Latin America: A Tech Powerhouse?

0:00There was 80 % smartphone penetration, I think about 20 % product card penetration. What works in our details and what the Brazil does and what the globe does in more than Mexico. Today, companies go global increasingly fast from day one, but banking is still country and currency specific. We're going to see the mobile world companies in the region being technology companies. There's no way to build in Brazil unless you're in Brazil. and requires a totally different mindset when it comes to product development. Hello everyone, welcome back to the A16Z podcast. Now, if you've been listening over the last few weeks, hopefully you followed our Olympic series.

0:38So far, you've learned how Olympian Ali Vrysmann has traversed the transition from gymnast to investor, but also you've explored how few technologies actually move the needle in athletics, and also we've dissected the forces behind the ongoing competition for talent across both France and the UK. Now, if you've missed those episodes, of course, be sure to go back and give them a listen. But today, we cap off the series by turning our attention to Latin America. We'll explore why the region has long been overlooked, despite a highly proficient technical savvy, internet penetrated population, plus the role regulation has played as a tailwind, the nuances of recruiting in the region, and much more.

1:16Our guests today are all investing in Latin America in their own life. First up, Delete, Vazmón, founder and CEO of GF's, a financial platform for global startups which operates in over 20 countries, which has recently expanded its presence in Latin America. Next, we have Santiago Suarez, the co -founder and CEO of Adi, a Colombian by now pay later Fintech with over 2 million clients. We also have Gabriel Vasquez, investment partner at A16Z, where he's focused on enterprise and Fintech investments, of course, in Latin America. And this conversation was moderated by A16C General Partner, Angela Strange, who, of course, has also long invested in the region.

1:56All right, let's kick things off with Santiago, or Santiago, who reflects on the opportunity that trofe him back to Columbia, where he's originally from, after years of working in financial services in the United States.

2:10As a reminder, the content here is for informational purposes only, should not be taken as legal, business, tax, or investment advice, or be used to evaluate any investment or security, and is not directed at any investors or potential investors in any A16z fund. Please note that A16z and its affiliates may also maintain investments in the company's disgust in this podcast. For more details including a link to our investments, please see A16z .com slash Discoachers.

2:41There's a sense of duty. I'm Colombian. I've had the opportunity to see many incredible things in the US. Well -run companies, JP Morgan, McKinsey, some fun startup experiences. So there was a little bit of being able to go back home and contribute to the local ecosystem that I think inspired me. And then the other thing you realize is that Vladimir is not China. So I'm not going to be sitting here be like, oh, it's the new China, but it was so overlooked. You had tens of millions of people in a single country and everyone just thought it was going to fly over country for technology development.

3:18And then also realizing that you had a English proficient, technically sophisticated population, both in the consumer side, but also frankly, on the call it supply of talent side, that But then let me say that I should probably move back and see what we could make happen. And in hindsight, it's always easy to see, like, oh, we had a master plan. There was a big plan. I would have called it a master plan. But enough of an intuition that there was a big thing going. That's what I needed to get myself on a plane and move back to Columbia. Yeah. I think one of the stats that really struck me back when you started Adi was there was 80 % smartphone penetration.

3:55I think about 20 % credit card penetration. So just a real opportunity to bring what is fundamental access to being able to run small businesses to run commerce to the country. So, Deliep, you approached Latin America from a different perspective. Like, jeeves was started right off the bat with a very global ambition. But then, last year, I'm quickly became one of your biggest markets. And I think interesting on the jeeves website, it says Latin America is entering the golden age for tech. Sure, so we're basically building a global business bank and the idea is that today companies go global increasingly fast from day one, but banking is still a country in currency specifics.

4:34So we provide corporate cards, payments, deposits, etc. for business banking accounts. So when we look at a country or region to start in, there's usually about two or three things we look at. One, is it a region that's opening up to Intek? I think one of the things that's most exciting about Latin America was that there's a regulatory for a push to be more open towards Fintech. I mean, you look at Pics in Brazil. It's just amazing what's been done in about three, four years. And so that's a pretty good indicator that you can build what I call banking 2 .0 or 3 .0 on top of what's already in market.

5:06So that's the first one, the second one, which I keep saying company like Jeaves couldn't have been built really five, six years ago because there was infrastructure components like open banking that wasn't around five, six years ago. And again, if you look at Latin, if you look at Mexico, you look at Brazil, that's at a level that's actually more sophisticated than a lot of other countries, including some parts of the US. And so that was very exciting. And then the third one, which was very, very obvious, was various, the flow of capital going. And that also correlated with LEM. And so for us, our first launch market was Mexico.

5:37Till today, it's our biggest market. And it's also where we test any product that we launched. And so it made it very, very simple for us that Brazil would follow Mexico, but Mexico was the origination point. And the gap, I think going back to what San Tiem was talking about, but was very, very clear. You'd seen a version of what we're building in the US. It hadn't really scaled internationally. And so we looked at this from a perspective. If you were building a global business bank, what are the regions you touch? Latin was always going to be the core opener that would sit. And then two, does it have the infrastructure that we need to be successful, which it does?

6:11That's a good tip for talking about the region overall. So Gabe, we've been investing in Latin for probably more than five years now. And I think a lot of investors actually have gotten excited about Latin. So the secret is out. I think one of the arguments in the early days was, well, there's lots of opportunities to investing companies closer to us, which obviously we do. What drove the interest in the region back when it was a little bit less obvious? Super excited to talk about a lot of time, something that I'm incredibly passionate about. So to your point, I think this is a question that companies like Nuve and got a lot when people were initially analyzing the opportunity, especially at the early stages.

6:47Nuve is now a 55 billion market cap of the company. And when you think about the winners in the region, you also have other players like Mercado Lever that came before, but as of last week, actually became the most valuable company in Latin America, finally surpassing Petrobras. And I think that that's an statement of the opportunity in Latin America that eventually we're going to see the most valuable companies in the region being technology companies. We have examples of successful companies like Stone, XP, the local details that all of them have IPO and are in the public markets for now. And that leads to the second point that is actually quite exciting, which is you have all this talent kind of being nurtured as a hot experience, an operating and successful technology companies in the region and now want to build their second or third company.

7:37And I'll say that the last point is there's a lot of opportunities when it comes to building Latin America that is slightly different from countries like the United States where in Latin America there's opportunity to build super apps. The example that I usually like to use for this is a company called Paxiguro based out of Brazil. This company actually is a public company that started as a merchant acquired for micro merchants in Brazil. Then they realized that a lot of the customers that they serve they didn't have bank accounts. So they created a bank that served as micro merchants. Then they realized that a lot of the consumers that went and buy products from these micro merchants didn't want it to transact online, so they built a marketplace on top of it.

8:19And they realized that these consumers also didn't have a bank account, so they eventually developed like a consumer bank. This company basically created four different companies within one. And I think that that speaks of the opportunity of Latin America. We've seen companies like RAPI launching a bank or companies like NuVag now that have actually launched a marketplace as well. Let's stick on the talent point for a bit, which I think is the opportunity to challenge in every single market. Santee you've built a world class talent team based in Columbia, but you've also recruited global employees.

8:50What have been the things that have been advantageous of being in Columbia and what have been maybe some of the challenges? Things that are advantageous of being Columbia as a Columbia, you get to know the talent a little bit better. So you have that edge that you wouldn't have otherwise. It's a small country. Certainly compared to Mexico, Brazil. So it also allows you to apply into the deep talent forms very quickly. And probably the most obvious one is you're an employer of choice. So we offer equity to every single one of our colleagues from the call center operators to starting sales folks all the way up to senior folks, that really allows you to get like your pick of the litter where it comes to talent.

9:26The challenging part is you don't have any executive experience. And at some point you need to balance this. So what has worked for us is kind of get the raw material here because you have very talented people and then sprinkle it with extremely competent leadership. And by the way, some of these local folks eventually become leaders. We're seeing some of them actually be a transformation leaders to our company. But then that's because you pair them with product leaders with experience that are firm. my buys, Capital One. So for us, that has been the recipe for success. And I think you have to be creative when you're in Latin America.

10:03So for example, or remote company in large bar so we can attract these key folks in key positions. But that has worked really well. Get the raw talent in which there's a lot and then pair them with the right, sea -stone leadership to see the magic happen. Would you say a little to Gabe's point five years ago, maybe the scaled LATAM companies didn't have as many seasons execs, but now those seasons executives are starting to come out of some of the large, well, $2 billion exits in Latin America, because you don't necessarily have to go to the US. I think so, though I would say that's still very much in the early beginnings, early beginnings, in part because I think it's a weird ecosystem.

10:47Mercado Leavers are almost 30 -year -old company. So we have some great ex -Melly folks, but when they go in Melly, Melly was a 20 -year -old company. And then it's just interesting because I think some of the reference cases of LATAM, Melly, New, and RAPI, each has a very distinct way in which they build the culture. So you need to be very mindful of that because you get a lot more, let's say, executive variety than in the US. I think if you went to a B2B company in the US and you said, I want a VP of product marketing, serious seat. You're going to get the same person. I know exactly what you're getting and you know exactly what you're not getting.

11:25I think if you get the VP of product marketing at Millie, at RAPI and at New, you're going to get three very different cats. None of whom may be the person you're looking for them because they're very useful in product culture. So, I think you just have to be very aware of that. That you don't get to have this kind of standard. It probably because the region is so varied, right? So what works in our details and what to Brazil doesn't work in the lower way doesn't working Mexico makes it tonicense. So delete maybe if Sonsi's built in Columbia, you've built primarily in Mexico, Brazil, and obviously other global regions.

11:55When you talk about the experience of scaling up in two countries that are in the same continent, but very different beyond that. Yeah. So the way our model works is we break up the functions depending on what touches the customer directly. And so usually the first hire in any region is a general manager and they tend to be fully local. I think there's no way to build in Brazil unless you're in Brazil. There's no way to really build in Colombia or Mexico unless you're in Colombia, Mexico. So that model has worked fairly well so far, where anything that's customer facing is fully local and then we build the product, engineering, finance, et cetera, centrally.

12:29What's changing now is as we get more into scale, we're actually starting to move some of the product components also locally. And that is a little bit different from how it was in the beginning. And by the way, we learned this also the hard way where you can sell, but then if you need to collect and you call them from Texas or Brazil, they're like, yeah, I'm not picking up your phone call. You have to be local, you have to be on the ground, you have to be collecting there as well. So anything touching the customer has to be fully local to that region. But we're learning now and we've been in market now for about three years, is that even the product side at scale has very specific nuances that need local knowledge.

13:04And I think to the point Gabe was making, now what's interesting is you have folks that have seen what good looks like they've been at new, they've been at Makata, they know a version of what this looks like. That's been really, really useful that we didn't have honestly even five, six years ago, where you can hire someone that's built the product. Now leadership, I think I kind of agree like you have to find the right person for the right culture fit. And we have had some success. We've had some areas where we're still working through, but you can find what I call kind of intermediate managers that are, I think, fairly consistent for the region.

13:35They know what payments looks like. they've seen it at scale, they've seen it at a public lab I'm company, and that's been very, very helpful for us. You operate in three, four, five, maybe languages. How do you manage to get smooth communication across the country? Do you hire necessarily speaking more than one or using AI translation tools? Yeah, it's a good question because it really affects culture. And so one of the things that we try to do is we have people that obviously locally are fully fluent in the local language, but you have to be able to communicate in English as well. Because you do have counterparts in UK, you do have counterparts in US, in Canada, et cetera.

14:13But everything that we do in region tends to be local. And it took us about two years just to get the localized experience on the product. Sunti, how are you balancing Spanish English and recruiting employees across country who are very talented, but might not speak English, which then restraints the recruiting pool for sure? We've always been extremely religious about the English speaking requirement. We are now testing a couple of instances and relaxing it and using AI to figure this out. I agree with you. I agree with the biggest challenge here is culture. But we're actually even earning on the other side.

14:50At this point, we've actually gone almost all native. So now you need CEO approval to hire anyone that's sat in Colombia. Or single country focus. because we were going to go deep here. And what we realized is that there are certain positions for which the expertise outweighs the local knowledge. Most famous, the credit. But pretty much everywhere else, you want the person around. You want them using your product on any given day. You want them getting rejected. You want their app crashing. You want all of these things that are extremely difficult to achieve if you're not on the ground. And also we now serve a broader swap and becloving a population including a bunch of people who don't speak English So culturally even just having people who speak English as your company They may as well be from a different country, right?

15:36We just have a bunch of people out in the Presidio in San Francisco building product for the entire United States With no real sense of what's happening and choose your favorite Midwestern state. So that's also a lesson we have recently learned Watch out for those prosidio product managers. Agreed. All right. I want to zoom out a little bit. You guys are clearly building in financial services. I think that there is a specific opportunity for financial services in the region. And we even wrote a post together entitled for Brazil, which was that regulation is a tailwind. There are two words that you've never hear in the same sentence in general, but in Latin America, you sort of do.

16:15So maybe gave out line what's going on in the region in there that creates a particularly interesting opportunity. Yeah, so I think that there's three main areas. The first one I think is less specific to the region, but more specific that FinTech is a decal local business. So there's a lot of local regulation that plays an important role when it comes to operating different countries. There's domestic infrastructure. Like when you're thinking about building a business in Brazil or Mexico, you kind of have to rely on. And there's also cultural nuances. as Brazil completely different from the rest of Latin America and even Mexico is completely different from South America.

16:53Even though all the countries speak Spanish and so for Brazil. Brazil has actually been quite advanced. The Central Bank has done a great job basically disrupting the dual belief between the merchant acquires that enable players like New Bank to come in and take advantage of that and then the rise of payment acquires like stone. and then they created open finance and from there they started the instant payment solution that now is the main payment method in Brazil, complex. One of the aspects is actually quite exciting as well as the smartphone penetration is quite high in the region so the numbers vary between 75 and 80 percent.

17:30But when you look at the credit card penetration or even the bank population in countries like Mexico, it goes around 50 percent which is quite low when you compare it to countries like Brazil weighs around 85%. So there's a lot of opportunity still they basically can have a bank in their pocket. And when it comes to the size of the market, Latin America is you know there's 655 million people living in in the region. The GDP per capita is higher, especially when you compare it to other emerging markets like India. So I think that those are the three main reasons why Latin America has become such an important hub for FinTech innovation.

18:07So great from a thesis point of you, we have two people that are actually going through it, starting maybe with you, Sansi, who've recently spent a lot of time with the Colombian banking regulators. Is the practicality the same as investors might perceive in what advice might you have to other entrepreneurs in the region? I would say, no, the park, Collins, that always the same thing as the investor might see for many reasons, obviously, and not least of which, this is still an emerging market. I think when you do venture investing, you're thinking to type some risk, you're taking You've been sure that's been your taking a marketing risk.

18:40But that being said, okay, I think the situation in Colombia is extremely pragmatic, right? You've got a regulator position, the licensees, you've got a regulator who's pushing for financial inclusion, you've got a simple bank that's striving instantaneous payments adoption following very much. The Playbook of Brazil. So if you're sitting here now over just 10 years ago, I mean, when we started, I think they had an issue a single denover banking license in God knows like a decade and now they issued a three or four a year similarly with the payment side right like the payment system will be a small bit of a mess but it's much a little mess than it was in or on track launching case in the next 18 months or so so you do see a very pragmatic regulator and honestly in that case they're differentiated from the US event, which is a bit more of a unknown unknown, right?

19:35You just don't know what regulator and the agenda is. You're obviously on the Fed. You have the FAC, the CFBB, the SEC, and you can't quite figure out what the boundaries are. What I can tell a lot of time, I saw like in the US where the boundaries are X, but then you've got to like interpret the key leaves on what actually X means. Here it's pretty well defined. So if you have the patience for dealing with the emerging markets environment, you have the patience of dealing with the natural challenges that come from being outside the US, it can be a very attractive hunting ground and a very attractive place to build a company.

20:05I think just touching on this point, actually one of our big hires last year was getting the Chief Compliance Officer from Marquetta, which is a public company to join us and a big reason is exactly this, which is as we scaled from a smaller company moving really fast to a bigger company. I think the biggest thing that we started noticing was that we were much more on the radar for folks locally. And so Brazil so far, it's smaller for us as an operation compared to Mexico. But Mexico we have invested quite substantially even from a license perspective, but also from let's call it light lobbying in terms of companies that we work within such as external law firms.

20:41Right. And so it's come back once or twice where we've had, let's just call it issues that we had to work through in Mexico. And the one learning for me is NASB scale and as we get bigger, whenever you think you need to do it, you probably should have done it six months before that. I think what we are both hitting on is it's still an onerous regulatory process. But unlike in the US and other regions, it's at least a relatively clear onerous regulatory process, such that if you put together a very strong team, like you still need to recruit A -plus compliance people. They still need to do a lot of work to get it together.

21:16But the governments do seem much more motivated to create competition in their regions. And in particular, I think one of the stats often quoted is banks in Brazil. It's a little bit different with New Bank. But the banks in Brazil, Mexico, Columbia, serve the top 20 % of the population. And the rest are very start for a good financial services. And one of the ways to solve that is to allow denoval licenses for new companies to enter the regions and provide more innovative products. They want to try to work with new and transferers in the US, it isn't always like that. And I'm always surprised in a good way in terms of the companies that we get to serve in Mexico, Brazil, etc.

21:58And it goes back to the same point, which is most of the options are older banks. When we were in Brazil, we had a customer that was coming to us and we were like, hey, the fact that we have virtual cards, this is great. And for us, that's almost table stakes. Like, we don't even sell that because we expect that to be just an offering in market. And so that's what I keep getting reminded about, which is it's still a huge monopoly. And I think regulators do see that in a way that they don't in the US. Santi, you touched on this. I think one of the advantages of building in Colombia is you do become the employer of choice.

22:27There's not 50 Adi competitors that employees are choosing between. But then you do run into different types of challenges. What's pressing one is the mental model of most investors around time Remains very much What it should be for about 95 % of companies? I think when you combine retail and financial services the way you think about time is probably a little bit different I mean I will tell you even I have learned if I look at the performance of our company today versus where we expected out of the Climbing market and I got nothing anyone would have thought we'd be here within five years, right?

23:00So I would say the first thing is your understanding of TAM when you think about Colombia is just very difficult and The other piece is your product development approach Has to be very different because What you lose by not being in the US or in Brazil you game by being able to go extremely deep extremely quickly But it requires a totally different mindset when it comes to product development and by the way paradoxically the aspirations of choice are not in the US or not in the UK but aren't central Asia. In Turkey, these are the places where people have also figured out small country, deep tam equals massive successful outcomes.

23:43So when people ask us, what do you get inspired about? We always start with caspeeps, a $30 billion dollar public company that is single country focused in Kazakhstan, GDP, half of Colombia's. So, those are some of the things that you've got to start thinking about. And also, recognize that even the successful models were built in a different paradigm. So, Robbie was built in a zero interest rates paradigm. New was built, that almost 12 -year -old company built and raised in a different world. So, just knowing all of these things as a founder, our important period of our Wadjiro, but certainly when your geography is not Brazil, not Mexico, so to speak.