal." I think it's often misunderstood because it's like when you steal something, it means that you make it yours. It's no longer theirs, it's yours. Facebook wasn't the first social network, just the first one that was actually based on real identity for campuses in the U.S. in a very particular way. That's what I think.

Julian Torres:

Yes. You know that Thomas Edison—you say, "Hey! He invented the light bulb," but at the same time he was putting out that invention, there were 10 patents in place for the exact same thing. So innovation sparks in different parts of the world at the same time. It's the execution and the market conditions and a bunch of other stuff.

Adam:

Filip, it sounds like you're obviously very emerging market-focused. How do you think of that leapfrogging effect? Do you see it a lot because of the way your business is positioned and the types of businesses that you serve? What comes to mind with that term?

Filip Victor:

You might find this surprising or confusing, but I was excited about China first before turning my focus to Latin America. China is not really accessible to outsiders, and so, it was a source of learning for me more than anything else. 

In my space, I think, it's generalizable to other spaces and markets, as well. So you're looking at the United States which became the leader in the world after the second World War. Essentially, rather than taking over the world, they rebuilt the world. What happened after that with millions of people immigrating to the U.S. from places like Poland and others, is that they had an influx of strangers essentially coming into the country as well as farmers influxing into cities. So they had to build rails that have never been built.

No surprise then that in the fifties, companies like Visa, MasterCard, Equifax, TransUnion and so on, all started. That didn't really start anywhere else. So whereas Visa and MasterCard went relatively global, they didn't quite reach India or China. These other companies like Equifax and TransUnion didn't really stretch outside of the United States. 

So now, what makes Latin America—just to pull it back up to your point about leapfrogging—and places like that exciting is that you just don't have incumbents here. That's a really important consideration. It's complicated legally and from a financial perspective, but to end this call on a more positive note, ultimately, if you're deciding to be an entrepreneur, you're choosing some kind of difficulty or some risk. In the United States, you don't really have to think about legal setup and operational stuff.

At this point with things like Stripe, Atlas and the others, it's almost like flipping the switch. You don't really have to reinvent the wheel, so to speak. In places like Latin America, you do have to invent the wheel of how to move money between banks and all these other operational difficulties. That is part of the risk that you're taking on. On the flip side, that's part of the yield that you get. It's part of the innovation that you do. 

So whereas Latin America is not going to be a place where a new search engine is probably going to be created, it is absolutely going to be the place where the proper credit rails get established. Debit and credit rails don't really work. They don't really even work super well in the U.S, but you have companies like Visa, and then, a processor, and then, companies like First Data, and then, risk companies like Sift Science and Riskified sit on top of that. It's like a layer cake of things. 

If you just look at it as an outsider, as I did, it is kind of confusing. To point out what Ade said earlier, in Brazil, you have something like Pix. In India, you have Aadhar. In China, which is where I studied this, you have companies like Alipay and obviously now WeChat as well, who in seven years from the beginning of the century to 2010 or so, did more to onboard completely thin file people in China than companies like Equifax and TransUnion did in 70 years. What you can do when there is no infrastructure set up is that you can just go a lot faster.

This is what we're doing as a problem in the United States, and although it affects tens of millions of people like me and people with much bigger needs as well, it's a minority of people. You can have a big bank in the U.S. without really having to address this. You can have companies like Uber and so on, you don't really have to think about it. It's an afterthought. 

However, in places like Brazil or Mexico or so on, you really can't figure out how to start Nubank unless you get good at risk assessment. You can't really rely on existing infrastructure because it just doesn't exist. That is both the problem and a huge opportunity because you don't have to compete with these massive elephants. Instead, you can get everything started from scratch and obviously if you have access to much better technologies, you can essentially build an entire stack yourself.

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