VC in LatAm is wild
VC in LatAm is fucking wild.
If any of you has ever done work in the region and you know your ass from your due dilligence documents, then you must have found out that the 'genius millenial founder' you invested in was actually the son of a multi-millionaire banker, politician or cartel head honcho (or any combination the 3 combined). You probably thought it was okay because their connections would make it easier for their start-ups to skirt regulations or perhaps even have laws written to benefit the start-up, so it was a win-win for everyone.
All of that is right but as an insider I can tell you it gets much crazier than this. By 'insider' I mean that I personally know many of these founders and fuck is this sector amusing. To give you more background on your founders, their dads are usually multi-millionaires but their families are straight up billionaires. They have so much money in fact that in the last generation these families set up well structured family offices and in recent years they have professionalized. These family offices are so big that if you dig deep into them you'll sometimes find that 50% of the energy generation for an entire country is owned by a handful of companies which are in turn owned by one family office. The same goes for agricultural output, telecom, financial services, etc. We are talking insane amounts of money.
However these third generation kids have found a big problem with this wave of professionalization. Their entire inheritance is within the family office and now that they are legit operations, they have no way of forcing that money out. Well, at least no way until VC blew up. You see, there IS a way to force money out of a family office. If you start your own company and you get your family office to write you a check, that money goes straight into your bank account and your dumb sister gets none of it. But this is not so easy. There are legit ICs to go through and even though these family offices have huge PE arms, it is PE oriented toward more established cash-flow generating companies. Not some pre-prototype start-up. So a lot of the times their shit companies got rejected and no money for them.
But here is the trick: If you create a meme VC-worthy company and can actually trick some poor soul in the US to invest in it, you can take that initial success into the IC and now the pressure is on them, the non-family members, to make a case for why they are leaving money on the table by not investing in this new 'Uber but for cats' obvious unicorn. Most of the time, you get immediate checks because now you have a legit business. So legit in fact that this no-name VC in the US put 500k into it.
So if you ever asked the question, this is WHY everytime there is a successful VC idea in the US like Uber or postmates or the fucking scooter thingy, immediately 10 copy cats spawn in LatAm. These kids are literally waiting for the next idea to extract 10M more from their family office. And it actually works! Look at the risk profile here: First, by getting 10M out of the family office and into a company you own you can now deploy it as you wish. Some may go to building the business, but most goes to paying your New York tier CEO salary even though you live in a 3rd world shithole in which the COL is like 5 cents per year. But there is a second effect: the money from your family office increased your valuation, which means that if you can get acquired (even if at the same valuation) you will immediately 5x your portion of the inheritance money in a single transaction. And there is now some serious fucking competition between these kids to be the first ones to get VC money. And the funny thing is, they don't give a fuck about the 1M you invest. What they care about is how they are going to funnel 20M on the next round from their family office and into their pockets. And most importantly, this will REALLY piss of their sister (they all hate each other).
It is seriously fucking amazing to watch. If any of you work at a LatAm focused VC I invite you to start drawing up family trees of your founders. It is hilarious.
So much dogshit in that region. Buy a business for 1x EBITDA with 50% ebitda margin and a year later it's a big fat zero due to government regulations/lawsuits/corruption.
VC is even worse. I think LATAM is even worse than Africa to invest in. Just complete chaos. I'd want to earn 10x+ my money for the risk.
That is true however the multiple six figures salary that the founder paid himself (funded by your money + family office investment) is now very safe on a swiss bank account. You can count on that!
FX alone is a nightmare. Some Patria funds did a 2x in BRL and are like a 1.1x in USD for LPs lol.
I worked for a startup in Africa and most of the issues I saw were related to the poor infrastructure (i.e., lack of a financial system, poor roads in the case of a friend's trucking/logistics startup, overall poverty levels and low purchasing power of the population, etc). However, many people were genuinely looking to improve the state of the community. LatAm, on the other hand, is just so fraught with cronyism and corruption; the OP is spot on and I've also seen it with a few people from my B school class: once you dig a bit deeper you see that most of the founders are just rich kids trying to professionalize their family's business but with ulterior motives (aka supporting their Miami lifestyle).
Heard of the Tuna bond scandal in Angola?
$2bn bond issuance arranged by CS supposedly to fund the purchase of a fleet of tuna fishing boats
what happened to the funds?
President’s son boughts ferraris and rolls royce + ridiculously expensive wine then flown over by private jet
when it comes down to corruption LatAm is bad but not sure you can say Africa is better…
how's the Softbank LatAm fund in Miami?
Because Miami is the closest place to LATAM that's not a shithole. People who have worked their asses off to get a job there don't want to end up working in a corrupted third world country. Despite their recent lack of good decisions, it is still pretty difficult to get hired there.
Difficult to get hired there? Lol there's a bunch of non-targets
You really lack some world, which I can notice by the way you use the the word shithole.
Not your average mexican here but neither a millionaire like the ones mentioned here. My family is well off (honest money… first mistake of foreign people that have never been here is to think that all rich families were made from corruption in politics or drugs), so that has allowed me to live in Europe, Asia and South America (Mexico is part of North America, in case you didn’t know) for several years combined; London, Paris, Shanghai, Hong Kong and Sao Paulo to be specific.
Let me tell you, life in Mexico City or Sao Paulo can be more comfortable and enjoyable than in a lot of other “1st world cities”, yeah, much of your US cities included.
If you came here and got scammed because of your gringo appearance, I’m sorry. But if you have never been to LATAM, you are missing on some great experience that will surely change your mind, the world is much more than New York, Baltimore or Boston.
seems pretty based if you ask me
Hey, I think the same. These kids are smart. And I mean, I would be angry too. Imagine if you have dumb as rocks siblings but for some reason your grandpa with alzheimer's placed all the money into a family office that now just pays you a pittance in dividends because it has to be divided among 50 kids because your grandpa and all of his sons could not keep it in their pants and had to spawn like 5 kids each. You now have 25 legitimate brothers, sisters and cousins, who knows how many more illegitimate kids and mistresses getting dividends too. This is a real problem!
Thankfully VC funds came up with this amazing innovation that allows anyone with around 1,000 lines of code to call their prototype an 'early stage start-up'. The family offices probably have internal regulations stating that they cannot invest in businesses with no proper valuation, but the moment some guy in California sends in a check by mistake the business has a real valuation and it easily goes through all of the risk controls set up by your grandpa letting you get an express inheritance. And your grandpa isn't even dead yet!
Can you write more about LATAM? Sounds super interesting
I could write more about LatAm but I'm not sure what WSO may find interesting and I hate just blogging about myself. If there are specific things you'd like to know about, you can let me know here and I can write about that if I have some non-trivial insight.
What's it like dealing with the ones who are part of, or affiliated with a cartel?
In Mexico it may be different because there the cartels are basically the government but at least where I am from, cartel people and cartel businesses are shunned by the, let's call them, the 'upper-upper-class'. By 'upper-upper-class' I mean the people who are wealthy but are not currently related to cartel activity. I would not count myself in that group, but I would consider myself 'upper-upper-middle-class' in the sense that I have good money, and the money I have is not related at all to cartel activity and thus I associate myself with only the people with similar status. If someone has money but we know their money comes from cartel activity, we avoid it like the plague. We know it exists but can't say anything about it because no one wants their kids car-bombed on the way to school. It is like they exist in their own little bubble. They may have money, they may have lots of money, but they would never receive any legit investment from here unless if it was by other cartel people. I would also never use any of their businesses mainly because there is always shady shit going on. A good example here is restaurants. If you go to a restaurant that is owned by cartel-related people then you better say your prayers because every now and then there is a cartel-related shootout in those restaurants. Cartel members are frequent customers in such venues, so if someone wants to carry out a hit they will usually find them there.
I extrapolate that to everything else. If I know that a business is owned by someone related to a cartel I will avoid it completely. I will never use it, I will never download their app, I will never invest in it. And while this does not describe my own friends, I have seen some founders with 'cartel' last names. I can tell you right away that every single $ those VCs invested in those businesses will be lost. Why? Because NO ONE will ever use those apps or services. It is probably some second or third generation kids trying to build up 'legitimate' wealth by starting a business, but in my eyes they are just criminals. Get that shit away from me. Imagine rating an app one star on the appstore and the next day getting stabbed on your way to the office. No no, I won't even download it. Can't risk it.
Well, do you have any insight into VC funds in LATAM(specifically brazil)
Apart from that you talked about the col being super low, how's your lifestyle there, if you don't mind me asking which country are you from originally and how's your lifestyle compared to that country?
I'd be curious on your take on consulting in Latam
Have a chance at MBB in a post-mba equivalent position. Just wondering if I'd see similar craziness hah
Hahaha as "insider" I guess you mean someone who watched Pablo Escobar on Netflix or something like that.
Nothing further from the truth, I work at one of the top 10 VCs in the region (based on AUM) and this is just nuts. Most founders that we and our competitors invest in is because of their profile (sure they tend to be upper class but that is just natural selection--> they have more opportunities to get brand name exp in their CV and connections/resources to start the business)
The only case I know that resembles a (tiny) bit what you said is a new VC in Brazil that just raised a 100mm fund, the founders had no prior exp but the dad of one of them is a billionaire and provided the network for fundraising, but that was on the VC side anyway, not startups.
There might be some shady family offices that invest in some shady startups because of family connections, but those usually are not within the "VC spectrum" and also are not the ones that tend to show up in the news/attract attention.
Believe or not, VC in Latam is pretty meritocratic.
I didn't even know there was 10 VCs total in the region to be honest
I suppose I did exagerate a bit in my post so let me clear things up. First, of course not ALL start-ups are scams. Second, the people I personally know are actually trying to build great businesses however while that may be true it is also true that:
But as far as I know they really want their start-up to succeed, mainly because it will piss off their siblings.
Sure, but on points 1, 2, 3 I really don't see how that is specific to Latam. Just seems that the people you know from the region are heirs of really rich individuals who are also very competitive and want their own business, and that is something that happens everywhere. I'm sure that is like >0.0001% of the population of Latam, and again, not really part of the VC spectrum here.
On point 4, there is nothing really special about copycats. All founders in all regions do it, if someone in Sweden invented a new solution for banks that also works in America but they don't have the knowledge/resources to implement it here, a lot of solutions are going to pop up imitating it in the attempt to the gain the market before they get here. No special relationship here with rich or poor founders.
And finally this idea that VC is just going to pour money into rich founders because they check some minimun requirements is crazy. Just at my fund, the investment rate (the companies we invest out of all those we receive to analize) is 0.2%. I get it that you see Adam Neumann receiving a 350mm check for an idea and seems like VC just puts money into everything, but in reality is super super hard to receive VC funding, and I won't care at all who the father of the founder is or their personal history, I only care whether or not it can generate a big return.
The post would be more accurate if it said something like "Rich heirs in Latam are wild", because it really has no relationship with VC.
Are you referring to Maya? Is it all funded by Lemann? Would love to know more.
Bump
Not all of it was funded by him, of course, his personal network helped a lot with fundraising. But they had a pretty successful fund, and Monica had a pretty good experience walking in.
Agree, based in Sao Paulo as well, there are some cases of funds being anchored by partner family members (my fund is). Most of my coworkers came from upper-class families, but not how OP is talking, and all of them went to great schools and deserve to be here. On the founder side, most of my port cos have upper-middle-class founders, with a few outliers here and there.
People think Brazil and the rest of LatAm are a shitshow.
Of course, people have a leg up, but LatAm finance is just as meritocratic in the US. Look at the profile of those coming from US target schools, pretty similar in comparison of those out of insper/GV.
I always thought that Miami should start listing IPOS on its exchange and a bunch of LATAM companies could IPO and trade on it, in order to really make Miami a center of latam finance
but yeah that whole thing sounds wild
I've worked in MF growth equity for a couple years and then infra PE for the past 5+ years in LatAm and none of you here seems to have a clue of what it is really like to work in the region. The OP is entertaining of course, but vastly exaggerates. The only thrilling thing about working in LatAm investing is that 90% of foreign investors lose money be it due to FX or understating the risks.
How do you see LATAM then?
dunno why but this post gives me some serious Denzel Washington 'Man on Fire' flashbacks.
The problem with LATAM, much like Africa, and frankly even China to an extent, the return profile is still far too low to bother with the risk.
You're obviously far senior to me but if those locales are troublesome, going into India/South Asia is a whole different ball game. I consult for a firm doing some PE work, and the things I see....wow.
Though for the rich mercantile families like Adani's, the picture is only getting rosier. Wonder if we'll ever see an IPO boom for these massive Privately owned family conglomerates.
Nah, I'd say LATAM is by far the worst place to invest. Far worse than Asia. LATAM court systems are garbage. Brazil has no concept of a class action - I've seen 20 years old funds still open cause there are lawsuits for portcos. Currency is junk. Hasn't been a successful buyout in ages. So much corruption. Garbage.
Can you elaborate on the India part? sounds super interesting
I'm from LatAm, and can relate to most of this. Worked at a family office who has a legit IC and hires former BB investment bankers, and saw how they would deploy money for VC or startups founded by one of the GP's kids
To be fair, I would not rely 100% on these investment professionals as they have some conflict of interests too. You see, they were hired because they were post M7 MBA associates at BBs, and they got into these BBs because they could afford the MBAs and they were the only Latinos who were aware of their existence. It all starts at uni, rich kids go to private unis (which have like 50% acceptance rates, high tuition and zero financial aid), these unis are pretty much the only target unis to break into high finance and hence, this allows these kids to have managerial exposure at some projects and good recommendation letters, which helps them get into M7 MBAs. The kids from public unis or average private unis do not even know that these MBAs exists or that it is not extremely hard to break in, especially as a diversity candidate. Given that these public school kids do not apply, pretty much all the private uni rich kids get in, as they are the only ones who knew about this path and they match the diversity criteria (i've seen people get into a M7 with a low 600 gmat and nothing impressive)
So, almost all of these post MBA BB associates,who later become investment professionals at the LatAm family offices, are already rich kids and probably already know these VC/startup founders or the GP's kids. Hence it is not that hard to get the funding approved. IMO LatAm still does not have smart money to date (extremely hard to find an unique or brilliant idea here, with notable exceptions), pretty much all success is still heavily influenced by family fortunes, some even go back to the times when Europeans first came in the 15th century
All of this is super accurate.
Accurate,
Have a lot of friends in other funds or that have raised money. We all have the same profile, went to good schools and private schools as a kid, some ended up at Insper/GV others decided to go abroad US/Europe. Got good jobs out of these schools and are now here, a bunch of M7 MBAs (not low 600s, but have seen friends with 670-80 at HSW).
I am impressed by how many inaccurate and false things you wrote in a few paragraphs.
I worked in a top 5 VC of Brazil in terms of AUM. Currently and I am the founder of a startup that raised a good "seed round" with American and Brazilian VCs, so I would say that I know pretty well the founders of Latam.
Most of the founders came from "upper-class" families. In Sao Paulo, it means your family makes something between US$40,000 to US$200,000 per year. Even with the cost of living being much cheaper in Latam, you are very far from being super rich.
If you check the Linkedin of the founders in Brazil, most of them used to work in Investment Banks, VCs, PEs, and Consulting and went to global Business Schools, such as Harvard, Stanford, and Wharton. Nothing related to family offices or family companies.
Even though I've never heard of it before, I don't that doubt that there could be a few businesses funded by family offices, but that is not common and does not represent the region's ecosystem.
Labore ipsam veritatis impedit sed unde soluta. Nisi enim voluptates est quo laboriosam.
Recusandae voluptatem et eligendi recusandae. Illo quas autem nulla nesciunt. Aut explicabo reiciendis iure. Qui natus voluptatum omnis voluptatem maiores. In commodi aut labore atque blanditiis.
Earum ut dolor maxime est praesentium. Impedit occaecati ab quod officiis. Cum cum quis corporis nobis ea. Perferendis officiis aut quos mollitia et. Quia cumque sint necessitatibus facere blanditiis deserunt magnam.
Quis voluptas odit consectetur qui. Eius vel nostrum et quisquam totam. Sed et a iusto cumque dolor rerum. Aliquam voluptatem eos temporibus. Modi ipsum magnam aut.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Reprehenderit laboriosam commodi voluptas harum. Quia eum nemo officia eum dolorum. Voluptatum et voluptatem ab id. Minima incidunt modi in est.
Esse deleniti assumenda mollitia aliquid. Eligendi fuga explicabo incidunt occaecati quis reiciendis est. Voluptatibus consequatur optio tenetur consequatur sint accusantium enim ex. Quasi facilis quis quia rerum sit rem nesciunt.