Venture Capital Investing in Latin American Startups

EMS:

Hi Alfredo. Thank you so much for being with me today.

Alfredo Ignacio Vargas:

Hi, Elana, how are you? Thank you for having me. Looking forward for our conversation.

EMS:

Absolutely, Alfredo. So, to kick off the conversation, tell us a little about the firm and how you got to where you are today.

AIV:

Well, it's been quite a journey. I started doing VC while I lived in New York. That's around the year 2000, 2006 and 2007. Then I moved back to Latin America where I was an entrepreneur. I was also an investor, and in 2018 I decided to come here to California. I came to Stanford, and after that we started two VC investment initiatives, but mainly one of them, it's Integra, which is a firm focused on investing in Latin American startups.

EMS:

Great. So as a follow up, Alfredo, I would love to hear your high-level outlook for VC investing in Latin startups.

AIV:

So, we invest in Latin America through our Better Future Fund, which is an early-stage venture fund that is supporting Latinx founders that are building amazing companies and shaping the future for Latin America. It's an impact driven strategy that invests in companies that are creating solutions that can solve big challenges at scale. So, in that sense, our investment thesis comes from a bio micro bit micro approach looking for opportunities in emerging markets through four investment concepts. The first one will be wellbeing. How can we make people be better and live better? The second one will be emerging middle. It is basically solutions that will provide social mobility, mainly focused on cleantech education and e-commerce. The third one will be built it better, which is kind of an embedded climate tech play. Basically, it's how the infrastructure of the world needs to operate. We can make it more sustainable and more efficient. And then the last one will be the digital world. So, all these very powerful technologies, how can they go mainstream and solve their problems to people?

EMS:

Very interesting strategy. Alfredo, as a follow-up question, I would love to hear where you see some of the greatest specific opportunities in your space and why.

AIV:

So out of that, we see good opportunities in different sectors. One of them will be definitely AI. It is a very powerful technology. We haven't seen something like this since probably the eruption of that mobile phone. The second one will be fintech. Financial services are the basic of development. So, we keep seeing a lot of new companies going into the industry. Health care is something that it's been there for a long time and after the pandemic, it took a stand forward. So, all the developments in how we can improve the sector are going to be of a lot of success in the future. Climate tech is something that is gaining momentum, cloud infrastructure, and the other one that we're looking at as let's say the next spring is blockchain. So, we see plenty of opportunities throughout Latin America. We see, we think that's Latin America. It's been part of a digital transformation that it started happening little by little, but suddenly it's getting a good momentum.

So maybe I can tell you a little bit about some facts about the region. So Latin America, it is a region that has over 615 million people. It's a huge economy. When you see the whole region, it could be the third largest economy in the world. We're talking about approximately a 6 trillion GDP economy. It has a lot of young people, one of the youngest demographics in the world, and young people like to be online. So, it has 78% of internet penetration, most of it throughout mobile. It lacks a lot of solutions that can be used through this type of technology. Also, it's a very large region that it has a lot of reserve and metals and minerals that are very important for the green transitions that we're looking forward is one of the biggest suppliers of food, especially products in the world. So, we will really want to catch up with the growth of population. Latin America will have a very important role on feeding the world. So those are things that are very interesting in the region and why we're very bullish on what comes in the next decade of investing.

EMS:

Alfredo, on the other hand, what are some of the greatest challenges you face in your investing remit and why?

AIV:

Yeah, we have to say that as investors more than challenges, we see opportunities. We're the type of investors that we are very have very strong risk management policies, but we like to see the opportunity, the full glass analogy. But in that sense, we think that now that the money, what is not free anymore, money is we have higher interest rates and then investors also expect higher returns. The ecosystem is still young, which gives an opportunity, but it still has to go through a mature process. We have to see more how the venture cycle completes itself, not only doing early-stage investment, but also companies that find way to return back money or capital to investors. And that's through potentially IPOs or M&As or some other way that investors can complete their investment cycle. But on the other side, we also see good opportunities on the talent that you see in  Latin America, the amount of money that has been invested in the last five years, it's important. We're talking about over 30 billion in America through technology companies. So that is building up a very good ecosystem, still young needs to mature.

EMS:

Alfredo. To shift gears a little bit, ESG and DEI have been recently top of mind for the industry, and I wanted to see how your firm is addressing these topics.

AIV:

Yeah, great question, Elana, because we have to say we're a purpose-driven investment firm. We're a PRI signatory. And for us, when we look at investment, we definitely see how this investment can be good for us and for the world. So basically, we support our investing thesis in four main pillars, what will be development, transformation, accessibility, and inclusions. And as I mentioned before, we invest early in companies. So, these are companies that don't necessarily have adopted a DEI or an ESG framework. And somehow, it's really hard for them to adopt them at the stage that they are. So, we help them starting how we can build a culture around this and then from there, do the framework towards completing or accomplishing what the ESG framework suggests doing. So, it's working with the founder and how is the principles of their company, but the most important thing is why these founders are doing this and why is the problem that this company is solving and how can that make a world better place.

EMS:

Alfredo, we've covered a lot of ground today and wanted to see if you have any final thoughts, you'd like to share with us.

AIV:

Yeah, I think we see a bright future. As mentioned before, we're optimists, but also because if we look back in history, and this is not a quote from myself, but history doesn't repeat itself or it rhymes. And when you look at what happened in the last 20 years, this might be a similar cycle that we're going through, that it happens in the early 2000s. It happened after the financial crisis and now we're seeing differently, it's not only that there's a reset in the economic model, also the resetting the venture industry, but also we're seeing very powerful technologies going out there, and that is making us be very bullish about coming into a new golden cycle for the venture industry. If you take that into what's happening in Latin America, we definitely think it's a good time to invest, although knowing that these type of investments takes times so we are long-term investors in what could be the companies of the future.

EMS:

Alfredo, I want to thank you so much for sharing your perspective with our listeners.

AIV:

I want you to thank you Elana for having me.

EMS:

And thank you for listening to the EisnerAmper podcast series. Visit eisneramper.com for more information on this and a host of other topics. And join us for our next EisnerAmper podcast when we get down to business.