How This Dropout Built a $3B Fintech Giant | André Street

30:54Well, most of these things didn't go right, right? But there was somehow a memory. Yeah, there's like even maybe a bunch of them didn't work, but that was a concept that was in the mind of some people now. Yeah. If you were a 15-year-old kid, 10 years or even five years before that, you would never get an attention of an investor to get money to your project. Especially in Brazil. Yeah. I think in the U.S. you could probably get, there's already Microsoft, but in Brazil, definitely not. Yes, definitely not. Yeah. So if you consider that, that was one good point because it could call the attention of some people in Brazil because of that, let's say, time memory.

31:43Yeah. Second thing is that I did not start in the bubble. So I didn't surf the bubble. I didn't surf the wave. Was there even a wave in Brazil? There was. There was? Yes, there was. There was like some internet company. Yeah, yeah, yeah. No, there was. And were you aware of them? No. No. Was it like Luka Wabi and stuff like that? Like that was kind of starting out. Yeah, yeah. No, Terra, the portals, the big portals. There were some big things. Interesting. At that point. Most of them exploded. But the good thing for me is that I didn't surf the wave. If I had surfed the wave, I would not learn so fast in that moment.

32:28So what, you know, I had the privilege of getting the, you know, Brazil with no venture capital, with no environment for entrepreneurship. That was good. Because, you know, many people quit. And I was there because I really belonged to that profession, let's say, of starting projects, starting companies that would resolve real problems. So I didn't copy something from the U.S. I didn't copy PayPal at the time. You just found the problem from ground roots. Yeah. Exactly. First principles. Yes. So that's, to me, until today, it's a principle. I try to see every project as something. I don't try to get the parallel first.

33:29I deeply think about the problem and try to figure out the solution. And when I'm trying to help somebody else, I try to think together with this person about the problem that's being solved to see if the person is really dedicated about the problem. As a friend of mine says, is the person fell in love with the problem, not with the solution? Because the solution, then you can evolve. And then when you figure out the solution, then you create your business model. And then this business model will have to last. but I just want to see from where this person started thinking about the project. And at this point where you're saying it's like, hey, I didn't surf this dot-com bubble, so it means I really wanted it and I really liked it.

34:25That was truly what I wanted to do in my passion. There was no, you know, oh, I like it, but also it turns out it's what everyone else is doing kind of situation. I tested my confidence because that was really tough. And I remember in the first day that we launched the company, we thought we were going to be rich very quickly. It was extremely the opposite. So let's go there. Let's talk about the start of the company. Tell me, like, how did you even get the idea to start the company? So the first company was something that, you know, I created in the 2000s. It was probably end of 99 to beginning of 2000.

35:05and I created sort of an escrow account for people that didn't know each other to receive payments and the products. So if I was buying something from you, there was a famous newspaper in Brazil that you could announce your products and you would have the difficulties of finding a buyer to pay in advance and the other way around. Without knowing PayPal, solving a similar problem that PayPal and eBay solves kind of thing. Exactly. So if you think about at that point, PayPal didn't work as an escrow. It was just a payment method. PayPal didn't have the ability to lock the money while the product is being delivered.

35:51So just to be clear, I go to, you know, what was the name of the e-commerce, the classifieds or eBay of Brazil at the time? It was Jornal Balcon. Jornal Balcon. So I would go to Jornel Balcombe and I wanted to buy something. I didn't trust that the product was, I didn't want to send my money before I knew that the product arrived well. Yes. And you built the solution for that. Exactly. Where, you know, you took escrow of that money and you only released it once the product got delivered and went fine. Exactly. And that came because I had that problem. how did you have it? I had a delivery that did not arrive what was it?

36:37I don't remember exactly probably it was a watch or something like that yeah but that was a simple thing it was a cheap thing but it happened that it didn't work and this was online you went online to buy it? no, on the phone on the phone oh, so this is not even online yeah, it's classified so okay, so you saw this problem you're like, hmm, there must be a solution for this but was the obvious solution technical? I mean, you knew you needed to do something in the computer or no, you even thought about solving it without? No, just thinking about how to solve that problem. And then I would design a computer model to do that.

37:16Like I would develop a software to do that automatically. So that's what would happen. And of course, I knew that I would have to hire a web developer to do that. How did you do that? How did you hire someone? So then I had the idea. And then I started working on a business plan and put that in detail. So how did you even know how to do a business plan? I didn't know how to do a business plan. How did you learn? Yeah. So I went to... So my brother, that was five years older than me, was starting, he was studying engineering in university. I asked him to take an entrepreneurship class. And then I went to attend the class with him.

38:11And we learned together some of the things that we would have to do to start a business. Do you remember some of the concepts you learned? Yes, of course. How to build up a business plan. How to think about an idea. How to think about a business model. It was a business person who then happened to be one of my investors in the future. Not exactly in this company, but in the next one. The professor. The professor, yeah. But my brother was very, very important. Because he was five years, so he was 20. and he's the most special person in the world. He's fantastic. He's a PhD. So he went through the whole journey of his university.

38:58So he completed the engineering school, then master's degree, then PhD, then many other things else. So he's a researcher in energy in Brazil. And well, but he knows everything about spreadsheets. And at that time, that was very difficult to me. So we were creating the models together. He was helping me to do that. So we were creating the financial plan. We were learning how to do it. And he believed in this business? Yes, of course. He was the first believer. Interesting. He was the first believer. He was very focused on his things. But he was the person who most helped me. Interesting. So you guys took this entrepreneurship class together, and he's like, okay, let's help write the business plan together.

39:49And what was the original business plan? Like, what was, you know, the... No, so then we didn't know how to do everything. So we did the kind of financial plan, the basics, but that was not even professional because he was also 20. Yeah. So he was very young too. But you had to, like, estimate, like, how much you can charge, how much volume you're going to get through, how much it's going to cost. We started thinking about those concepts. And then I had a partner that I found in school. There was a guy who knew how to turn on the computer. And that was, you know, the guy who started the company with me.

40:27So I called him. His father was also very interested. His father was a business person. He was a lawyer, actually, but he was a business guy. And he was very interested. And we started working together, kind of the three of us. Then my, you know. Three including your brother. No, the three of us is myself, my business partner was my age, knew how to turn on the computer. He was not a specialist. He was just a young guy. But he was more nerd, let's say. And he was a smart guy. And, but his father was also smart and experienced. And he was retired. So he had time. For that. For that. So we started working together, the three of us here, myself, my partner and his father.

41:16And then we came up with something. And then I brought that to my brother, started working together, my brother and I. And then we started making the business plan a little better. Got to a second version. After the second version, we saw that. And that was still not so good. How do you know it wasn't good? We get to some people to read and that was not professional. And we felt that was not professional. And at a certain point, my partner's father said, let's take that to a friend who's a specialist in writing business plans. He's going to do that for us. If you go there and ask, he will make a big discount.

42:07and let's see what happens. Okay, but I didn't have the money. So I said to him, look, if you help me write that, if I raise money with this business plan, I pay you. Pay you the same amount or like some little bit more? No, even more, with some discount. Yeah. But otherwise, you're helping a young kid to try to do something. Yeah. And he did. He did? He did. Of course, we paid him, we raised money and we paid. So that was good for him. Why do you think he did it? Because he had a company to develop the software and also he was paid to do the business plan. So he was just taking the risk of not being paid if the company didn't raise.

42:52And did he think it was a good business plan? I think he did. He did. And then he did the work. That was good. We had to convince many parties at the same time. What do you mean? We needed to go to Balcão, to the newspaper, to the classified, convince them to give us a contract to become the intermediary. Oh, so they were distributing you. They were distributing us. They were saying that this company would be allowed by the newspaper to operate the financial part of the transaction. So we needed to convince them first. How was that? That was not so difficult. Because they knew the problem. They knew the problem.

43:37They were not making money with their classified either. That was the problem of Mercado Libre at the time. So then we presented that to Mercado Libre. We became the financial partner to Mercado Libre, to all the other online auctions that ended up... Ibazar. Ibazar and all these other guys that were bought by Mercado Libre. Mm-hmm. One year later. But when we started, we started with almost everybody together. All the other portals that had classified of different products, they started using this solution because that was very effective. But first, we had to convince them. Second, by getting them convinced, that was the pathway to raise money.

44:28Because then you already had distribution and someone validated the problem. And if I had this contract, I could better estimate in my business plan how the demand would be and I would develop better the business plan. And didn't they think it's weird, this Jornal Balcon, that you were like 15 and your co-founder was 15? Of course, I took my father with me. Ah, you took your father. Yes. I took my father and took my partner's father to the first meeting. was willing to like invest the time with you at this point. He kind of believed it in it too. Well, at a certain point, he saw that was inevitable and he was the second believer then.

45:08He said, well, this story might be serious. And by the way, if this goes right, this can be a good thing for him because he's a problem today. Right? So think about the scenario where I was at 15. I didn't want to attend school. You know, if this boy does that and does work. It's better than partying around Rio and like, you know. It's better than he goes in a different path, right? But like seeing that with the length of a father, he started working very closely together. And was your dad business savvy? He was business savvy. He had a good intuition around it. He had a very good intuition. He's a very social, he was a very well-respected doctor.

46:03He was very social. Had a lot of business friends. Had a lot of business friends. And clients. Yes. And he knew how to, you know, and he was a mature, he was a 50-year-old guy. Yeah. Right? Yeah, yeah, yeah. Okay, so your dad, he went to the meetings and then you were able to get the first contract over for an Albalcom. and then after that, that gave you some more inputs for the business plan and then raising money was the third leg of it, right? Exactly. So how do you do that? So then I had to knock on the doors of everybody in Rio that had more than a thousand bucks in the pockets, right? Everybody.

46:39So I started speaking to everybody that I knew that somebody else's knew or somebody else's that somebody else knew. What would be the pitch like around that time? Like what were you pitching? It's simply just showing the business plan, showing the problem. It was not a bad pitch. If I recall, that was a very simple 10 minutes pitch explaining the problem, coming up with the numbers of the business plan. We had studied very well what we were trying to do. So we had a good guess of how that distribution would play out in terms of number of transactions, percentage that we could charge, etc. So that was a good pitch.

47:26It was not a bad pitch. The timing was not so good because people had the memory of these companies that had exploded very recently. And they were not willing to invest. And remember that the interest rates in Brazil were also 20 plus percent. At this time, they were 20 plus percent? Yes. Wow. So they're like, I can get 20 plus percent doing nothing. Why am I going to invest into your thing? Exactly. So how do you do it? So we found a few people who wanted to do it. What return did you promise? Small checks. No return promised. Like we had a cash flow and people could estimate more or less what they could make.

48:07But people were not giving attention so much to the business plan. They were trying to see if the business plan was not crazy and seeing that as an option, as an opportunity to participate in something that could create a big equity. So who were the first investors? So we had a few people, friends and family, and I had the privilege then to meet someone that I knew before, but that was one of the best friends of my father, who then became my mentor. And that was a breakthrough because then I could learn many other things that I would never learn by myself. That would accelerate very rapidly my process.

48:59Got it. So you got this like a mentor early on that was a very successful businessman that invested and also but helped you very. But like how often would you meet? Like would he like a very close mentor or is like once every three months, you know, kind of? No, it was at the time he was very, very busy. But his presence was enough. Like just the reference was more than enough. And then any time that I, you know, that was a good time, actually, because, you know, I struggled a lot with, you know, when you're 15, and you remember that very well. We were chatting about that. You don't know anything.

49:43So you have doubts. You have questions about everything. Everything. Everything. So you need someone close. But if you have someone very close, then you don't learn. So I struggled. A lot. A lot. And that made my resilience somehow. How much money did you raise for this first film? I would say... I don't remember exactly, but I would say there's a little money. $100 ,000? Less than that. Less than that. $50 ,000, something like... Trying to bring that to present value, it's impossible, but I would say$50 ,000. Or maybe like... What would be the purchase power in the U.S.? Would be like the same as purchase power of like$200 ,000.

50:29Let's think about$50 ,000. $50 ,000. Makes sense. So that was the money. So you got it. And when you got it, you're probably so happy. Very happy. Like, because for your dad, it proved, right? Because that was necessary. No, it was actually at this point, I was not trying to prove anything. I was just hungry to make the product happen. And I needed the money to develop the product. because the company that developed my business plan was the company who was responsible for developing the whole software. So I immediately kind of gave a big chunk of that money to them. Makes sense. To develop the product.

51:08To develop the product. And also that was the promise that I made to them. To take the risk on a business plan. To take the risk on a business plan. And then was this already been a system? Was it in the internet? or where is it? Internet. It was in the internet already. So people could go to a website to do this. Exactly. Then we closed that with, so we had the operators on the phone, but they were operating through the website. They were doing it on behalf of the customers when they were on the phone. I got it. But that was, the tool was a website. So customers, so explain to me the flow. You would go to the journal and then like, you couldn't order something there, right?

51:48You think about Mercado Libre. At this point, Mercado Libre was already a client. So, but like on Mercado Libre, you would online order something, right? Yeah, so you go there and you, yes, so then you click to pay. It's pretty much like Mercado Pago today. Yeah. Then you buy the product and then you were redirected to another page of a different company. Then you put your credit card or you pay in a different payment method. But was online credit card already a thing at that time? Then that's the second stage. Okay, but it wasn't in the beginning. It wasn't. So how did you pay? There was a credit card space.

52:33We would take 24 hours to process. Then it went to our files, and we would manually type your credit card and pass that transaction. Like a little machine or something. Yes, a physical machine. So they would go in, say, hey, I want to buy this product, put their credit card number. you then get like a list of the number, go to a physical machine, type it up. Yes. Say yes, and then send to the customer. Okay, now your thing worked or didn't work. And that was it. Exactly. How much would you charge, remember? In the range of 5 % to 6%. We would pay them 4.5 % and take the rest for us. So we would keep 1, 1.5 % to...

53:14You think you could have charged more? It seems like you could have charged more. No. No? No. no because then there was also the delivery there was also the risk of the product being returned makes sense so we couldn't charge so much but I think I would say I don't remember exactly but that I would say it's 6 % and we would pay to the credit cards in the average 4.5 and then like what was going on at school now Now you raise this money, you know, like what was going on of high school and everything? How did you reconstruct? So then at this point, I, I went to university. But how did you finish high school?

54:01I didn't finish high school. So I applied to the university. Yeah. And I, I really studied at this point and I passed in university. So I, in Brazil, you cannot do, start university if you don't complete the high school. of course, I think it's everywhere, but there you could sue the university. Yeah. So like basically the, you know, you sue the government and the government basically told, hey, you should let this kid kind of enroll into university. Yes. If the kid promises to finish high school over the course of a certain period of time. So you had to do both kind of. You had to, yeah, but, you know, once you're there, you can accept to go to a much weaker school.

54:50Yeah. That you just go there and they apply the tests to you. You study for the test. So you go there once every three months. And why did you go to university in the first place? Because that would just keep me away from school. School was a prison. But like, was it just appease your parents? Is that kind of the main reason? No, I wanted to study law because I didn't have money to pay lawyers. So I also have to, in the company, so I had to learn how to write the contracts. I wanted to learn, so that was a pathway to me to learn how to do business. And you didn't think about studying, like, the development stuff?

55:29That was, you know... No, that was not my thing. That was not your thing? No. You're like, I just wouldn't be good at this. Yes. You know, negotiations, contracts, everything that was related to, more related directly to business. I considered doing business. Yeah, why not business? Business in Brazil was weak. So I was advised with many people that business in Brazil was very weak. So I had the promise of one day studying business in the US. But in Brazil, I would study law that would give me the background of business. You know, the basics at least. The contracts and, you know, the negotiations, everything that I would need more immediately to create my company.

56:15So then, like, okay, so this was 15. How long did you run this company for? Paga Faso is the name, right? Yes, for four years. Four years. Like, how fast did it grow? Was it the first year you had some revenue? Like, what were the key milestones? No, that was it. Well, so then we discovered most of the problems about the credit card industry that made us create the second company, Braspaq, What were the problems? Tell us about it. So that company had a struggle in the second year. So it started very well in the first year. And in the second year, it had a very big struggle. So they were able to develop the system well, etc., launched.

56:56Yeah, not perfectly. You got Mercado Lever as a client, Jornal Bazar as a client. We had, like, at a certain point, 10 big clients. All these online auctions, all the classified, everybody. And at a certain point, one year later, then... You were surfing this wave of also online classifieds, right? Yes, somehow, yes. So that was like a wave you were surfing, which was important probably for the business. Yes, certainly. So the distributors were growing and they did not have a financial model. They were not making money on that transaction. So they need someone to help them lock in the client and get the money from that transaction.

57:36because they weren't charging anything yeah we were paying commissions to them so we were paying them a fixed fee to be distributed plus a percentage of the money that we were making oh interesting so you paid them for the rights for them to distribute you indeed and then you got a percentage to yourself yes ah I understand okay so you're saying that the second year you got some so the second year was a very second or third year was a big struggle where then everything on the online auction side was consolidated on Mercado Libre. So they became one of the most important clients at a certain point.

58:14Then we have the other offline newspapers. They were still big. But the most important struggle was we were typing these transactions and we had a bunch of people typing these transactions on the credit card machines. So we had like literally a bunch of people. Yeah, a bunch of people typing. Manually. Manually. Yeah, yeah. Right? Until the time that we figured out a way to do that in an automatic way. When it started doing it in an automatic way, the alarms of risk of fraud in the credit card acquiring companies started bumping. So then they thought that that could be a fraud because they couldn't relate a product directly to that transaction.

59:00And they were seeing that coming from a website that was an intermediary of... Because it was like you were like one merchant, right? I was one merchant concentrating transactions for multiple sellers. Yeah, so they had no idea. So they were like, okay, what does this merchant even do, right? Yes. So then they locked the money of the company. Money that was not ours. Money that was owed to many different parties. So when you say they locked means you process a transaction, it charged the customers, but they didn't pay you. Yes. Because you were in the middle. And I had to release the money to the other party.

59:42Yep. And I had obligations on a daily basis. Right? At a certain point, they locked and we didn't receive the funds on the following day. Wow. Your customers probably got very upset. Very, very upset. So I didn't have the money to pay them. on the following day. Of course, we had a buffer. So we gained like two or three days. But I remember that was a big struggle. Very, very stressful day. where I didn't know what to do. And I was trying to think by myself and my partners at the time. At this stage, my founding partner had left. I was alone with other partners that I found. Other like operating partners, not investors.

1:00:35Operating partners, yes. I had investors, the same investors, but they were very passive investors. And at a certain point, I found myself almost alone thinking about that problem. And I decided to take a bus and go to Sao Paulo, which is a six, seven hours bus ride. And I did that in the evening, arrived in the early morning of the following day. I went to Visanets, which is Seattle today. Which was the credit card company. The credit card company was a monopoly. So at that point in Brazil, the credit card industry was closed to only one operator for visa transactions. So if you want to pass the transactions with visa, you could only go through one operator.

1:01:35This operator was owned by the banks. But the problem about that is that these guys didn't answer the phone. As any monopoly, they don't answer the phone. They don't care. They don't render a good service. When you call and you ask for something important to your business, they don't care. Visa Natural was the only operator for Visa cards. So as a monopoly, they don't render a good service, they overcharge, and they don't answer the phone because they don't care. So that was a company that I was dealing with. I tried to call them. I could never find anybody with authority on the phone to resolve the problem in the last two, three days.

1:02:31then I decided to take this bus went there woke up in their office arrived at very early in the morning and I sat in the reception that I want to speak with the president of the company with the CEO of the company she said obviously no the guy did not arrive I said what's his name said let me give you the name of the the the second man in command here who is the COO of the company. His name is Antonio Castillo. So he always arrives here around 8 a.m. It was probably around 6.30. Okay, I said, I'll wait for him. So I gave her my name. And when he arrived, he was passing in that corridor. And she said, this boy wants to speak with you.

1:03:29His name is Andre Street. And you were like 17 or something. Yeah. By coincidence. Because this guy knew somebody that I don't know yet from my family. So a street rang the bell for him. He saw a very young kid waiting for him. He saw that was not a criminal. It was a young kid. You know. Okay, come with me. so that was pure luck because if we didn't find any coincidence with the name could have just said no like I'm busy like fuck off sorry let's talk tomorrow one day call me call you maybe no never never yeah so the guy took me to took me to his to his office made me wait for a while of course at a certain point And he went to the elevator with me, so he was asking me basic things, my name, and what about Christina Street?

1:04:40I didn't know who Christina Street was. I said, she's fine. She's very, very well. Tell her that I'm sending a hug to her. And more than 20 years that I don't see her. So it's good to know. what do you want? He said, okay, let's sit in your office and let me explain. So he took a meeting and then he came one hour later and said with a glass full of coffee like this, okay, I'm now ready. And I explained to him what my company was doing. And he said, this is really incredible. This is very, very interesting. but this is not going to work here. And he was feeling the problem because as an adult and as someone who was dealing with that all the time, said, you know, if I don't pay this boy, he's going to go to jail.

1:05:45He's going to be killed tomorrow. So he went to the Department of Risk and mentioned to them that was not a fraud. So they released the money. And he said, okay, we will resolve that immediately. I understand the problem. But let me stay here for the whole day and I will tell you a little bit about how it works. So then was one of the most important days of my life. This guy is still a good friend of mine who then we could do business together in another occasion. But this guy was a very good friend who helped me to get out of that terrible situation with the company that understood and was kind of getting me to his office and explained me then the whole industry, which blew my mind.

1:06:48I understood how the industry worked. and that created all the opportunities that I had in the years ahead. So you released the money and then, but you're probably scared that this could happen again or no? No, of course I was. But then we kind of created a solution to try to address that. And over time to migrate to a different business model in which they would participate with more economics. They would be more part of the process, which would be a friction to my business. And that's when I decided to sell. Because I saw that that friction could reduce dramatically the volumes. And that would not be so easy.

1:07:42And the company had, at this time, was profitable, slightly and that was not in a bad shape so we could manage it to to sell it in you know in good terms and i was afraid of that trauma to suffer that again so so this is your like 18 19 or something 18 or 19 yes and i saw to one of the clients one of these distributors one that was very specialized There were many different distributors of different niches. So I negotiated with all of them. And this one was faster. And I just wanted to sell it fast. And was it the best offer too? No, not the best offer, but the fastest. The fastest. Makes sense.

1:08:32And did you have to go work there for a little bit or no? For one year. One year. And you did? I did. You worked there for a year? Yeah. I didn't have to work in the company, but I could not work in anything related. And I have to support the company. Got it. So I would have to be available for the company. What did he do with the company later on? Well, he incorporated in his business. Got it. And his business is still around or now? No, his business probably is not around anymore. Most of these niche guys, they went away. They didn't work after a couple of years. then most of them were consolidated within Mercado Libre.

1:09:11All the online ones were consolidated. Some of the others were consolidated in other newspapers that had more volume at the time. I think even Jornal Balcão doesn't exist anymore. Jornal Balcão was the biggest by far. Makes sense. And at this time, you made some money for the first time now. Yes. And how was that experience? A little bit, not too much, but enough to be... Another 30 years of judge yet. No, no, no, definitely not. Definitely not. Not at this point. But I was happy that I went through the first process and I kind of attended something equivalent to university. You were still... Oh, you mean the company was like equivalent to it.

1:10:01And did you drop out of university in the meantime here? Or no, you're still... You did. which year how long did you last in university I went to the fourth year of university at a certain point that I did all the theory but I had to go through the internship then I didn't have time for that because I already had the company and then after that company I started developing the second company so after the sale the first one I had to be out of business in payments for one year and when that time expired I started a second business, which was a payment gateway for online merchants. And then I had another wave that I served, the same way that I served the online auctions and classified.

1:10:48There was a e-commerce, direct e-commerce wave at the time. So you sold your first company. You had a year that you kind of had to support it. What do you do in this year between the two companies? Then the focus was law school. Law school. Oh, well, didn't you drop out before? No, I dropped out right after. Ah, right after. Right after. Got it. So you spent a year doing law school. Yeah, then I was trying to get... Try to do the best. You're probably having some fun too. Of course. You're like 18, you just made some money, right? Yeah, yeah, yeah, yeah. You probably had a good year, a fun year.

1:11:22Very good year. Yeah, I can't imagine. That was a very good year. You just turned 18, you're legal, right? Yeah, yeah, I could drive. You could drive. Yeah, exactly. I was trying to drive before, but, you know, I couldn't. Yeah, yeah, yeah, exactly. In Brazil, it's 18. It's 18, yeah, in the U.S. is 16, and Brazil is 18. But drinking is also 18 versus the U.S. is 21. Yeah, I didn't drink, though. You didn't drink? Oh, when did you start drinking? 20-something. Oh, really? Interesting. And it took me, like, 10 years of drinking. Huh. No more than that. Yeah, yeah. Then I stopped drinking. Yeah. I had a similar experience.

1:12:02Okay, so then you went through this whole payments experience. Were you sure you wanted to start a payments company again? Yes, because the conversation that I had in that day in Cielo was mind-blowing. Because I could understand the whole industry and how that was not fair. And that trauma that I suffered was somehow part of something bigger that could also be resolved. So a bigger problem that should be resolved by someone who had suffered, not someone from the industry. And I remember then at this point, I already knew PayPal. And I read the PayPal Wars. and I could get some of the concepts that were taught in the book and one of that, the disruption should be made by people who were not from the industry.

1:13:10And it also called my attention because I was an insider because I used the industry, but I was not from the industry. I was not raised, you know, in a bank. I had not grown in a payment company. I was challenging all the ideas of how those companies were built since the product to the market structure. So it was an advantage not to be from the industry. It was a very big advantage. So, okay. But the market was completely closed. There was not even a regulation to allow other companies to do that. There was one company, period. Pure monopoly. Pure monopoly. And, you know, before we jump to... It's weird because it's not a duopoly because there were actually two companies, one for Visa and one for MasterCard.

1:14:08Two monopolies. There were two monopolies. Yeah, it was two monopolies instead of a duopoly. Yes. So before we jump to the next company, if you just take like, Let's say by the end of this year that you were in transition, finishing law school, and you're now reflecting on the learnings of the first company. What stood out? What are the learnings that stood out? I was more focused on... I was less reflexive and just too thoughtful about the lessons I learned. But there is a process where you digest your experience. And you need that. you need a year after you close a project, you know, if you sell a company or if you do something very important in your life to process that period.

1:14:57And it was always the sale of my companies, these periods where I could reflect and digest a lot of those lessons. But I didn't have a specific note about what I learned. I was just stronger at this point did you know Eduardo yet? I met him at this point at this year yes how did you and Edu meet? so in the first company I had heard about him because at a certain point the company he was working for was owned by a bank so he created his own company then he sold his company and he went to work for a bank. Actually, a subsidiary of a bank. And he was a little bit older than you? He was, yes, he was much older.

1:15:51Like six, five, six years? Yeah, six years. Again, I tried to have a tech partner in the past. I was feeling alone because I didn't have the tech partner. I had just a friend who knew how to turn on a computer and then he left. So I was trying to find someone like that. And I remember talking to the mother of one of my best friends, speaking about what I learned, having pretty much this conversation about the experience with her. She was listening to that very, very carefully. And she said, I've got your twin partner. You got to meet this guy. He works in the bank with me. He works actually in a completely different department, but I bumped into him in a meeting that he resolved a very difficult meeting with one of the biggest clients of the bank.

1:16:50And he's a very, very smart guy. You should meet him. He's very complimentary to you. He had his company before. He had come to work for the bank in this technology company that the bank started. And this bank exploded. It was a big bankruptcy that happened in 2004, 2005. So everybody is upset with what happened. So there was a big fraud in the bank, and all the good employees were unhappy with that situation, and they wanted to leave. And I think it's a good time for him to engage with something new. So then we met. And then we started Brassbag. Because he was very knowledgeable already in the payments industry because he was working for a payments company.

1:17:46There was a subsidiary of a bank. He knew most of the things that I was talking about from inside. He was a developer in the SPB, in the Brazilian payment system that was developed by the central bank to make the wire transfers in real time. That was something that was created in the 2000s. The U.S. barely has it until today. Oh, yeah. No, so then there's a new chapter to talk about that. Brazil is much more advanced than most of the countries in the world in payments, in the whole banking industry. So in 2000, Eduardo helped to develop that system. So he was very knowledgeable about how the technology of these banks work.

1:18:35He was also a little older, a little more experienced. So that was a perfect tech partner for my endeavor. I had a very good idea of what BrassPag should be. And he had a similar plan. So let's just do it together. We started working. How long between you guys meeting and deciding to work together? Immediate. Immediate. It was like we had a lunch. We went to the restaurant to have lunch. We ended up having dinner in that same day in the same restaurant. And at the dinner time, we were already partners. Amazing. Amazing. Like we are now partners for 20 years. Yeah, that's crazy. So, okay, so tell us what the idea of Brass Park was.

1:19:27So the idea was a payment gateway where we would not touch the funds. We would just be the plugin for the e-commerce companies to transact online. So if you are an e-commerce company, you want to sell products online, you would connect to our API. We would be the gateway to your company to connect with all the payment methods existent in Brazil. So in this mind...

1:20:26instead of me having to integrate all these different payment methods, Visa was one, right? MasterCard was another one. American Express. American Express, another one. Brazil has other card brands also that had to be integrated. They were growing. Yep, different card brands. Instead of doing all that, you just connect to BrustPog. And remember, credit card was very expensive. So one of our peaks of sale is let's diversify the payment methods so you could have an average price for the transaction. much lower than if you just concentrate in selling via credit card. You're paying 4 % or 5 % for these credit card companies.

1:21:05You would pay 1 % if you go direct debt.

1:21:12Bank to bank. Bank to bank, yeah. Something like that. Yeah, yeah, yeah. Interesting. And then Brasbog works really well, right? And then the reconciliation also, the credit card companies were horrible. As you can imagine, as two monopolies, they didn't care about the reports. They're getting great reporting and like when your money was going to arrive for what transaction, the chargebacks, the refunds, all that. Yeah, there's a chain of things that happen in a transaction. And in online transactions, it's even worse because you might have some chargebacks. It's the returns of the products from the customers or a fraud or something that happens that this transaction needs to be reversed.

1:21:55So this can create a real mess for the accounting. For the accounting, for this. And did you raise money for Brass Park? Yes, I did. Again, with one of the professors of the entrepreneurship of my brother and another professional company of venture capital in Brazil. So we raised a little bit of money. So it's venture capital now for the first time. Yeah, for the first time, there was a small venture capital company that was publicly listed. How much did you raise? It was not so much. It was, I would say, dollar terms, I would say$200 ,000. $200 ,000. That was the only money raised. Yeah, all the money raised.

1:22:34So in the sale, that was the biggest return that these investors ever had. So the deal was very good for them. They were very early investors. We didn't even use the money that we raised. It was pretty much a bootstrap company. We just raised money because we didn't want to use the proceeds of our previous life, let's say. And that's how we kind of think about businesses that are created. We tried to avoid investing so much in the beginning. We tried to put the seed capital into the project, but tried to bring other people who can help and add value to the project. So we thought that these two investors could create value to the project.

1:23:22Did they? One did, the other not so much. They were more passive, honestly. But one of the investors was a very important person person in our lives. Then he became also a friend. We had very good friends that were very helpful to that early beginning. But the company, seeing with my lens of today, did not need capital. That was an easy B2B business that could easily be bootstrapped. Like we consumed until the break-even. We got to break-even in seven months. So just think about something that we knew how to develop. We developed with two developers. And you knew a lot of the clients already? We knew all the clients.

1:24:13Because of the previous experience? Yes, we knew some of the clients, I would say, or at least all the clients that we needed to the break-even. And you were like in the industry now, right? You had this company, you sold it. You were like a payments industry guy at this point. Yeah, at this point, I had some good network. You were like 19 when you started it? Yeah, pretty much. 19, 20, yeah. So then we had the contacts of all the clients needed to the break-even point. Yeah. So we actually did not need capital. But okay, we decided to raise capital because we thought that these people could also help.

1:24:50And that was the beginning of a new phase in our lives. And was there competition with breast party? There was. But the product was so good that then at a certain point we became 80 % of the market in Brazil. Yeah, I remember Best Buy had huge market share, right? Yes. Basically, it was a cheap product. The more people using, the better the service would get. All the features we would develop would be... Can amortize across a bunch of different... Amortized by across of other merchants and could be used by everybody. So everybody used it, worked very nicely. So it was a successful endeavor. How long was the whole journey?

1:25:37It was five years, five or six years. And were there any kind of like key milestones that kind of happened along the way? First of all, was the break-even point in which, again, we felt that feeling of independence. So we don't need capital from outside. We didn't need venture capital. We just could simply gain more customers and become profitable over time. And we knew the people and the distribution channels to get there. So that was a very important milestone. Second one was when we saw that the product was working so nicely. that the company doesn't need us working full-time there. So then we decided to separate sometimes to help and invest in other entrepreneurs and start participating in other endeavors.

1:26:39Oh, interesting. So that's how we started becoming angel investors. And the company was profitable enough that you had money from dividends to angel invest or the company balance sheet? How did you do it? Yes, and we could use also the money that we had made before. And we were feeling confident that we didn't need to use the capital that we had accumulated before to do that. So we were, again, talking about small amounts that we could seed people to do a product and try to use the knowledge that we were creating, developing our company in B2B sales. And was there any of them that worked? Yes, a few of them worked.

1:27:27At this stage, we created, for example, Sight Blindado that was, in English, armored website that was a seal of trust that the company, the client was safe. Because basically at this point, you know, the consumer wanted some sort of guarantee that they could put their credit card there and it was going to be safe, right, and all that. Exactly. So this company... No viruses. No viruses, no security issues. You're not going to have your credit card stolen. So we backed someone to do that. We put some people there and we helped them to develop this B2B sales model that we were basically replicating what we were doing successfully in Brassbag.

1:28:16And that happened to be very good. So this company was a consolidator. started creating other products around security and e-commerce services. And these were separate companies with your own money? But you didn't have the fund yet? No, no, I was just investing my own capital in these entrepreneurs that had created this company. I was helping them to develop these companies. Yeah, got it, got it, got it, got it. So Site Blindado, and then you started doing a few of these other ones that worked out. Yes. Where were the other ones? We did Moip, for example. We did a couple of other things. And those weren't out of later the fund you did.

1:28:59This was actually in the beginning during Brass Park journey. That was during Brass Park time. Ah, okay. So it was basically separating some time to teach what I was learning almost in real time. Yeah. And applying that to a separate business. That's interesting that you chose to do that at that moment in time. Why do you think you decided to do that versus just spending? Net credit was another example. It was something that we created to give credit to merchants. That was something that Brustback was not doing. We were basically seeing the development of credit to consumers on a store, on a physical store.

1:29:43so those 36 times payments so the buy now pay later kind of business that exists in Brazil for a long long time and we developed an online system to operate that and would you have these ideas and find someone to kind of run it or people would come pitch you and then like both both so sometimes you have the idea and you found someone and kind of incubated it and other times it was someone pitched you and was like, oh, this is a great idea. Let me go and kind of help you. Exactly. And so you became 80 % market share and you sold Braspag eventually. Yeah, so then in 2009, Braspag was relevant. Six years later?

1:30:30Yeah, pretty much like five, six years later. Then Braspag was relevant and we were bringing to Brazil all the online merchants of the United States. So all the big companies, all the big techs that were processing payments in Brazilian reais were using our product. Like what's an example? Google, Microsoft, Dell, computers, Apple. All of them. Almost all of them. So all these guys used our platform to process payments in Brazilian reais. before that they were basically getting Brazilian customers charging them in US dollars and passing the transaction here in the States in a credit card acquirer here linked to a bank here.

1:31:22It's very expensive. Which is very expensive. Then the effects and then the authorization rate drops dramatically because of the risk of fraud. Yeah, so way less transactions go through. Yes. So we were taking most of these companies and also most of the European companies to Brazil. So we kind of became a hub for payments. And how big was the business at this time? I don't remember the number of transactions, but e-commerce was not so big, but like it was 80 % of the market. But was it like tens of millions of revenue, something like that? Yeah, more or less. More or less. So, and growing. And growing.

1:32:05And that was growing fast because the adoption of the product was coming from these foreign companies coming into Brazil. But the main point here was the development of the next phase of the payments industry in Brazil because of that. And most of these companies that were coming to Brazil were complaining about the rules of the Brazilian credit card acquirers. And they were suffering the same thing that I suffered in my first company, that the service was terrible. They needed someone in the middle to process the payments. You know, the service was poor and the rates were incredibly high compared to the other countries.

1:32:57So these people started complaining. We started complaining too. So we went to the antitrust authorities and to the central bank. We spoke with some of these officials about the inefficiencies that existed in the Brazilian industry for payments. And that could be reorganized. that should be reorganized because there was no reason for a credit card company to be owned by a bank and even worse, to have just one company for each card brand where anywhere else in the world, there was competition. That competition would make these companies improve their services and reduce their costs. So there was no reason for the market to be organized like that and to have the blessing of the authorities.

1:33:55So we were trying to pitch that all the time. And the central bank was already studying that because that was ridiculous. That market structure was not the best and mostly to the retailers. And at a certain point in 2008 or 2009, the central bank published a very, very well-written reports about the potential reorganization of the payments industry in Brazil. 300 and something pages. Very, very well written. Some contribution of people in business, but a lot of hard work of these people in the central bank. So I was very happy to see that, that these guys have seen the same thing that I was seeing.

1:34:53I said, look, this is a real opportunity. We've got to do something. We've got to take Brass Park to another level. And let's see how long it's going to take to this report to become reality. Because as we know, Brazil is usually too little and too late when it comes to market development. When authorities decide to promote something, it usually takes too much time and the actions are not enough. So that's historically what has happened in Brazil. So my drama at the time was there is a promise that this thing might happen. This market structure will change. should I sell the company or surf the wave?

1:35:54And I decided to sell the company because I saw that there was a specific reason for that that made us think that it would take more time for those pages to come true, to become a reality. And we decided to sell the company with the expectation that that new market structure would happen rather than trying to go all the way and make ourselves competitive and start the credit card acquiring company ourselves. We decided to sell. So that was a very good decision, by the way, because then it took much more time than it should. So when did he sell? We sold in 2009, and the market structure started changing in 2011.

1:36:53But couldn't you just have held the company and also kind of... I could have continued with the company. That would not have been a totally bad decision. But there was a better decision of selling the company, having someone stronger than us to kind of help promote the new market structure. And I'll explain that. And the reason why we sold the company to this specific actor, we sold the company to a group that had a bank and had a TV station. So that was a very powerful group that could help us push that regulation to happen. And that in Brazil was something very important. We needed to have people with power to help promote that idea and to make that regulation work.

1:37:51And didn't you think that whenever the market structure were to change, couldn't have you used the fact that you had 80 % market share to then like vertically integrate? Yes, of course. So we tried and we partnered with the very first acquirer that came up in the market, a small bank, and we could not simply operate. Why? Why? Because the incumbents didn't allow them to operate. And we saw that was not so easy. So they took out their loans. They, you know, they created, they had a lot of power in the financial system. The monopolies were too strong. The monopoly was too strong. And at a certain point, one of the banks that owned one of these monopolies bought this small bank.

1:38:47And then we partnered with another small bank to try to ask for a new license. And someone just told us that this new license would not be granted. to this bank because that would be the starting point of a disruption that the group of banks did not want to happen. So that was what I was told, not necessarily what happened behind the scenes. What was the difference? What happened? No, I don't know what happened, but that's what I was told by a reliable source. I said at that point where I was, I just decided that given that scenario, it would be better to sell to someone who could be more powerful and stronger to help that regulation to happen.

1:39:42So you sold the company. Do you think you sold for a fair value or no? A little less than a fair value. It was always, when you want to sell fast, it's better that you accept something that is reasonable than create an auction. So that was a very good sale. I don't complain. And this time and out that you... It was a media group that owned a bank. So that was a perfect feat for what we wanted. Yeah, no, I understand. And we worked with them for two years. So that was the agreement. We could stay here for two years helping that because that would be beneficial for us and for them. For the next thing you wanted to do after that.

1:40:24Exactly. And now did you make enough money for the judge? Then, yes. The 30 years of judge? The judge was retired. The judge was retired. And was your mom super happy when that happened and now chilled out?

1:40:40No, I think she was not so happy like that. You know, she was proud and happy for the, you know, for the adult that I had become with good values. But she was not caring about that. Makes sense. But she already felt you were an adult and independent. She wasn't worried about you anymore. She was not worried. Makes sense. How about your dad? He was very proud. He was, he participated on the sale. He was, he was very happy on that. But then he was sick already. so that was a tough time of my life because I had to take care of him and he got very sick and then he passed away later on in 2009 yeah 2010 I would say but I worked with these guys for two years very good people but they had a very big problem they discovered a fraud in their bank that was a big drama They were a much bigger group.

1:41:41They exist. This bank exists. They pretty much paid for the whole problem. And then the bank was sold. And that was the bank where we started seeding the idea of what stone had become. because the stone was pretty much an idea that existed since we had Brassbag, since the beginning of Brassbag. Brassbag would be the first client-facing tool that could be verticalized to become a credit card acquirer in the future for online merchants, more focused on online merchants, but then could be extended to become what has become today, what it is today. And to be clear, when you say the idea is building a merchant acquirer in Brazil and breaking the two monopolies that, you know...

1:42:45With a very, very good product, a very good service, very good basic service, fully reconciled, everything that you could understand from the authorization of a transaction to the settlement and understand perfectly. Which, again... Transparenting fees, easy to use, easy to integrate. Sounds like a simple problem, but was not the reality in Brazil, right? Oh, that was a very difficult problem to resolve. Because there was a political issue in the beginning, which was one of the most complicated issues to resolve. And then at this point in time, I want to kind of do a little pit stop here. So at this point, you already were traveling to the U.S.

1:43:33You had a network. You were meeting with all these clients. Like what was last time you were like, you just sold this business and you kind of knew a few clients starting out breast bug. Now I've come to the U.S. to study a little bit. You came to do OPM? Yes. Yeah. So I, you know, I started networking more in the U.S. I started coming to visit those customers, as you mentioned. to visit some investors that were interested in investing in BrassPag. I didn't take any money from these venture capital companies, but I... But you met them? I met them, yes. Who was introducing you to these people? Like, how did you...

1:44:10They were coming into BrassPag. They were knocking on our doors. So they were, like, sourcing and reaching out to you? Yes, I met some of these people, some of the very important people in the venture capital industry because they were seeing what was happening in Braspaq at the time and they were trying to invest. And when did you set up Arpex now, the fund? It was not exactly a fund. That was an organization that we created to invest with some other people that we just branded as Arpex. When was that? Arpex is basically the place that was born in Brazil. It's a beach close to Ipanema in Rio.

1:44:55So it just gave a name to that. And we brought together a group of people to co-invest with us and to back other founders as I was doing as a side business for in Brassbikes time. But it was a little, it was a blind pool of capital, right? You had like raised some money for that. Yeah, we kind of separated a pool of capital to do that. Makes sense. Yeah. Makes sense. Makes sense. So that happened like since the breast plaque days, it was kind of always in parallel of this whole story. Yeah. That was like the investment part was always at 20 % of my time. I was always 80 % of my time focused on something.

1:45:35Yeah. And 20 % of my time paying attention to other people's businesses. So between selling? And participating on the board or mentoring or helping effectively on something. And that was the reason why I never wanted to be a CEO of the company. Because I like to be a little bit distracted with something else, because that something else could help me in my main business. So I always developed people inside the companies and made them partners to run the company with me. So were you the CEO of Brass Park? well pretty much pretty much yes pretty much but then that was the last one yeah but we hired a CEO at a certain point you hired or promoted or hired from the externally we did both we hired first and then we promoted the guy we tried everything to learn how to to do that process because Edu and I did not want to be CEO We were not meant to be CEO.

1:46:47We were the builders. You're entrepreneurs. We were pretty much what an entrepreneur is. We like and enjoy creating, building, but we sometimes get distracted with other ideas. And we have sometimes many different ideas, which for an operating company is not so good. You have to keep the focus and the discipline. It's good to have some, but then you have to pick some of these ideas and see how they fit into the existing operating system. Otherwise, you create a mess in the repeatable business model that you created. And if you think about what a startup is, a startup is a temporary organization trying to find a repeatable business model.

1:47:36When you find a repeatable business model, what a entrepreneur usually try to do is to mess up with that repeatable business model. You cannot. This is the model that will take you to make money and to create a larger company. And then you understand the unit economics of what you do. You enhance things here and there and you scale that. You put more money, you're going to raise money to put more money into the unit economics that you discovered. So that's where growth capital comes in. So here we kind of have to be careful with too much creativity and too many ideas being brought on to the company because the company has a pathway.

1:48:37At this time, for example, Braspag could not get distracted with anything else. I could have created the security company from within Braspag, and that could be a very big distraction. Braspag was very focused on implementing those big online merchants that needed a lot of attention, concentration. And all the people that were working on that were very concentrated on that. So we try to keep some of these other ideas aside of our core business. That's why you created this pool of capital to kind of invest. And you were trying to like, look, there's someone running this operation while I kind of have a little bit more flexibility to go explore some stuff while still keeping 80 % of the focus on the main thing.

1:49:27If one day these things become very synergistic. Then you can join them. You can join them. Yeah. That's fine. But then in different phases also, it's not so easy. Of course, if it's just too much part of the same business model, you can have some many different experiments within the company. But when I talk about these other endeavors I had, they were related, but they were not the same. Makes sense. So I prefer to do that. And they had other people, other partners involved. Yeah, yeah. Makes sense. Makes sense. This episode of HD and HD is brought to you by a brand that's close to my heart, Brex.

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1:50:42Check it out and see why the world's most innovative startups like Anthropics, Scale AI, and Robinhood trust Brex. okay so you sold braspog to uh you know this group that was like a big media group um you saw that you know the central bank had released this like huge report so you know you sold it in like 2009 right yeah yeah um okay so what do you do after the sale well so i i had a commitment of working for this media group for one year. And I stayed there. And that was part of the strategy of the next phase. Because as we knew that the market structure would change, because of everything that we had discussed with the central bank, with the antitrust, everything that we knew about the market, everything that we knew about Brazil that It would take a little longer.

1:51:44So that's the reason behind this decision of selling Brassbag, that we could do that again, but using a new structure with new partners, new investors, with a new technology, everything else. So we were working together with this media group to try to help the market to open. The authorities to make it happen, being the player of pressure to make this happen. So we started doing that for a year. And this group had a very big problem. They had a bank. And this bank had a really big issue. So they were in trouble for a couple of years then. So they had to decide to sell all their assets, except for the media company.

1:52:45So they had to sell the bank. They had to sell all the technology companies they had in their portfolio. So they asked me to help them sell. And I end up having to sell Brass Pack again, but now for an incumbent. I had to call the Cielo guys that wanted to buy the company before. The guy that you met back when you were a kid and helped you with Apaga Fazio? No, that was another guy. But the new CEO, I had to call him and say, look, this group now has a problem. He was trying to buy it breast pack before when this media group won the auction. So now it's a turn. You now can buy the company. Of course, I could try to buy by myself, but that would be not the best deal for the media group.

1:53:37So I offered them to try to speak with Cielo and see if they could buy it. Well, we would take the market back to the status quo, but the wave was so big that it was going to happen anyway. Makes sense. Makes sense. Makes sense. So at this point, they're kind of fixing your own problems and you decide you need to go, you know, kind of figure out how to execute. And I had a two-year non-compete. You had a two-year non-compete. Yeah. I knew that anything else that I would start would be in 2011, 2012. Got it. They extended actually to January 2012. So that's when exactly the day I started. And you knew exactly what you wanted to start?

1:54:16What was the best business for the new market structure? Yes, we pretty much knew. That was a continuation of the e-commerce platform that was easier to put in the market. So we started as a payment for e-commerce. Similar to Brust Park. Similar to Brust Park. That explains the 50 % market share that we have today. So that's where we started, where we knew everybody. So that's, I would say, the foundation of Stone. Yeah. So we started the e-commerce platform. But there was a gateway. Yeah, that was a gateway, but we had to build up the acquiring system. So the product was initially a processing platform that was created from scratch.

1:55:02So we decided to do that with e-commerce because that was the easiest way to go to the market and test the platform. And I guess maybe just to explain to people a little bit who are not the payment geeks that we are. You know, at this point in Brazil, the market was separated into, and I know all this because I started my company a little bit after this too. So the market was separated into the traditional acquirers, right? Which is Cielo and Hedgie at the time, Hedgcote. And those are the duopoly that were about to be broken up. Or the two monopolies. Or the two monopolies, exactly. Well, but they already processed both Visa and MasterCard at this time, Renault.

1:55:39No, at this point, when we started Stone, yes, but not before. So before the market has broken up, Cielo was processing Visa, and it was the only acquirer to process Visa. What happened? They overcharged and underserved. Exactly. So think about it this way, right? Like, you know, for the listeners, it's like you had two monopolies because if you were a merchant and you wanted to accept Visa, you could only go to Cielo. If you're a merchant, you wanted to accept a MasterCard, you can only go a Hitchcock. And so therefore, they have like no incentive to basically do anything well, right? They charge a ton of money and they had like terrible service.

1:56:20The only thing they were competing with is people with cash, right? Like that was the competition. And then now the market is about to open up. The central bank is about to say, hey, guys, this is not cool. We need to like have more competition in this market. Yeah, in 2010 or 2011, they did. So the first thing that happened was that they started competing. So Reggie started processing Visa cards and the other way around. So that was the first step. And then Santander that was one of the Spanish bank was one of the shareholders of the Cielo group, the Visa part of the market, decided to spoon out from there.

1:57:04and start their own company, GetNet. So that was the first non-Higis Cielo acquirer? The non-Higis Cielo, but was still a bank. But was still a bank doing it? It was still a large bank. I would say an incumbent mentality, an incumbent technology, an incumbent product with an incumbent distribution channel. Got it. And then you saw that and you're like, Like, oh, this is my opportunity. Yeah, I had to wait for that. We knew that it was going to happen because we knew from rumors that that was happening. And a big bank had to go first, right? Exactly. We knew that that should happen before us. Okay, so then you see this and what's going on through your head?

1:57:49Now is my time? Yeah, I knew that was our time. We were just, since the beginning, we were still waiting for the time to, the non-compete to expire to start. So that's what we did. And so this is 2011 now? 2011, yeah. 2012, January 2012. We put a bunch of people together. All the technology people that we knew. We started developing the products. January 1st. The first day. I remember that we were waiting. We couldn't do anything. Anything. But after January 1st, we started working very hard. And the product was already to be a competitor to the acquirers. Yeah. So the idea was to build up a processing platform that would be able to process transactions with any card, but we still didn't have the license.

1:58:42So you could process any acquirers in the back end. Yes. It's a gateway. So like you could connect to whoever acquirer you wanted to. Yes. But this processing platform would be able to process any card. Any cards. Any type. Yeah. So we were building the acquiring platform, but we still didn't need the license. But what's the difference between this way that you're building now and BrasPag at this point? No, that was the bulk of the processing platform in which you need to operate an acquiring system. Okay. So we just needed to plug in the license to do that. Got it. So you were building the system before you had the license.

1:59:17Exactly. We took the risk, we put in money, our own capital, to make it happen, to speed up the process, and then to start the process of asking for the license and Visa Mastercard. Okay, so let me just repeat the story because I think this is so fascinating. in 2008, 2007, you kind of realized that this market structure was not going to be forever, that they had to open it up. Yes. And then you saw the central bank coming with something in 2008. And you saw, wow, okay, when this opens up, this is going to be one of the largest opportunities ever. Yes. Because this is a huge market with great margins that are controlled by two terrible monopolies.

1:59:57So whoever gets to come into this market and does pretty good execution is going to crush it. Yes. And you saw that in like 2000 and... I would say five years before. Five years before. Yes. And then 2011, you waited for five years, you studied it, you positioned yourself. We positioned ourselves, we helped the regulators to put together the right regulation to open up for real competition. Because then the fear was that the regulation would be not enough. And that was very well written, very well done. so that really opened up uh the market for new players yeah that that's that's amazing we were trying to work together with everyone to make sure that that market structure would truly happen it's it's it's it's really fascinating for me i think this is like when i look at you know probably one of the things i admired the most about you is that vision to see where the things where the puck is going not just where the puck is today right like i think a lot of people's like oh yeah, you know, maybe one day you're like, no, this is going to happen.

2:01:01I'm going to position myself, but now you need to get this license. And this license is kind of like a, let's say like a, almost like an oil field license, right? Like, you know, if you got it, you'll make a ton of money. At this time, that was true. Yeah. That was completely true. Yeah. At this time was absolutely impossible to discuss getting a license from Visa MasterCard if you were an independent company. So you're like, okay, this is what I need to do. So how do you get it? Well, there was still the concept that you had to have a bank involved to be part of the Visa and Mastercard Network.

2:01:36Well, in the U.S., it's still like this still today. Yes. But then here you can kind of almost rent a license. Yes. Rent a bank, being. Yeah, now you can, but like, yes. At this time, the rent a bin concept didn't exist. And so we had to get a smaller bank involved with us on the shareholder base. So that's when we got BTG, Pactual, and Banco Pan. So the first thing you realized, I need to get a bank because regulatory, it needs to be a bank. Yes. So I put together a round of investment after we had the business plan very well written. And we had the processing platform almost ready. So we had a prototype of the value proposition of what we wanted to build.

2:02:22We had the experience. We had put the initial capital in. So we went for a round with a combination of American families and some institutional investors with very strong Brazilian investors and this pool of banks. And this is before you got the license. So everyone knew that if you didn't get the license, they would lose their money. Yes, but I put some conditions that we would give them a better deal if they helped me to get the license. So we went through a process in which we had everybody together working very closely to get the license. So you put this group of like kind of everyone saying, hey, everyone is incentivized.

2:03:12If we can get this, we're all like really, really. Yes. And we had one angel investor that was very important. It was the former president of Visa who helped me a lot. This is Carl? Carl. Yeah. Yeah. So Carl helped me in this process to get things the way, shaped the way the card brands would like to see. How did you meet Carl? One of these families that had invested in the business introduced me to. Hmm. So I had the privilege of meeting Carl at that point. Of course, we talked a lot about Carl because I've seen Carl before in my BrassBikes time. So I knew him. You knew of him, kind of thing.

2:03:57Yeah, I knew of him, but I haven't met him before. So I knew that he could be an instrumental investor to help me get that. And the others were very strategic too. So we had some other people that would be very influential to get to that. So we could put this group of people together. That was a perfect group for that phase. Well, that's the second thing I would say, you know, hearing this, knowing the story, I admired it most about you. I think you were able to create your partner base to be the exact perfect partner base to get the outcome that you wanted, right? Like, you know, through all the connections and networks and reputations, you know, that kind of like allow you to, you know, go hard at getting the license.

2:04:43Yeah. When you raise capital and you get smart money into your company, you have to think about what's your next phase and what you're going to need. What are the type of capabilities that you need to add to your company? So then you try to find the partners that better fit on that situation. Okay, so you got this partner base together. You met Carl. How did you get the license? So then we asked for a license. So the documents needed to be perfect. The value proposition needed to be perfect. So everything needed to be perfect because they didn't want to give the license. So you submitted to Visa.

2:05:20You submitted to Visa to MasterCard. And we went through a political process of trying to convince them that we had the funding to execute the project, that we had the knowledge, that the market really needed that market structure. Of course, the incumbent banks were calling them every day for not having a new guy coming in in the market. So we were navigating in this political environment in which we wanted to convince them that granting a new license was the right thing to do. So we became the first independent credit card acquirer in Brazil. Wow. That's amazing. And then what was it like when, And, you know, how did you know you got the license, right?

2:06:04Like, what was that moment like? Well, that moment was incredible. Like, I was in California with Carl signing the papers with the CEO of Visa in the headquarter. That was granted by the Brazilian team, but that was decided in the headquarter. So we knew that if we could get the license from one of them, the second one would quickly approve. So we had that. So we made a lot of people then call the right people inside these companies. So everything happened. And at a certain day in San Francisco, we had a meeting where the license was signed and granted. And we were very happy because we knew that was the beginning.

2:06:48Well, because it was kind of what you've been planning for five plus years. Exactly. And this is like the culmination of it. Very rewarding. Yes. Wow. Super cool. When that happened, how big do you think the company would be?

2:07:04giant. Giant. You already knew that like, wow, now this is going to be huge. Yeah, my math was simple. Like 1 % of market share would mean billions of reais in market cap. Because just doing the math. I remember that in the slide from the fundraising. Yeah, that was as simple as that. How much 1 % of market share would be worth in the marketplace? And then after you got the license, that fundraising wasn't hard after that, right? Not at this point, because then there was a momentum in the company to make that happen. Because as you mentioned, that was a very valuable license. So we could raise capital.

2:07:49Of course, as I knew about Brazil, we raised a little bit more money than we needed. because markets can be closed in Brazil for more time than people think. Just because of currency, political environment, you know, the situation of emerging countries. So we raised more money and that was instrumental for us also because we had more time to execute. We had more time to raise the second round and build the distribution channel. At this point too, I think one of the things I think is so interesting about this story is like, you know, after you got the license, the round right after you got the license, like how much money you had raised in total at this point?

2:08:34Probably at this point,$100 million. $100 million. Like how many companies have raised$100 million from like U.S. investors in Brazil ever? Well, now after the wave of technology. Now, yeah, but at that time. At that time, nobody. Nobody, right? Yeah. So I think that is like an interesting aspect of the story that your ability to raise money from the U.S. in dollars with the best people and then bring it to Brazil. At that time, it was unheard of, right? Like it was no one was doing that. No one had that. Maybe like a new bank was starting at all the same time. It had a$2 million round from Sequoia or something like that at the time, right?

2:09:09Yeah, probably started a little later then. I think 2012. Yeah. I think one year later. So I think that's another kind of point of the story is, you know, I think one is like your vision of the market to the unbelievable execution to get the license. And then three, the ability to raise and deploy capital in the US and deploy Brazil. No one had done that before. Right. Yeah. Then we had to raise more, even more money because the distribution channel that we chose to become our strategy. So talk about like what was the strategy that worked for the company? Like what worked? So e-commerce was small.

2:09:48So we needed to win an e-commerce and that was the best test for the platform. So that would make the platform strong and make the company create some cash flow in the beginning. That would create some traction for us and help us raise more money to build the vision. And the vision was serving small, mid-sized merchants physically throughout the country in all cities of Brazil. So think about more than 5 ,500 cities in the country being served in the same standard. So that was the vision. So you kind of like a... In a direct sales distribution. You first started e-commerce, let's say, let's win there, right?

2:10:34Because you had that experience, you know, the whole client base. probably took a lot of customers from Braspar. Yeah, probably we did because all of them were at Braspar at the time. Totally, totally, totally. That meant to be taken from Cielo because then Braspar was within Cielo. But the e-commerce market wasn't so big in Brazil at that time. Yes. So the real prize was the big kind of retail market. Yes. So then what was the strategy to win there? So we thought about a direct distribution door to door. We went to all these customers directly. We would set up a group of people in each one of these cities to visit customers physically.

2:11:20So that's a huge investment. We thought that the unit economics for that would be very, very good. We would need a lot of capital to do it. But the sales person would be paid in one year. Like the return of that investment would be incredible. The payback. The payback of the customer is really, really good because we had a very good service, like 10 times better than the competition. Yeah. We were cheaper. We were faster. So it is a basic... Easy sale. It was a basic sale of trying to deliver something that is better, faster, and cheaper. No-brainer. No-brainer. And there wasn't a lot of switching.

2:12:16I think one thing, too, at this moment in time is if I had Cielo and I wanted to add Stone, I just add a little POS machine, right? I don't need to change that much. You didn't need to change to start. and then we would delight you with the level of service. You would get a response from any channel that would get in touch with us in five seconds. So it's almost real time. If you call us, somebody would get on the line with you in five seconds. You would have someone passing by your doors almost every day. At least to say good morning. to say hello, to say, do you need anything? So a level of attention that these guys had never had from the banks.

2:13:08That makes a ton of sense. Even the distribution was somehow a farmer, someone who was also taking care of the client base when it exists. So after the sale, this person was responsible for the clients that he sold. Yep. So he had the responsibility to maintain that client happy. So he became the owner of that community. Interesting. So one thing that, you know, I think is super interesting about building businesses in emerging markets, right? So I remember going to China once and visiting Alipay and WePay. And, you know, obviously everyone and payments in the world always has this dream of like, wow, one day we're going to own the two sides of the network, right?

2:13:50And we're going to be able to skip Visa and MasterCard. And it only happened in China, basically. and a little bit in Argentina. And when I asked, you know, the people in Alipay and WePay is like, how did you sign up so many merchants to be, you know, in your network? And they're like, we just hired like 10 ,000 salespeople. And that is something that is economically possible in somewhere like China or Brazil, because the sales, how much would a salesperson make in Brazil? Like$1 ,000 a month or something like that? Pretty much. Yeah. I guess like that is like a playbook that is possible in a lot of emerging markets.

2:14:22But in the US, you know, A salesperson makes, I don't know,$100 ,000 a year or something. So it's hard to kind of execute like that, which I think is interesting. But it still works in the U.S. It still works in the U.S. The economics are so good that it works anywhere in the world. Yeah, it's just a little bit harder, you know. In Brazil, there is a pool of profit that the payback would be shorter. Yeah. Like, again, payback in less than a year. It's unbelievable. It's amazing. It's unbelievable. But as we didn't have anything, we needed to build out that from scratch. So we needed capital to do that.

2:14:59We needed capital and we need more than that. We need a methodology to grow so rapidly in so many cities. So was it super easy to raise money at this point or did anyone ever tell you no? No, then Brazil started to become a problem on the macro side. Which year is this? Probably 14, 15. So that was when Brazil started seeing trouble on the macro. So real trouble. Yeah. Real trouble. Probably the peak of that was 16 while we were scaling. So I remember to get back from Switzerland sick because I was traveling for so many weeks, everyday meetings, everyday meeting people trying to raise money. And I simply couldn't.

2:15:56I just found a private equity in England that could give us the money that we needed. And I think it was 2015. But like that was the hardest moment in which we were seeing the unit economics. We were growing very, very fast, but we needed the capital to continue. That was a very profitable business model that we found. And we were showing a very compelling figure about the growth opportunity of that business. But we always raise money with very high quality people and we visited all of them. But they were just saying, look, your business is incredible. It's really good. But this is Brazil. I just can't bear the risk, the currency risk.

2:16:44I don't know what's going to happen. So that was a tough time. That's interesting because even if the business is incredible, you still have emerging market kind of risk, right? Oh, yes. I was very used to that. I knew about that. Yes. But when you're caught in that situation, that's frustrating. So that's the reason then I built my other business in England, in Europe. then starting again another thing in Brazil. But that was rewarding too. That was fun. That was an adventure. So, you know, obviously, like, you know, we're looking at the things that made Stone work, right? You know, the macro restructuring, the license you're able to get.

2:17:28And, you know, you mentioned that the distribution, obviously you're telling that was like something that was really important. Like, how did you build that out? So there were three things that were key for the success of that business model. One was a new technology, a very good product that we have put together in the beginning. So that would make people call less, create less problems. The reconciliation process of the transaction would be much easier than in everybody else's platform. So that was something key. Second thing was a culture of customer service and caring about the customer. caring truly about the customer.

2:18:10This is something that people say today, but at that time, putting the customer first was not something that everybody was doing. Especially the monopolies. Especially monopolies, especially the banks. Yeah. And the third thing was the distribution platform that we created. And that was something very difficult to build because as you mentioned, that was something built throughout 5 ,500 cities of completely different places of Brazil. Brazil is very different. And, you know, things are very distant. The north from the south is very distant. And we made a huge investment on that, but we had to build the methodology to do it.

2:19:00How did you do it? Well, the methodology was basically, we had to hire a lot of people of high standards, with a culture of putting the customer first, young people that had come recently from the university. So we wanted very well-educated people with a good culture, trying to work very hard every day in a very disciplined way, starting at 7, 8 in the morning. It was not easy. How did you learn how to do it? Well, there was a fun story, actually, that happened. I remember probably in the Series B of the company that we met an investor and we had everything modeled in a presentation. And this is pre-license or post-license?

2:19:48Post-license. Post-license. Yes. So that was the capital to scale the distribution. So the first capital to scale the distribution. And everything was modeled. We pretty much had the unit economics of everything planned. But one investor that was savvy in Brazil said to me, you're not going to do it. It's very difficult. You've got to hire thousands of people in a couple of years with a culture of high standards service, well-educated people. You're not going to find them. You're not going to hire them in the speed that you're applying here. And interest rates will eat your unit economics. You won't be able to do it.

2:20:37I was so intrigued with that because he was right. He was right. So I came back, spoke to the team. Just one moment here. I think this is something just to call out that I think a lot of founders, when they hear some feedback from the investor that they won't be able to do something, the natural reaction is just, these guys are wrong, you know, like they don't know what they're talking about. They push back. No, no, no, I love it. You listen to it. I love it. Well, that's, you know, what you have to do as a founder. You know, you're figuring out things. If you have people with experience in multiple businesses, telling you something, it's stupid not to hear.

2:21:17Like, of course I did. And that was very intriguing. You know, this guy's my friend. Even though he hadn't invested because he was actually questioning, even when I had the answer for that, he decided not to invest. And we could make it, but we just made it because we had the insight that that was more difficult than we could think. And therefore, you prepared yourself. So I prepared ourselves. How do you prepare ourselves? So we, you know, that was curious because we try to learn about recruitment processes. We got really good on that. We were, at a certain point, the company was specialized in recruitment processes.

2:22:06So we created what is probably still today the biggest recruitment program of young people in Brazil. more than 100 ,000 people applying every year. So we just thought that, you know, first thing that we learn by visiting other people. So one thing that we do all the time and it's part of the culture of our businesses is always to benchmark with other industries. We try to look for the best in that specific team. And we try to visit people across the board, around the world, in different sectors, sometimes in different kind of institutions. So I remember talking to churches on how they get people to their church, to their community.

2:23:00Like the Mormons. Yes, pretty much. So I did that research. I did, and I went to visit them. Where else did you research recruiting? Who were the best recruiting? Well, first of all, Salt Lake. Salt Lake City, yeah. Then went to Israel to see how they operate the excellence of their army. Oh, wow. Yeah. The U.S. point in the United States. Went through the whole process of the program. incredibly the elite uh police of rio that was at the time doing a very very good job elite squad boppy from yeah the squad so uh i met a group in argentina that was also very good so we went to many different groups that were recruiting in scale people and selecting people to do certain jobs.

2:24:00So I think that's another like super interesting insight in the story, which is, look, in order to learn recruiting, you didn't go and say, oh, let me learn recruiting from, I don't know, payments company in the US. No, no, definitely not. You were like, who are the best people in recruiting in the world across any category, right? Like from church to company and let me go learn of them. Yes. And trying to learn and adapt. And how did you even get the access to them? Was it the investor base that introduced you? Yeah, many different sources. Many different sources. So you had a network that you built over time that allowed you, hey, can you introduce me?

2:24:34I want to learn about this. Yes. Makes sense. Yes. And some is just research and cold calling. Yeah? Yeah. That works too. That works too. And then we learned how to recruit and attract people that would be interested in the cause, in the calling of what you're doing. There was a calling in what we were doing. We were democratizing payments in Brazil, reducing the spread of credit dramatically for the lives of the Brazilian small entrepreneurs. there was a real social cause behind what we were doing. So you find people that were mission aligned. Yes, because there was a mission calling here. So very first thing that I learned from all these visits is that, you know, there's something in the recruitment program that has to be a calling, that has to be a mission.

2:25:33There has to be something that we already had when we started the company. We just translated that into language and we put the word to the world saying, we are doing that because of that. And that was... Here's our why, right? And the why was reducing costs for small and medium merchants. Yes, improving their lives. These guys spend a lot of time trying to reconcile their transactions, calling them, waiting weeks to have their terminal back if it's broken. So many different reasons why these guys were being underserved and undercharged and overcharged. So at this point, you've probably done over 10 of these recruiting process plus, right?

2:26:20Yeah, yeah, yeah. More, even more. Even more, right? Twice per year. What did you... And then selecting the people, right? So there's a process of four months. So think about it. Four months, twice a year. So it's eight months of the year recruiting. Wow. And all the top management is involved in the process. Wow. That also creates culture. Because the people that you are accepting in the company and what you tell them in the beginning and what you accept and how you select them dictates your culture. So that was also the most powerful tool that we used to build the culture of excellence, hard work, customer centricity, technology, growing gradually, carefully, caring about the customer, caring about the company that we are building.

2:27:17So all these things, the values of integrity, putting a lot of energy to make things happen. So these things that became the culture of stone started and was spread during the process of selecting people. We could preach about it to our own team. So the recruitment program was something that we had this hundreds of people coming into certain places physically. There was a large process online with many different tests. So we selected them, created groups of people to meet physically. They had to read books that we liked. So we were preparing them in our culture. It's very immersive. So like they have a lot of work in the process.

2:28:09A lot of work. Yeah. So you really filter people who really wanted it. That's the key. So that's the key. So then you have to select them. So in the process of selecting myself and my partners were there physically on the weekends to speak to these guys, to know, to get to know them. So a mantra was that we created that was, you're not going to put somebody into your company that you don't know. So you've got to talk to these people. You've got to interview them. You've got to get to know them better and accept the best. Did you like doing it? Very much. Yeah? Very much. Because then you meet so many great people.

2:28:53because i think that's one thing with founders that's so interesting is you know a lot of times what you build is somewhat of a reflection of who you are right like it's you are a person that gets energy from meeting young smart hungry people and spending time with them um hence you know spending time with us pedra and i and therefore one of the most the best things about stone was was that right like is that you build you know one of the best recruiting processes in the world for young people? Yeah, we try to select them by three major things. Intelligence, energy, and integrity. We had to find the three elements in the person.

2:29:37And we, of course, we started by just saying those things and trying to find those ingredients in these people. But then we became very scientific over time about what is the level of brain capacity that this person has? What is the level of energy and the ability this person has to pass along energy to other people in the teams that he or she will work? What is the level of energy that this person has to make things happen? And then as the third and possibly the most important, what is the level of integrity that this person has? what is the level of integrity of the words that this person, if the person says he's going to do it, is he really going to do it?

2:30:29Does he or she have real integrity? Does he or she know what integrity means? So we try to also teach them what these words would mean, right? So we try to find a balance of the combination of these three elements and we try to put that together in a scientific way. And we were bringing most of the team, the senior management, the mid management, and the new people that went through the process together interviewing these people. So they were seeing ourselves interviewing them and selecting them and seeing and saying, seeing and saying what is important to select one person to become part of the company.

2:31:15I think Stone has one of the best and strongest cultures in the tech industry um i think in general tech companies don't have as strong cultures as some other companies it's not something that at least i've seen be super strong i would say the exception is probably palantir um they have like a very very strong culture i think it's really interesting but i think stone is definitely like up there but one thing that i'm curious right like you did the first recruiter i think i was there for the first one and then, you know, let's say five years later, you're done now, at least 10 of them. What is something that you changed, you know, in your kind of like interviewing, what you're interviewed for?

2:31:54Like, what is something that maybe originally you thought, wow, this is super important, but later you found out it's not that important or the other way around. Like, I didn't value this as much in the beginning, but now five years in, I realized this is super important. For recruiting young people, you try to find what this person has done before, even though it's small, even though it's not relevant, you know, for society, the person's just too young, but you kind of find the energy there. And you also find some problems of integrity and the person regrets or not and how the person deals with that.

2:32:39So then you figure out exactly what is important to him or her. Okay, so now company got to scale, right? Like distribution worked. You went public when? 2018. 2018. Oh, wow, it was early. Why do you want to go public? Well, so at a certain point, this company has become big. And in Brazil, we had the dynamics of the installments plans. So people usually pay installments. Like buy now, pay later. It's a kind of a buy now, pay later, right? It's a little bit different, but it's pretty much the same concept. So you need a lot of funding for that. And of course, the incumbent banks didn't want to give us the funding for that.

2:33:26So we kind of - Because they were your competitors. Of course, yes. So that was a company that needed to raise a lot of capital equity to build the company, but also the funding for the operations. Yeah, the debt for the operation. For the debt for the operation. So attached to the transaction. It's like asset-backed debt. Asset-backed. That was something that we needed a lot of capital. So by having the company public, that would make things easier. And that really happened. So growing public was an instrument. Was an instrument for... Accessing capital markets. access of capital markets of all different source.

2:34:08At the time, we were getting to the limits of the midsize banks. So growing the company at the speed that we were getting was kind of creating a risk of getting to the limits of the funding structure of the existing funding providers. You might just tap out on capital. Yeah. At a certain point, yes. Which is something that it's hard to fan them in the U.S., but in Brazil, I guess. Oh, yes, that happens. That happens. If you don't have the four big banks, then you might be stuck into a funding limit of... And again, today you have the market of Fijics, the private funds. But at that time, we kind of created that market because of this parallel structure that we had to create to accept funds from other parties to fund this asset-backed operations.

2:35:11Just so I understand, Fijiks are maybe like, are they publicly sold or they're kind of like privately sold? Privately sold. So they're kind of like a securitization in the U.S. Yes, pretty much. So how was that? Okay, so you decided to go public because you wanted access to the capital markets to keep funding growth. That's one of the reasons. Second reason, remember that we went through that very tough time raising capital for while Brazil was having a macro problem. In 2017, the president was impeached. And a new president, the vice president, was a moderate guy and very good in terms of reforms.

2:35:54he created a much better environment for Brazil. And then Brazil started to improve, to get better, and to be more well-connected to the world. 17. 18, there was the election, and it was almost certain that the right-wing guy would win. and at that point with another government for so many years, that would be good news for the market. And then Brazil started to become something that people were interested in the capital markets in the world. Again, so that was a window. And we were afraid of the results of the election that we didn't know exactly what we did, the perception of the outside world.

2:36:54So we decided to go public in October, right before the election. The elections in Brazil are usually in Octobers. What did you go public for? So we went public in New York in October of 18. we raised a billion and a half of primary capital. I think a little bit of secondary, but mostly primary. And that? What valuation was that? It was probably six, went quickly to$9 billion. Makes sense. And so your investors from the private rounds were like super happy. Super happy. Yeah, because they had invested at what? like a few hundred million, then a few billion, like kind of serious BC, kind of keep growing.

2:37:49They made very good returns. So IPO, everyone is happy. And then I think Berkshire bought in, right? Yes. How do you pull that off? Well, we had someone who also anchored the IPO, a good friend of ours who was a partner on 10 % of the company, Madrone, who actually introduced us to Berkshire. and there was a guy there, one of the partners at Bekshrya that knew a lot about payments and he had read the F1 of Stone three times. So he called my partner at Madron and said, I would like to speak to André about that. So we started talking about it and explained him the market structure and he really liked and enjoyed the transformation that was going on in Brazil and he decided to invest.

2:38:42And that was the first time that Berkshire anchored an IPO ever. Wow. That was new for them. They didn't even know how to do it. They were just used to buy secondaries in the market. So we had to get the banks used to that. So as the market was very volatile because of election in Brazil and because of other things that the market was a little choppy at the moment, you know how this process works. they just try to make the valuation lower to make sure that the transaction will work. We wanted to get to a reasonable valuation. Not the maximum possible, but something reasonable. And some of the banks were pushing us to sell it cheaper.

2:39:30And I was having parallel discussions with some investors. And I then made the decision to anchor the IPO, which was something that we didn't need to do. We could just simply trade in the day. But we decided to having some investors coming into the book and announcing that publicly before the day. So that's the anchoring. So how, you know, when Berkshire committed and decided to do it, right? Like it's probably the most successful investor ever in the world. How did that feel? That was awesome. That was very good for the company. And that was very good for the process because at a certain point, then I remember that we agreed on a$24 per share with Berkshire.

2:40:24And that IPO would be 30, but they wanted us to price at 20. Yeah. With the demand we had, the right pricing would be$29.30 in the day that we price it. But before, because of the volatility of the market, the bankers were talking about$19.20. So I decided to make it in the middle. We agreed with three very good investors, Tiro Price, Madrone, and Berkshire. So we had these three guys taking probably 700 million of the 1.5 billion offer. And that gave us more visibility of how things would play out in the day of the pricing. Of course, in the day of the pricing, we could change the price and take them out of the table, but we would never do that.

2:41:24So in the day of the pricing, the right pricing that the banks have said was$30. We just said we're going to price it at$20,$24. To make it work for... That's what we had agreed with the funds. And do you think that's like a lesson that you did in all your fundraisers, which is it's okay to take a little bit of a price discount to get the best people on the table? Certainly. That's for your life, for the life of the company. I think you, that's another thing I think you've done quite well is you always found a way to get the best people in the world involved, even if it's a discount. You know, eventually you knew it was going to kind of pay off.

2:42:04The level of influence that people have in your life is incredible. You, sometimes we don't figure it out. We take it for granted. But having great people around you make you much better. So, of course, the great people, they don't want to deal with people that wants to extract the last dollar of the table of the negotiation. So we try to be reasonable. You know,$24 for us was fair. We did our math. They did the earth. We agreed on a$24 basis. That's done. Just a word. We didn't need any contract. It's amazing. We could have changed that on the day of the pricing, but we would never. like a word is is a word is a word so okay so IPO to 6 billion 2021 comes in so went up like 30 % in the day after which is something also very good because everybody's happy everyone's happy everyone got their pop in the IPO everybody needs to be happy in that day yeah doesn't need to be 30 % but like it's a happy day for the company I guess at this point you know just pulling to we'll come back to Stone a little bit a little bit more of a personal question at this point you know You obviously became very wealthy and very liquid wealthy at the IPO.

2:43:22How did that impact your psyche and your mind? What were you thinking about that at that time? How did it change your relationship of money and success? You just can do things that you weren't able to do. You travel faster. You can do certain things, but that doesn't change the fundamentals of your life. But did you get just a lot more security or you already had that from the previous companies? Like, did it change something at that point or no? It just changed the level. But it didn't change who I am, how I deal with people. You know, that truly didn't change anything. That created some complications.

2:44:05Things become more complex. You have more structure to do things. But you do more. So you do more. You can help more people also. So, you know, the works that I do with kids that I like with gifted kids, I can do more of that. So, you know, you have more capital to deploy in things that you like that will create more value. Especially in Brazil, there's no one else doing that, right? There's the philanthropy in Brazil is so little. And then maybe you can get some nice spearfishing equipment too. Oh, yes. That's something I did. That's something I did. Like the best spearfishing equipment. the best i don't save money with that yeah yeah amazing amazing amazing um so you know the audience knows andre also got me into spearfishing so i'm like uh you know a new a new uh a new adept to the sport yeah yeah that's something i haven't thought about it i really bought the best things on spearfishing i don't save money buying those uh spear guns amazing amazing we all have our like passions and our like little indulgences.

2:45:11But now going back to Stone, you know, now 2021 comes. The company I think is valued at$30 billion or something like that, right? You know, I think all of us that year probably had higher opinions of ourselves and our companies at that moment in time. What do you think that's true? Is that kind of... Yeah, we try to, of course. Of course, the answer, the correct answer is of course, but... Did you think you were Bill Gates that year? No, never thought about that. My father would never allow me to think like that. I grew up in an environment where he would never make me feel that I'm a superstar.

2:45:52Oh, wow. You're better than me. I definitely thought I was Bill Gates that year. So you're definitely better than me. No, it's just because I had a father with that personality. But that can happen to anyone. But, you know, 21 was the year that I probably most learned. Because it's in the tough times that you really learn. Like we went through the pandemic in 20, which was a very hard time. I was not working the day-by-day of the company since 19. So in the pandemic, everybody was hidden and working from home. So what happened in 19? So 19, our partner that had become the CEO in 2017 has become much more mature.

2:46:39And he was like leading and running the company very well. And I could kind of turn from executive chairman to chairman. So I was trying to transition from that attitude of being in the office every day to turning more as a chairman. But I honestly didn't know how to do that. That would be the first time I would do that in a big company. Because doing that in a small company is completely different. I was kind of used to it. because I did it in a smaller scale. But as I mentioned, doing a bigger company was completely different. So we kind of had to go through problems in order to learn. That was necessary.

2:47:39I would never learn. So, okay, so it's 2021. Company is worth$35 billion. Then 2022 comes along. Tech gets hit super hard. Payments get hit super hard. But I think Stone was even more than average. How did you feel like seeing the stock go from$35 billion to like whatever it went, like$2 or$3 billion or something like that? First, I didn't understand. I didn't understand what was going on. Like it was just too fast and seemed to be a very deep crisis. Because I was seeing some things that were not working in the company also at the same time that the stock was dropping. And that was hard, really hard.

2:48:21I was not working in the company directly. I was working in my project in England. And I had to come back to help my team, my partners that were there running the company, running the boat, and to try to understand what was going on. Right? We had acquired a big company. We went through a very hard process with media, fighting for an asset that we bought publicly. So we had a lot of bad press in the company because of this transaction. And then things happening in the core business that we didn't understand perfectly. So now what happened? What were the reasons? So the Brazilian central bank is one of the most advanced ones.

2:49:09And it's very used to high inflation and high interest rates environments. So when they see something going on in the world, they know how to operate. And Brazil was far away ahead of the curve from the others. So the hiking of the interest rates in Brazil was so rapid that it came from 2 % to 13 % in one year. Wow. Like before the United States started raising. So think about like a very aggressive move from two something to 13 in one year. Wow. But now think about the model of stone in which you have to pay merchants in different installments. You bring that to net present value. You get the funding to do that on a floating basis.

2:50:09So you're basically factoring for them. You're factoring for them on a floating basis. But your cost of capital varies of the interest rate, so it's floating. Yes. But the price that they have to factor is fixed. Yes, you have to speak with them. You can reprice, but you have to speak with them on a number that they understand. So you have to communicate with them on a daily basis. This is your price today. 1%, 2%, or whatever it is. But hasn't the interest rates fluctuated in the past? Like, how did you solve this in the past? Yes, but it was when it's going down. So Stone has grown an environment where interest rates were going down.

2:50:53That's very good for that business model. This business model is very good in any interest rate environment, except in the process of hiking. If you see today, things are very stable. The company is very profitable. It's doing very well. and it's 15 % interest rates. That's fine. So the company lives very well with high interest rates. The problem is when you started, it was always going down. And then it's really... So that's very easy when it's going down. That's very easy. Because you just don't do anything or just like, you know... And then you increase your spread. You increase your spread.

2:51:28Yeah, and you reduce your price slowly. But then... Because competition is also doing. Exactly. So then what happened is when it went up a lot, very fast. You hadn't gone through that at the company yet. Exactly. Hmm. And then for a while, you're basically like very unprofitable on a per-customer basis because of your cost of funding to your... Yes. But there were more reasons than that. Yeah. So the company was facing other problems all at the same time. So it was a kind of a perfect storm. We had a noisy credit issue that was what people thought was the biggest problem of the company. By far, it wasn't.

2:52:07Like it was a$100 million problem that we gave credit to merchants during the pandemic. The central bank put together a new regulation for credits on top of the transaction levels. So you would give to merchants the credit collateralized on the future receivables. and that was a new regulation that the central bank has put to help the system to work in this environment. That did not work either. And the credit that we gave during the pandemic, most of the stores were closed. So we had an issue on the credit side, but that was not so big. But we decided to interrupt the credit for the future And that created a gap on the projections of what you're going to earn next year if you're not growing the credit portfolio.

2:53:08So that was one of the problems. There's probably a lesson in public markets there too, which is when you change the expectations, you take a big hit, right? Yes. Like stability. Exactly. People want predictability. Predictability. And that happened at the same time that other things were happening. but we had even more problems than that. So first problem was the interest rate hike. Second was a credit. Anything else that was big at the time? Yes. So we were being caught in a price war with another competitor. In the previous year, we decided to get into the micro merchant business and we attacked one of the main competitors, one of the independent players that has become big too.

2:53:55they started fighting back, getting to our markets, hiring other people in the hubs, attacking our clients, undercutting them on price. So that kind of became, without noticing, a real price war. So the market structure went from, there's two monopolies that have infinite pricing power and bad service, to now there's a few kind of new players that got to scale. Yeah, at this point, we had a few players already. That got to scale and, you know. Some had grown in each segment. Each has its own segments and then they started competing and capitalism started happening, prices started going down. Yeah, that happens.

2:54:42But specifically here, we didn't notice that there was a price war getting started. because of this dynamics of getting to a new segment and the other guy reacting and getting to the upper level segment. Kind of to compensate what he was losing. That became a real price war. If you study that, that was specifically in that time was a price war. And nobody wanted to take out the feet from the accelerator because you would have to post a worse quarter. So everybody was kind of tied up on the quarter of public companies. Quarter by quarter. Quarter by quarter, growth, and this kind of thing. So that was the other problem.

2:55:36And then what else? Management, big problem. So think about these four problems all at the same time. We didn't notice them. We didn't know about them. So some market cap drop, we would have anyway. And that's part of life. That happened to everyone. That could happen to anyone. Best companies in the world. Yes. But that was also disrupting the perception of our employees, of ourselves. You know, that changes the dynamics of people, right? Because the compensations were all attached to the stock price and not exactly incentivized on the stock price, but was tied to the stock price because we were granting shares to the employees and they were seeing their wealth also coming down.

2:56:25So that's depressing, right? Totally. That was tough. That was really hard. So at a certain time to fix it, you just have to know exactly what the problems are and fix one by one. starting with the most important one, repricing. So we had to speak to 3 million customers, explain to them that we had to reprice them, that interest rates had gone up, and we had to reprice them. That was part of the environment that they were in. That was not on us. Of course, some opportunistic competitors were giving a little less. So that created friction. So we had some churn on that period. But at a certain point, that happened to anyone, to everyone.

2:57:19And at a certain point, one year later, it stabilized. So we knew that we had to concentrate on that. On the credit, we just simply had to stop not doing that anymore and rebuild the team. But that we could do with more time. The urgent thing to do was to fix the pricing and to build up a real-time online system to reprice customers and to understand what was going on on the other side of the market. So that was the key to build up the new strength that the company had, a very granular view of how to price in each place, each type of customer. You know, now the company is like crushing it, right?

2:58:08Like you solve all these issues, you know, you can reprice people in real time. Management is doing really well, right? Like all of that. So you went through hell and you kind of came out of it. but now that you're out and you get to reflect a little bit on the experience what do you think are the things you could have done to not have this happen in the first place well first we didn't know how to transition uh in roles in the company well you have to plan that better you really have to plan that that's something that you cannot do overnight secondly I think you got to combine at a certain point of the company where the business gets more mature to have more senior people.

2:58:56in the management team. so that's that's something we did and we saw that we fix it when we did it when we did it well and how do you mix it because I know for example one of the things that's very cool about Stone is like the CFO is like 30 years old and he's like amazing yeah so it's a combination so you've got to combine the senior people with people who really know the business and who really have the energy to run the business and who owns the business also So people who are part of the partnership, the people who had grown into the business. But you'll also have to combine with people that had done that before in other industries, in other places, that had gone through the process, that knows how to do it, that has the experience.

2:59:47So you have to combine them and also combine the power of them. So what we try to do, we always try to do, but we didn't know exactly how to do when the company gets too mature. The company today has around 20, 27 % of the target market of Brazil, of Brazilian mid-sized and small merchants. So it has become more mature with a repeatable business model. So at this point, you have to bring in more senior people to the management. I would say the third thing is the board. The board needs to be in sync and paying a lot of attention. We changed the whole board when we had this crisis. We improved the board.

3:00:32The board has become much closer to the company. And I think that was also key. You get senior people with experience to try to see if the business is doing well, to supervise and to try to help the management team to plan the next phase, whatever it is. So after we built this new board, I think the company has become much stronger. So, you know, you fixed all of this. You know, you got your lessons, but it seems that the, you know, stock price is still kind of pretty low and like the multiples are quite low, even compared to like the industry. Why do you think that is? Like, why do you think you're not getting credit right now for all the fixes and hard work that you did?

3:01:23Well, the markets are sometimes unexplainable in both ways. Like at a certain point that it was probably not worth 30-something billion dollars, it's probably not worth what it is today. So I have my idea of the intrinsic value of this company. and that's how it is to be in the public markets. That doesn't scare me anymore, doesn't bother me. So that's fine. I'm shareholder of reference for the company just to make the company stable, having one shareholder that can stay for the long term to give them confidence to continue building what they're doing. I'm not part of the board anymore. So now this board has become independent, A group of very good people helping the company to be better every day.

3:02:21The company is still growing well. Of course, it's much more mature, so it doesn't grow as much as it was used to grow. A lot of large numbers, too, you know? Yes, a lot of larger numbers, more profitable, real cash flow. So it's generating a lot of cash. so it's a different phase I don't care so much about the market cap I'm concerned with the fundamentals of the company that are good So okay, as kind of like more of the closing question Pagafasso and Bras Pag was maybe the first decade of your kind of entrepreneur experience then maybe Stone was the second decade of your entrepreneur experience.

3:03:05Tell us about for DeAndre in his 40s what's in sight Like what is that you're focusing on? What's the next phase and chapter for you? Well, so I'm happy now with my kids and not being on the board of the company that I helped create and seeing the company living by itself. That's something that I want to develop more. The ability to create things that don't depend on me. That's very important. The second very important thing that I very much like is to help other entrepreneurs who are going through any tough time. Because I went through many different tough times in different scales, in different scenarios.

3:03:59so if I see somebody that is similar with the same objectives that I have and that I had going through that I you know I kind of try to give a hand to help so and I I like to do that because I see people benefiting from that the third thing is developing my company in Europe which is my top priority. We are developing a payment company in Europe that has been now growing and evolving well, basically providing merchant acquiring services in Europe in different countries. And we developed that from scratch. We developed a system. We created the company in 2019. And since then, we acquired a few companies.

3:04:51And now we are developing that more organically, trying to learn with everything that we did in the past in the payments industry and applying that to the European reality. We think there is a big opportunity there because it is still dominated by old incumbent banks. And I think we have experience in providing something new. So we are now doing that. We had put a bunch of great people together and I'm happy with this year. We just closed. I just came back from England in the last board meeting. I was happy with the results. Well, I guess the difference on this European one is that if you do the same thing you did with Stone, in Europe it's probably a$100 billion company, right?

3:05:38That should be. I hope so. Exactly. Again, I'm not so concerned with the market cap. I try to be more concerned with the results, financially speaking and socially speaking. You know, if it's promoting something good for that community that we are serving, that's creating something better, resolving an existing problem. It does exist in Europe. It's pretty much the same thing. Like old systems, old, you know, bad service. It's pretty much the same story. so if we I'm happy if we improve that in Europe and that's a financially good project for the investors so I think if we do that I'm happy a hundred billion dollar company might be a consequence of that but I'm not too focused on that amazing Andra this was awesome I know again I know you never do this and thank you for spending I think we recorded for almost more than three hours so I really appreciate you taking the time and I'm sure people are going to love it.

3:06:44Thank you. Thanks to our friends at Atomic Growth for helping with production and distribution.