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- [00:00]
A
And the reality is that the venture landscape in Mexico and Latin America is still being developed, right? I mean, it's not as developed ecosystem as it is in the us. I mean, in the US every year you have new funds. I think the Statistics are around 200 new funds every year get funded, right? I mean, in Mexico alone we have probably less than 50 VCs investing across the entire nation in this transition.
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B
Welcome to the Investor, a podcast where I, Joel Palo Thinkle, your host, dives deep into the minds of the world's most influential institutional investors. In each episode, we sit down with an investor to hear about their journeys and how global markets are driving capital allocation. So join us on this journey as we explore these insights. So I want to introduce Carlos Torres. He's the GP at AMG Block and met Carlos through a couple other mutual connections. And he met me earlier in December when I decided to launch an accelerator for fund managers. Initially, problem one is it's hard to get a job in venture. So getting the right skills, getting hands on knowledge of what to look for in a founder and actually supporting different venture funds and finding the old sourcing, screening and then taking the deal all the way to execution those skills, those hard skills and soft skills are part of the, the pathways to kind of get into venture, right? And it's tough because it's a chicken and egg, right? I mean, people don't want to give you experience if you don't have the experience already. They expect you to be the top candidate and already have the skills, right? So that's one of the problems. I'd say the same thing is relevant for private equity as well. But the other problem is you want to start a fund, right? And this could come from two pieces. You could just be in venture already and you have a good experience in venture. You work at either a mid sized fund or a big fund and you just feel that you want to do something in your own direction. So maybe you're at a really amazing fund, a lot of assets under management, great leadership, but you just want to, you know, build your own entrepreneurial platform to invest in maybe a smaller capacity as an emerging manager or just go ahead and go institutional, right? But I think that's one piece, that's one jump off point. And then there's people that come from all walks of life, right? You could have been a founder before that exited and then you want to start a fund, right? So I think a perfect example is the weekend fund, right? So the guy from, I forgot his name.
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A
Ryan.
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B
Ryan. Yeah, Ryan. Hoover from Product Hunt.
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C
Right.
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B
I mean product company. I think they sold to Angellist and then started the weekend. Fun. I actually got to meet him and spend some time with him. I was trying to get him to pop in for one of our sessions, but it's great. That's kind of the pivot. So Carlos, you're in Mexico, so that's really another piece to it, right? How is this ecosystem growing cross border? One thing that I'm proud of with our last, our first cohort was that we were completely global, right. We had a couple fund managers from Mexico, from Singapore, from Europe. We had one or two LPs supporting us from Europe. So, you know, before we jump into emerging managers, how to start a fund, the trends. Let's start with you. So let's start with, you know, your background, where did you start with your career and tell us about Mexico and then how you started AMG block. And then maybe we can navigate into why you have your certain investment focus and what your vision is for taking the fund to the next stage in its journey.
- [04:13]
A
Yeah. Thanks Joel for having me. Glad to be here. So I actually started in corporate banking, started in HSBC here in Mexico, working for large corporations, managing all the banks products and services. So that gave me a firsthand experience on how the banking industry in a country like Mexico works. At the time we were focused on providing services to companies that had a specific range of revenue. So initially right out of the bat, we were segmenting the type of customers that we're actually able to provide products and services. Then I continued my journey more on the investment side for a fund focused on sustainable investments, particularly in energy and water projects here in Mexico. That gave me an opportunity to dive deeper into the inner workings and how a different alternative asset managing firm works. Then I continued my journey working again as a senior relationship manager at a regional bank here in Mexico that is currently one of the leading digital adopters in the Mexican banking system. I worked it's a bank based out of the north part of Mexico and they were expanding into Mexico City. So that gave me an opportunity to expand, obviously the bank's presence in a different region and focus on providing loans primarily to corporate clients. Around the time I was thinking about my next step in my professional career, so I decided to do my mba. I did a one year MBA in Boston and that's when I decided to jump into the venture landscape. After my one year mba, I worked for the venture arm of a family office in Boston that wanted to tap into the startup community. So I Did that for about a year. And then I returned to Mexico and joined as investor and director of finance for a fintech startup that was focused on providing loans to the underserved SME market here in Mexico. And that's when I realized that there is still a huge gap in the early stage funding ecosystem in Mexico and in Latin America as a whole. And that's when I decided to focus again on the investment side of the equation and launch the fund. At the time we were looking at alternative means of fundraising. So we came across this whole ICO boom. The initial coin offerings and the application of technology in this alternative asset class and the evolution of the ICOs into a regulated market through what's called security tokens or digital tokens really caught our attention. So we started looking at the space and the applications of blockchain in venture as a whole. So initially what we wanted to do was tokenize the fundamental. So that means providing our investors with a digital representation of their investment in the fund backed by the portfolio of the fund itself. But we came to realize that we were a little too early, I'd say, on the industry. The infrastructure required to do this was still being developed. A big part of why we were doing this was to actually provide liquidity to our investors in a regulated secondary market, which is something that is still being developed. So, you know, we decided to pivot a bit and do more of a traditional VC fund focus right now on seed stage investment in Mexico and Latin America. Obviously, fintech, you know, encompasses different business verticals. So we're seeing solutions being built around payments, lending, wealth management. Blockchain and crypto is still one of our industry verticals. Insuretech, some of the exciting opportunities here. And the reality is that the venture landscape in Mexico and Latin America is still being developed. It's not as developed ecosystem as it is in the us. In the US every year you have new funds. I think the Statistics are around 200 new funds every year get funded. I mean, in Mexico alone we have probably less than 50 VCs investing across the entire nation in this field stages.
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B
Do you feel that gives you an advantage for deal flow because you're not competing so much on the companies because there's only a few funds?
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A
Yeah, I think that's an advantage. Having a specific thesis as well.
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C
Right?
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A
I mean most funds have more of a generalist theses. They invest in E commerce, healthcare, most of them invest also in fintech, but they don't have a solely fintech specific focus. So that I think gives us a Bit of an edge. I mean we've been obviously through the hurdles. We understand the opportunities and challenges because we went through them firsthand. Right. So that is, I'd say obviously a competitive advantage. But the way we see it, more than compete for deal flows, we see it more as collaboration opportunities. Right. I mean there aren't that many funds investing in this type of opportunity. So the more the merrier, Right?
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C
Yeah.
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A
So it's definitely the right time to be in the space. The opportunities are there, the innovation is there. All we need is more capital to continue deploying in some of these great opportunities.
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B
Yeah. And how is the LP ecosystem? Are there single family offices? Are they interested in investing in emerging managers or would they rather just go direct into deals and co invest? And how has that conversation been? Because sometimes, right. I mean, last thing you want is to just kind of be a funnel for co investing and you want to kind of really encourage people to invest in the fund and then allow co investment rights. But what is the culture in Mexico and Latin America as far as the GP and LP ecosystem considering there's only like 50 funds?
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A
Yeah. It's really a bit of a challenge. Right. I mean there's still, I'd say an educational gap in understanding on the asset class, the industry, the technology. I mean we're starting to see success cases in Latam as a whole. Brazil is a more developed venture ecosystem, but outside Brazil we're just starting to see the results of venture as an investment strategies. Right. So when we started out reaching out to LPs in Mexico particularly, we found this educational gap.
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C
Right.
- [11:36]
A
LPs want more traditional investments, brick and mortar investments or do direct deals. So that's why we decided to do more of an international strategy in terms of fundraising and attract international investors with a better understanding on the asset class, the potential of fintech in a region like Latin America. And they want to tap into an underserved region.
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C
Right.
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A
Whilst us providing the ground support, the understanding on the market dynamics, the regulatory landscape, the opportunities and challenges. And that's part of what we've been doing so far.
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B
Yeah. And I've done some cross border investments. There's always tax consideration. So what should an international LP know about investing in Mexico or investing in funds? Are there tax best practices that they should think about or is it pretty straightforward? I guess double taxation?
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A
Yeah. I mean Mexico has tax treaties with a lot of countries, so there are ways around that. But what we are doing is setting up the fund actually in the US.
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B
In the US, yeah.
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A
Obviously it's following the SEC's guidelines and everything. But it's a structure where LPs are familiar with how that works. Right. We want to simplify obviously the investment opportunity for LPs as well. And in terms of the type of investments now it's very common for international or Latin American startups to actually set up a C corp in Delaware because they want to eventually attract international investors. And this type of legal structure is the one that they're more familiar with, right?
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B
Yeah. Some of them even set up the. There's one investment that I made where they set it up so easy where the wire was actually a domestic wire. So it's like a American wire. So I think also just using the typical standard tech stack, right. That everybody's familiar with, you got First Republic bank, you got Carta, and then you got whatever the premier lawyer is to use. But the ones that everybody uses, right. Especially if be using the standard bank that most funds use, that also helps as well because then it's kind of. Okay, cool. It's a typical, typical VC stack when it comes to fund admin and when it comes to the bank. And then it also comes down to, you know, just the accounting and reconciliation and all that. So.
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A
Yeah, and that's something that we also leverage on, right. This evolution of service providers around venture as a whole.
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C
Right.
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A
I mean if we wanted to work with the Carta of Mexico, it doesn't really exist as of today.
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C
Right.
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A
So this, I'd say services that a firm like Carta provides, where they're even getting involved at the formation of the fund.
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C
Right.
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A
They have these pre closed services and they just help you along the way. That's something that's very useful for, you know, managers that want to set up in the US and that have a. Might be a little different investment strategy.
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C
Right.
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A
But. And they've been very helpful. I mean in terms of connecting us with other service providers that they have experience working with. And you know, there's a growing interest in emerging markets or in emerging fund managers or first time fund managers.
- [15:17]
C
Right.
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A
I mean the numbers don't lie. Typically first time fund managers tend to outperform more established managers because it's all in for us.
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C
Right.
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A
I mean. Yeah, this is, this is our opportunity to prove ourselves. So. Yeah, it's definitely something that, you know, this type of evolution of the venture landscape in a region like the US we try to leverage on that as well.
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B
Yeah, no, I mean it's, you know, historically there's a lot of research and I've done a Lot of analysis on the data. And I mean, the, the emerging managers have to outperform to survive.
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C
Right?
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B
I mean, you have to be really pushing the envelope while you got somebody else that's at a pension fund and they're going to still get to 11% at the end of the year, where for you to be relevant and to still stay there, you have to kind of still push the envelope and you have to be more scrappy. Right. There's no, there's no communications team, there's no marketing team. You're doing everything on LinkedIn posts and Twitter and you're building the logo yourself. You using Sketch or something to create your own logo. So you really have to kind of be creative and entrepreneurial. I mean, I've been looking at some LP updates and you see some of that feedback. It's kind of like, look, we're, we're working long hours, we're really being resourceful. So it is a startup essentially.
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C
Right.
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B
And it does take the agility to kind of go through that. And you're balancing different aspects of the process, the cycle.
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C
Right.
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B
Because you could be fundraising, diligencing a company and then managing some legal or fund admin or accounting mistake at the same time.
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C
Right.
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B
And then, and then maybe don't, you know, getting ready for a podcast, you know, so you're really doing all of that, plus having now two kids and being married.
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C
Right.
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B
So it's kind of. And it's not only you, Right. It's your family that's also, you know, kind of emotionally supporting you as well, because they're kind of on that journey. And that's what I love about my Emerging manager program is because I'm also an emerging manager, so I'm essentially on the same ride with you guys, building something from really, from nothing when we first started. So I think when you can kind of have at least community, it's like a support system that helps. That way you feel like you're not alone.
- [18:00]
A
Yeah, no, definitely. I mean, it's something that it's not talked about publicly. I mean, oftentimes when people think about venture investors, they think like you just appear out of nowhere. Exactly. You're rich. You already have the capital to come in. We actually go, you know, we also have to go out and fundraise. We go through the same ups and downs as an entrepreneur does. Right. So this type of support, and that's something a big shout out to you, Joel, for putting this program together. It's something that we, with our strategy really appreciate as an Opportunity to connect with others in the venture landscape, like you said, globally, and be able to connect with potential PE's or other service providers. We try to learn from more developed venture ecosystems because there isn't a lot out there on setting up a fund, right? I mean, there's a lot of information about the startup journey, but not a lot about the fund journey itself.
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B
I mean, what I appreciated about you, Carlos, is, and this is what I think is really important about the community when you're in a cohort. I've been studying this a lot because I got accepted into this program. There's this new program for teachers, and it's kind of like online teachers. And what you realize is when you have a cohort, you have a little more of a sense of urgency, right? So my other program, it's obviously your program. So that gives people time to breathe and absorb the content and learn and take the time, which makes sense, right? Because private equity in vc, understanding the hard skills and then really getting enough practice, attempts of sourcing deals, getting feedback, that takes time, right? When you have like eight weeks, you. You have to maximize those eight weeks, right? So you're kind of forced to make sure you don't miss a session. And I think the urgency of that and also kind of the time crunch makes you absorb content. But I think along with that too, what I appreciate from you is like, you'll come up with some article or some other program that has some really helpful content that maybe we didn't find, you know, So I think just storing that somehow or like I'm gonna actually create like a library to store all of these links that we have. But, you know, that's what you get from the community, right? Because somebody was searching something, they found something, and then they share it, right? And you just, you did it on your own, you'd probably find stuff, but you won't get everything, right? You'll find the things that you look at. But, you know, getting, getting it from other people is always going to be kind of a collective, you know, anthology of like, all these different helpful artifacts that you can collect. I mean, there's a lot of really helpful stuff on the Internet, I would say. I'd say a lot of this stuff is free, but the challenge is making sense of it, right? And like having somebody really explain what it means. Because sometimes it's hard to digest and sometimes it's just too much, right? It's just too much content for you to synthesize. But if you can kind of be in a community or A group where maybe there's an LP that can explain that to you more clearly, then I think it's helpful.
- [21:29]
A
Yeah. And I mean, it's not only that. I mean, the fact that, you know, for this first cohort you're able to, you know, openly talk about the challenges that everyone has been going through and understand that you're not the only one going through the same. Right, Yeah. I was talking to John the other day and we have pretty much the same problems.
- [21:52]
C
Right.
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A
I mean, we're setting up weekly calls with LPs and then at the last minute they cancel or they, at the last minute they, you know, for some reason or another. Exactly. Yeah. So. So you think you're the only one going through that, but no, there's others out there and being able to share that, you know, is definitely helpful as well.
- [22:16]
B
Yeah, no, I agree. So tell me a little more, you know, switching gears here. Tell me about the VC system in Mexico. So you're saying there's only 50 funds. So where do you guys find deals? Do you guys have accelerators? Do you guys have demo days? Like, do they have like a Y Combinator in Mexico or like an SOS V in Mexico? And you know, when you talk about Fintech and you know, I spend time with Anna as well, so she kind of gives me some insights. She's, she was on our show also. But just tell me about the ecosystem. I mean, what is like the next big sector to focus on? I guess what part of fintech is really growing and scaling quickly in Mexico?
- [23:03]
A
Yeah, so I mean, in terms of deal flow, I mean, for us, we have a different strategy set in place. We love connecting with other investors in the landscape. I mean, Anna has been a great supporter. Yeah, we talk on a regular basis because she and I, we're both solo gps.
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C
Right.
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A
So that particular pathway is another that for another topic some other day. But you know, we tend to share some deal for opportunities there. There are some accelerators in Mexico, 500 startups this year. Mass Challenge has some presence here. Techstars are starting to look into Mexic. There's a Spanish one called Finnovista focused solely on fintech. But I mean, the opportunities are pretty much everywhere. I mean, some of the exciting sectors that we're taking closer look at are obviously payments. When you look at the remittance market, that represents a huge opportunity. The US and Mexico corridor is one of the biggest in the world, but it's still an efficient process. The average transaction There is around $300 and the are 8, 10%.
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C
Right.
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A
So technology is going to definitely play a role in how these markets evolve. Lending, believe it or not, is a huge opportunity. Some of the biggest fintech companies in Mexico right now are focused on lending because it represents a huge opportunity.
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C
Right.
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A
I mean, when you look at Mexico's business composition, 98% are SMEs, right. They represent over 40% of the GDP. They generate more than 70% of the jobs in the country, but they're being underserved by the traditional banking system. And when you look at the banking system In Mexico, it's 70% or more is concentrated on five banks. So there's not a lot of options for lending or alternative means of funding for SMEs. And that's definitely a huge opportunity in the space. Wealth management solutions. Being able to invest not only in the Mexican public markets, but in other more developed public markets, that's another interesting opportunity. We don't have such a dynamic public markets as the US to give you an idea, last year we had an ipo, but before that, the last IPO was two years before. So these type of opportunities to invest in the public markets with an international focus represents a huge opportunity as well. I mean, insurance, a huge market as well. I'd say every business vertical has some huge potential, particularly in a region like Latin America. When you look at the statistics where, you know, 50% of the population is still unbanked, but, you know, mobile penetration is above 70%, we have a growing, you know, millennial generation. So these digital solutions or tech solutions is something that's going to disrupt the traditional finance industry. The way we look at it, I mean, you know, market participants have to look, you know, technology to actually solve problems.
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C
Right.
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A
So there's definitely an opportunity there. And that's our current focus.
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B
Yeah. And tell me about, you know, this could just be general information, but just observations when, you know, sitting on the other side, you know, at a family office, you know, how has your perspective changed when you were at a family office and now you're speaking to families? Right. How, how do you think that helped you maybe communicate and maybe help educate families? I'd say one example I have is, you know, some of the families have had no venture experience that I used to co invest with. They didn't understand that venture is an illiquid asset. They're like, what do you mean I can't sell my shares? I'm like, yeah, maybe on the secondary market, but. But there has to be buyers and sellers. Right. So I think the first education and Expectation management of illiquidity is important, but that's just something that I've seen. But I guess how has your perspective changed kind of being at essentially probably an allocator, but now you're talking allocators, you know, and what, and I guess what do they care about, you know, some of the allocators. And what do you think causes some miscommunication with like the interest versus what you're offering them?
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A
Yeah, I think what they care about is, you know, generational wealth, right. For family office, being able to provide for future generations. And that's where the educational piece comes in handy, right? I mean being able to diversify across different asset classes, whether it's the public market, real estate, venture. Now we have institutional money coming into crypto or defi solutions, which is definitely something that we're excited about. But it's always about, I'd say this generating trust with this type of allocators in the space. I mean they're going to be around for. Not in fund one, right. I mean typically these type of investors are going to be with you for longer than the first fund, right. I mean typically a VC fund has a 10 year duration but you want to go out and raise Fund 2 in a matter of years. So being able to provide value and opportunity to this type of LPs is something that I'd say they're always looking for, right? Co investment opportunities obviously and do what you set out to do, right. I mean if I say I'm going to invest in fintech and tomorrow I invest in healthcare, then I'm not saying what I promised then I was going to do. Right? So it's definitely interesting being on both sides of the table. But I'd say the process is very similar at the end of the day for fund managers. They're investing in the team, the person or the team that's going to be managing the money, they're focused on the opportunity, they're focused on the timing. So some of the qualities that us as venture capitalists look for in startups, it's the same process for LPs looking into fund managers as well. So.
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C
So yeah.
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A
That'S the way I look at it right now.
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B
And then when it comes to crypto. So are you also investing in blockchain companies? Are you mainly focusing on fintech now?
- [30:36]
A
So we see blockchain and crypto as a business vertical within fintech. I mean particularly in emerging markets where there is corruption, there's lack of transparency, there's financial inefficiencies we believe blockchain is one of the technologies that's going to disrupt the traditional finance industry industry. So it's a core part of our thesis. We don't do token investments.
- [30:58]
C
Right.
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A
So we don't equity investments. We look at, you know, the application of blockchain and how it's solving problems within the financial market. So yeah, it's within our thesis as a business, vertical fintech as well.
- [31:14]
B
And you know, this is a outside question, but what does AMG stand for?
- [31:21]
A
Yeah, so when we started out with this tokenization of the fund.
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C
What we.
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A
Want to do is monetize assets. So AMG actually stands for assets monetized globally through blockchain, right? Yeah, it's sort of the name that we stood by because we do believe that in the medium to long term tokenizing assets is going to be a big part of, you know, the financial infrastructure. And that's why where AMG comes from, you know.
- [31:57]
B
Well, what about tokenizing of collectibles like NFTs? Is that something you guys are interested in as well? Because that essentially could be some type of, you know, store of value.
- [32:08]
C
Right?
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B
You have a, you know, super valuable unique asset which is a artifact and you know, that is un, you know, obviously non fungible and then you can't really copy it. It's super unique. Right. So that is valuable because of scarcity and its uniqueness. So are you guys excited about that?
- [32:33]
A
I mean, I find it to be a very interesting space. Obviously it's something that, you know, I'm looking at, we haven't seen particularly in our region, our target region, projects of this N. It's something that, I mean as a fund we would invest in an nft.
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C
Right.
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A
Because that's not a particularly equity investment per se in a company building something.
- [33:01]
C
Right.
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A
But if it's a company providing the infrastructure required to issue NFTs, that's something that we would be interested in investing.
- [33:13]
B
Or maybe like an exchange for NFTs.
- [33:15]
A
Exactly.
- [33:16]
B
Or just the underlying infrastructure to actually build it.
- [33:20]
A
Right, exactly, exactly. And for instance, now that we're on the blockchain and crypto space, this whole defi evolution, which stands for decentralized finance, it's something that we're very excited about, particularly because of the macroeconomic environment in regions like Latin America, countries like Argentina, Venezuela, they look at these type of solutions for alternative means of store value or lending solutions, or even payment solutions. A lot of it is being built unfortunately outside of Latin America, but users come from Latin America. We've started to see Interestingly enough for us is some international companies that started out in say the US or UK and that want to tap into Latin America. So that follows also within our thesis, right? Being able to have someone on the ground helping them expand into these countries or regions, that's something that we're interested in doing as well. Fintech by nature is global, so we can't afford to close our eyes to what's happening outside of our region. But we want to do or provide this local partnership with this type of startups and that's something that we've seen a lot recently.
- [34:50]
B
So walk me through an example. So walk me through the problem and how Defi can solve it, especially in Latin America. So from my understanding, the issue is sometimes in America, if you have have $10,000 in bank of America, that will still be there, right? But from my understanding, with corruption and sometimes some countries that $10,000, the government could just block your account for whatever reason. Is that true or am I exaggerating how the political conditions can be in some countries, maybe not Mexico, but Latin America. I've heard in Venezuela some people just couldn't get access to their bank accounts and there could be money in there. And then is what you're saying that Defi does is people can just have almost like a bank that is off of the banking rails, right?
- [35:45]
C
Yeah.
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B
Is that correct? And is that, is the magnitude of the issues that bad, where people, people's banks just get closed off where they can't get access?
- [35:54]
A
I mean, closed off or, you know.
- [35:57]
B
Temporary amount of time?
- [35:59]
A
Yeah, could be. I mean that doesn't happen a lot in Mexico. Depending obviously on the sector that you're operating or what you do if you comply with all the regulations. That won't happen, right? I mean, unless you're doing something illegal. But yeah, I mean, at the end of the day these type of solutions provide something that the traditional banking system doesn't.
- [36:24]
C
Right.
- [36:25]
A
So being able to send money from the US to Venezuela, you can send through the traditional banking system. There are solutions, for instance, where people, Venezuelans in the US buy through crypto goods for their families in Venezuela. So there's definitely interesting cases.
- [36:50]
B
What I've also seen is sometimes there's synthetic tokens, right? So they have a store of value that's the same as a dollar, but it's actually like converted into a different currency that's like synthetic and that functions as the same value. I'm not sure, I mean, it can get kind of complicated. But is that also a use case kind of like just converting a currency into like a synthetic dollar or a stable coin.
- [37:18]
A
Yeah, I think, I mean, you have to get past the regulations in your home countries. I mean, I mean, at the end of the day, regulation still plays a huge role in the asset class. But I mean, to be honest, there's so much going on in the crypto space that you have to fully commit. I mean, we would have to have a solely crypto fund focus if you wanted to only invest in these type of solutions.
- [37:45]
C
Right.
- [37:46]
A
That's why we have more of a broad investment thesis, because we understand other pain points in the industry as well, not only what crypto can provide. There's so much going on that you'd have to be there 24 7, 365, because crypto doesn't close. I mean, there's not a 9 to 5 schedule for crypto. So all the innovation going on and it's definitely something to look at.
- [38:17]
B
Continuously switching gears, you know, back to the emerging manager side. Just starting the fund. Thinking about your thesis, can you share a couple pieces of advice from what you've learned in the last year on how to envision the fund?
- [38:34]
C
Right.
- [38:35]
B
How to structure the fund, how do you decide if you want to start with a 5 million or a $10 million fund and how many investments you want to do?
- [38:43]
C
Right.
- [38:43]
B
Did you put together a fund model? And, and how do you, you know, any advice on kind of a framework for that? And then the other piece is maybe some learnings that you learned from LP relationships. And I know you and I talk about this a lot, but any just takeaways or learnings maybe like, hey, you know what, I can tell this person is a waste of time. They're not allocating to funds. So, hey, I'm not going to like burn time taking a call.
- [39:10]
C
Right.
- [39:11]
B
So any, any other just learnings like that, they're like, wow, this is a good mental note to keep in mind as I keep fundraising. So, yeah, so two things like structuring the fund, thinking about, like, you know, where you start, and then maybe some fundraising tips or best practices or what you learned.
- [39:31]
A
Yeah. So I mean, for the, the fund structure and I think it depends on different factors, what stage are you investing in, what industry you're investing in? So for us, it's a little different because we're focused on seed stage investment. But seed stage investment in Mexico is different than in the U.S. for us, our average ticket size ranges from 250,000 on average, which that gives your startup Runway of at least a year.
- [40:08]
C
Right.
- [40:09]
A
In A region like Latin America, when the US that's used to pretty much cover the legal expenses, right. So that type of thinking also played into how we structure our fund, right? So you have to think about, I mean, how many partners do you have as well? So for instance, I'm a solo gp, right. So if I want to take a hands on approach and be on a board on every company that we invest in, then there's only so much number of investments that we can actually make. If we want to take more of.
- [40:41]
C
A.
- [40:43]
A
Hands off approach, then we can do obviously more investments. We have more of a hands on approach. So our portfolio construction strategy was built around doing 15 investments, around 250,000 reserve. 250,000 for follow on. So that the math were raise a fund of 10 million, right.
- [41:06]
B
I think, which I think we, I think we went through an exercise, I think in like week three and somebody was, somebody was gonna reserve like I think like 60 for follow on. And I was like, yeah, that's a big, that's a big, you're betting, you know, you're betting like half the fund to follow along, which is great. You know, maybe, maybe they're, you know, but look, that's their strategy, right? Who, who am I to, to say anything but. Yeah, I mean you have to think through all of those decisions, right? Like exactly. Like do you, you know, maybe you don't want to follow on, right? So exactly. Funds like first round, they only invest in the first. They, they're like early investor and then they, you know, then they don't do anything else. So. And I don't often follow on either, you know, so, so I think, you know, think maybe answering the question of like, you know, for all of those things, like why. And then I think another big piece is how much money do you think you can actually raise, right? So if you're going to do like portfolio construction for like $100 million fund and it's your first fund, maybe that's, maybe you're really connected and you're, and you know, you're able to. And that's great. But, but I guess a good question is like do I think I can actually raise that money in 19 months, right?
- [42:18]
A
Yeah, so, so I mean one, one like quick math tip that someone once gave me is consider your closest friends, people that you used to work with. How much are you able to raise from them today? Let's say if you were able to raise 1 million, then multiply that by 10, that's your target initial fund size. Or if you for instance, have friends that are able to commit right now 2 million, then you're, you could potentially go out and raise 20 million.
- [42:55]
C
Right.
- [42:56]
A
So think about.
- [42:57]
B
Okay, that's pretty interesting.
- [42:58]
C
Yeah.
- [42:59]
B
So if you. Okay, so you're.
- [43:01]
A
Because you're able to do it, those.
- [43:03]
B
Are your tight knit friends.
- [43:04]
A
Exactly.
- [43:04]
B
And then you're thinking that you probably those friends or those people might have extended networks that could probably make warm intros to you.
- [43:12]
A
Exactly. Yeah, exactly.
- [43:13]
C
Got it.
- [43:14]
B
That makes sense.
- [43:15]
A
Makes sense, right?
- [43:18]
B
Friends, you just got to find your five friends that'll add up to 2 million.
- [43:22]
C
Right?
- [43:22]
A
Exactly.
- [43:23]
C
Yeah, exactly.
- [43:25]
A
But I think, you know, going back to your question on how you build the fund, I mean there are a lot of factors playing in. So if, going back to what you said, if we didn't plan on doing follow on investments, then we'll probably do initial check size of around 500k which could potentially be pre series A. Right. So we're no longer investing at seed states. So it all depends on all these different factors. Eventually, you know, part of our strategy is to go out and have a bigger fundraiser, bringing additional partners because we want to continue focusing on seed stage with a hands on approach. Right. But we need more people obviously to handle that. So yeah, there are a lot of, I'd say factors that play into how you build out your own fund and your portfolio construction strategy. And it's something that LPs are going to ask. Right. I mean they want to know what you're focused on, your average ticket size, follow on investments, co investments, maybe setting SPVs for follow on or co investment opportunities. So yeah, there are a lot of factors playing in. And going back to your second question on learnings about pitching to lp, it's always about, I'd say positioning everything as an opportunity for LPs.
- [44:43]
C
Right.
- [44:45]
A
When for us, part of our strategy being focused on international investors, we want to highlight what's going on in the region, the opportunities. And we've seen a lot of international investors tapping into Latin America. So there is definitely interest there. And having someone with an understanding on the market dynamics is something that I think is always helpful when talking to investors and be able to generate that trust. I mean it's something that, that's key. Part of what we did and obviously to keep communications and contact on a ongoing basis is having a monthly newsletter similar to what startups do with their investor updates, keeping them updated on what's going on with the fund, with our investment landscape, which is fintech in Latin America, to highlight what in some way what they're missing out.
- [45:49]
C
Right.
- [45:50]
A
And what they could potentially be a part of.
- [45:53]
C
Right.
- [45:54]
A
So I mean it's an ongoing process as well. We're always learning from other managers in the space and it's exciting for sure, not always easy, but for us, I mean, and we know that the opportunity is there and we want to continue funding innovation and entrepreneurship in a region like Latin America.
- [46:22]
B
And I would say it's too bad you couldn't come out here, but I would say the in person interactions do go really far. So I think building those connections, I guess is Mexico starting to slowly open up and I guess could that be an opportunity to build more relationships with LPs maybe host small little, maybe educational seminars. Right. Where you kind of host, maybe borrow like a workspace or something and say, hey guys, I'm going to talk about the future of Fintech. That could be a good educational. Like you said, position it as an opportunity where it could be a new sector that the LPs have exposure to.
- [47:04]
C
Right.
- [47:04]
B
Because a lot of times I think there's an interest from LPs if they can access some type of sector that they just don't have expertise in.
- [47:12]
C
Right.
- [47:13]
B
And it's better for them to allocate to somebody that gives them that exposure versus having them try to figure it out and source deals on their own if they don't have that network to do.
- [47:23]
A
So. Yeah, I mean Mexico in some way or another has always been open for business. I mean the reality is that most people can't afford to stay on lockdown or even a week. Right. I mean they had to go out and make a living. So you know, we have been open with all the necessary restrictions and sanitary measures and yeah, that's actually something that I was talking to an investor earlier today and that's something that he also recommended.
- [47:57]
C
Right.
- [47:57]
A
I mean, now that countries and businesses have started to open up, it might be a good opportunity to Invest, to invite LPs that are interested to Mexico, highlight some of the companies that we're looking at, highlight some of the inefficiencies as well.
- [48:16]
C
Right.
- [48:16]
A
And all the potential in a market like Mexico. So yeah, this in person connection is definitely something that it's hard to bypass.
- [48:29]
C
Yeah.
- [48:30]
A
But I think the world is starting to get used to this. I'd say new reality and eventually have, I'd say a mix of both.
- [48:40]
C
Right.
- [48:40]
A
I mean in person, virtual events. But yeah, it's being able to have that connection with someone in person is definitely something that goes a long way for sure.
- [48:51]
C
Yeah.
- [48:52]
B
Yeah, I mean, as we know, right. I mean it takes 19 months to two and a half years to.
- [48:58]
A
And when you consider a pandemic, you're in there, you know, timing could, could be even longer, right?
- [49:05]
C
Yeah.
- [49:05]
B
And these LPs, they want to see your behavior, right? They want to watch you over time, sometimes even a whole fun cycle if it's like institutional. But you know, they, they want to, you know, spend time with you for, for a while and get to know you and maybe see your last couple investments.
- [49:24]
C
Right.
- [49:25]
B
So that might take time and you know, that's what I've noticed. And then the, the, the, there's other ones that are, you know, like the VP of product at, you know, at Facebook or something.
- [49:36]
C
Right.
- [49:37]
B
Those are great LPs because they're, they're investing in you almost like you're, you know, a startup pretty much. And then the benefit is if you invest, you know, most, most gps, I'm assuming you do this and the offer co investment. Right. So you can get that. They can also get direct access to kind of get some of the direct allocation into the company alongside you as well. So that's also attractive too. But it looks like Tim has a question, I guess. Tim, you want to fire your question off real quick?
- [50:08]
D
Yeah, sure. I actually have two, but the first one I was, you were talking about latam just having sort of less developed financial infrastructure but having five big banks. And I've kind of wondered in North America whether some of the PayPal and Square and their success with digital banking, does that almost sort of slow the adoption for blockchain based finance? And is there maybe an opportunity? I know in Africa it's sort of like they don't even have five big banks to fight against.
- [50:49]
B
Yeah.
- [50:49]
D
Could you talk to me a little bit about how you think about that?
- [50:52]
A
Yeah, I mean, the way I say it, I mean in countries like Mexico and Latin America, we don't have those, I'd say legacy technologies that we're built on.
- [51:09]
C
Right.
- [51:10]
A
So we have some flexibility in being able to adapt new technologies like blockchain or any other technology. So there is a lot of innovation going on in the space because it takes these large banks a lot to actually pivot or try to adapt a new technology. So these fintech players are having a huge impact on the bank's market going back to what PayPal or Square are doing. They are actually expanding into Latin America.
- [51:43]
C
Right.
- [51:43]
A
And be able to provide those type of services in a region like Latin America. I mean, when you see, and this is Something that we always say to potential piece. I mean, the reality is that a lot of the innovation that goes on in financial services in developed markets, they tend to solve convenience issues.
- [52:06]
C
Right.
- [52:07]
A
In emerging markets, they help to solve structural issues rather than convenience. So there's definitely an interest for these type of international players to tap into a region like Latin America.
- [52:22]
B
Yeah, that's good. Jason, you got a question about LPs?
- [52:30]
E
Yeah, sorry if this was mentioned and I didn't hear it. I know we talked about sort of if you know someone who has, have, who can, you know, invest or 500, then 500k, you then multiply that by 10. But does that also mean that as you were forming the fund, you had already identified these individuals so that you got confident basically? You know, how hard was it to first to get established at the beginning?
- [52:58]
A
I mean it wasn't. So we started out on a different path. I mean, we wanted to do this security token offering as a means to obviously fundraise for the fund itself.
- [53:11]
C
Right.
- [53:11]
A
So we didn't start out with the traditional sort of fundraising mindset. As I was telling you, we did eventually pivot into that. But I mean, if you're considering raising a fund, you have to think about a little bit about the theses, the opportunity that you want to focus on, the geography, the states that you want to invest in. And then you're going to have to tap into your network like crazy. I mean, with people that are either in that space or people that believe in you or have worked with you beforehand, that know that you're able to say what you say you're going to do.
- [53:53]
C
Right.
- [53:55]
A
And obviously, you know, warm interests are always a great way to connect with potential peace. For us, these type of programs, like Joel's Emerging Fund Manager program was a great opportunity to connect with other GPs in the space with potential Ps. And going back to Joel's point, we had a couple of institutional investors participate in the program. You have to start building those relations on a medium to long term strategy. They're not going to invest in your fund Wan so you also have to think about the type of LPs that you're going be pitching to.
- [54:36]
C
Right.
- [54:37]
A
I mean, don't focus on institutional investors because they don't typically invest in first time funds or they don't typically invest in funds under 100 million.
- [54:46]
C
Right.
- [54:47]
A
Because they have certain restrictions in their minimum investment and how much they're able to represent out of the fund. So let's say an institutional Investor typically invests 20 million, but they can represent more than than 20% of the fund. Right. So that means that unless you're raising a certain amount, they won't be able to invest. So it's important to also sort of, I'd say circle down around the type of LPs that you're going to be pitching to. For us, it's been mostly, you know, high net worth individuals, family offices. There are some fund of funds investing in emerging managers. So we're obviously talking to those institutional investors more on the medium to long term. There was, for instance in Latin America an initiative by the IDB bank to fund emerging managers. But part of their investment thesis was to actually invest in funds that are raising more than at least 20 million selling. So that eventually put us out of their box. Right. So we don't waste time pitching to them because we're not going to be a good fit for them right now. Eventually there might be a great fit for us, but you have to understand what LPs are investing in and their investment strategy as well and focus on those.
- [56:17]
B
Yeah. And we are starting to see a lot of corporates invest. Right. We've seen bank of America, Carta, Apple, a lot of them have allocated to emerging managers as well. And then I think community is a huge thing too. Right. So I think there is mandates now for, you know, diverse managers and different communities. So I think, you know, if you are part of a certain community, you know, having access to those, you know, funding channels and figuring out who, you know, who the allocators are, I think help too. And then the same thing, it's a long game. So if you know somebody who's at a pension fund, they all go to the same events. Right. So they may actually know somebody that's lower in the stack that could be a good fit for you.
- [57:03]
C
Right.
- [57:03]
B
They may just have a colleague or somebody that they've known for years that does invest in nano funds that are 15 and lower.
- [57:14]
C
Yeah. Cool.
- [57:17]
B
Anything else? I know we're five minutes over, but this was awesome, man. Thanks for, thanks for coming out. I heard the baby a little bit in the background, so. Hope we didn't pull you away from your family too much, but this is a little bit of deja vu seeing you back in Zoom.
- [57:35]
C
I know.
- [57:36]
A
Hopefully we can do it in person soon. I'm already vaccinated, so. So hopefully resume travels in the next few months.
- [57:47]
C
Yeah.
- [57:47]
B
Well, let's talk about New York. You know, we'll have some more updates on the LP stuff that's going on in New York with Sutton Capital. So let's keep talking about that. And, you know, and again, you know, thanks for your time, and this is really good learning for me and for everybody else, so thanks.
- [58:06]
C
Thanks.
- [58:07]
A
No, thank you, Joel. Look forward, then, to keeping in touch. And thanks, everyone, for being here as well.
- [58:14]
B
Yeah, thanks, guys.