QED's Partner and Head of International Early Stage Investments Bill Cilluffo sits down with QED's Partner and Head of Latin America Mike Packer to discuss how Mike's eagerness to digitize corporate banking led him to fintech investing in Latin America.
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Speaker 1 (00:19):
Thank you.
Venture capital firm focused oninvesting in fintech companies
all the way from pre-seed to IPO.
Fintech Thought Leaders bringstogether the most talented
entrepreneurs, tackling today'sbiggest problems.
If you're looking to learn moreabout what motivates our
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place.
Hello and welcome to theFintech Thought Leaders podcast.
(00:41):
I'm Bill Salufo, head of EarlyStage Investments at QED
Investors and today on thepodcast, I'm really excited to
be joined by Mike Packer,partner and Head of Latin
America for QED.
Mike, welcome to the podcast.
Happy to be here.
Thanks for having me.
We go way back, having workedtogether for both sections of
our careers, both here at QEDand at Capital One.
(01:02):
Let's just start by talking tothe audience a little bit about
how you got roped into joiningus all here at QED.
Speaker 2 (01:06):
Yeah, I mean I should probably ask you how you
allowed me to kind of stickaround this long.
I was at Capital One for 10years and got to see a lot of
interesting things and hopefullydo a lot of interesting things
there as well.
I'm sure we'll talk about a fewof them, but you know, my last
job there was trying to digitizethe small business bank, in
particular, the lendingoperations of the bank, and we
(01:28):
had 40,000 small businesscustomers all over the kind of
East Coast to Texas in the US.
Trying to transition that andlaunch new products was a really
exciting challenge.
And this was in 2013, 14.
And at that time a lot offintech companies were starting
to pop up.
I don't know when the term wascoined, but it was probably a
few years old at that point.
The short story of that is weended up not accomplishing what
(01:50):
we wanted to accomplishinternally at Capital One, but I
saw and was really drawn to thesuccess or the progress that
some of these fintech companieswere making, and so I had a
couple moments of truth, oftruth myself, and really
realized that I wanted to dosomething smaller, not be at a
big company anymore, really tryto get a little bit more
(02:12):
ownership over things, and thenwanted to do something in the
fintech space, but one of mycalls ended up being to Frank
Rotman.
That led to a bunch of reallyinteresting conversations and,
yeah, I think the ideaoriginally was to try to help
the portfolio and see if I couldlearn investing Still working
on the second one, but I think afew portfolio companies have
benefited from our work thatwe've been able to do together
(02:33):
and it's been an awesome journey.
Speaker 1 (02:35):
So why investing?
Probably called Frank becauseyou knew Frank.
You weren't actually allowed totalk to me, given my exit
agreement with Capital One, so Istayed out of your process.
I'm glad we got that on therecord.
Given my exit agreement withCapital One, so I stayed out of
your process.
I'm glad we got that on therecord.
Understandable why you madethat call, but did you also
pursue the idea of operating andjoining a startup, or was there
a particular attraction toinvesting?
Speaker 2 (02:59):
I thought I was going to be an operator in kind of
the next phase of my career.
I mean, I enjoyed leading anorganization, interacting with
customers and clients, gettingthings done.
Seeing the kind of output ofthat hands-on, I initially was
kind of drawn to the idea ofbeing part of something like
that.
And you know the back of mymind before this kind of
transition, when I did my MBA, Ikind of always thought I would
(03:21):
want to explore investing at onepoint or another, because I
really like this idea ofownership, owning companies
whether it's owning your owncompany or owning investment but
owning something that you canchange the results of, right or
impact the results of.
And if you go back even further, I'd always kind of thought
about my job at Capital One as acapital allocator.
Right At the end of the day,the things I was trying to
(03:41):
figure out in any of my jobs waswhy should we spend money here,
why should we lend money here,or how much capital we put to a
certain business, and so tyingtogether a little bit of kind of
the always thinking about thereturns on kind of things that
we're doing and trying to be acapital allocator, learning a
little bit about investing inthe MBA and wanting to kind of
(04:03):
be an owner of what I was doing.
And then meeting QED, it kind ofall happened a lot faster.
I mean it took six monthsbefore I kind of came over.
And then even even then, wewere like, well, what am I going
to do here?
At that point, you know QED wasa lot smaller and so you know,
I first just took it on almostlike as a experiment.
Can I learn investing?
(04:25):
Am I going to like investing?
I knew I liked a bunch of theideas of it and so that was how
it started.
And then, you know now, if Ikind of look back on it, I
really like the being able tospread my viewpoint out across
multiple companies, the type ofinvesting that we do.
We get really active, reallyinvolved.
You know, I think about it asan operator still and I'm
obviously not making as muchimpact as our entrepreneurs and
(04:46):
the executives and teams on theground, but I'm I do feel like
I'm part of the teams.
And then so it kind of startedto connect the dots in the in
reverse but not going forward.
So yeah, I think honestly Ilucked into it.
It kind of got a little aheadof me in my career.
I probably thought it was goingto be my next stop after going
and doing something, but got theopportunity to test it out and
I've really, really enjoyed it.
Speaker 1 (05:07):
Can you talk a little bit about your journey at
Capital One and maybe you knowwhat are a couple of the main
things that stick with you andare helpful as you work on
investing today?
Speaker 2 (05:16):
I started in the credit card business, which I
made a mistake.
Introducing myself to someonethis week I said oh yeah, I
spent five years in the cardbusiness and if you don't talk
to someone in the card businessI don't know what that means.
But in the credit card businessand doing particularly in
subprime card business, whichwas a big part of Capital One
when I joined, and I got to seethat business kind of from the
(05:37):
bottoms up pre Great Recessionand post Great Recession.
It was an incredible experienceas an early, early 20 year old
because you got to see thingskind of crash and come back and
fortunately for me I was rightin the middle of a bunch of
really interesting decisionsthere.
Speaker 1 (05:51):
You're probably one of the few people out here that
say fortunately for me, I wasright in the middle of the Great
Recession, but I totally, Itotally understand what you're
saying.
Speaker 2 (06:01):
So I was 25, 26.
And you're just reading theheadlines.
I'm basically running datamodels and trying to figure out
what our accounts are worth on aday-to-day basis, our customer
accounts.
And then you see the stockprice go from 90 to I think it
was 8 or 7.
I mean, I don't know if youremember the exact number, and
so it literally felt like thosedays people's hair was on fire,
(06:24):
but I didn't have much of a 401kor stake in anything at that
point.
Speaker 1 (06:28):
But at the end of the day though, I totally get what
you're saying.
I mean, if you look, there'sthe individual learning
component of it.
But you also sort of abstractto looking at Capital One.
I mean Capital One needed thatto happen.
It had been 15 years of talkingto the street about how great
it was at managing credit, howgood it was at assuming a
downturn, but it was like thelongest run of prosperity in the
history of mankind.
That's right.
So Capital One actually neededthe recession to kind of prove
(06:51):
out that it fully worked and, Ithink, passed with pretty flying
colors.
Speaker 2 (06:54):
Yeah, and then the lessons on resiliency and why
it's important from a justbusiness building perspective
are just totally ingrained in me.
And then I think the flip sideof that was also how to think
about the re-entry.
When everybody's hair was onfire, everything kind of stopped
and it was all about defense.
But how do you flip to offense?
I had the opportunity to bekind of the front lines when we
decided to go on offense andthat was fascinating because a
(07:17):
lot of being in a big businessis all about optimization.
Right, it's all about keepingthe lights on making sure things
are working, tweaking thingshere and there.
But at that point and I guess itwas probably ended up being
early 2010, when we started togo, again really felt like it
was high urgency, super intense.
For me as a I don't know whatthe title was or whatever, but
(07:38):
somebody who was just startingto be a manager or kind of
understand things, be able tointeract with the top of the
organization.
It was just a very excitingtime and part of what was so
exciting about that to me wasagain a little bit of the
newness, the urgency.
You know it was an unsolvedproblem which led me to join
your group.
Eventually, once things kind ofstabilized there, I saw a new
(07:59):
group kind of joining across andwe went and did partnerships
together.
It was when I was working foryou that opened my eyes to a
whole world outside of CapitalOne, which we might need to talk
about more over beers, orsometimes we do.
Dealing with partners is hardbut is a huge part of kind of
the way things work, and so thatwas a really kind of pivotal
moment for me to both tryingsomething new again but opening
(08:22):
my eyes to the external world.
And then we already talked alittle bit about the small
business space.
So to try to distill that toyour question about you know
what did I take away?
You know I love theintellectual kind of rigor at
Capital One.
You know the way decisions aremade sometimes can be slow but
they're very data oriented, verythoughtful, thinking about you
know all the ways that thingscan play out and thinking about
(08:44):
that as a capital allocator Imean that was probably my major
takeaway.
And the other thing is theimportance of surrounding
yourself with smart people andengaging people, people you get
along with and how big of a partof your job that is.
I think I had a greatexperience there.
So those are probably two ofthe top things that came out of
that, and a bunch of kind ofmore detailed skills around
credit and data and whatnot.
But those are probably themajor lessons.
Speaker 1 (09:06):
You were trying to digitize the bank found that you
weren't having the success youguys all wanted to, in part
because you know fintechs hadsome advantages and you got
exposure.
Are there one or two examplesof things that you saw outside
that got you particularlyexcited about fintech, that were
sort of inspiring, as you sawit from the Capital One lens?
Speaker 2 (09:24):
I think the biggest thing was on the product and
execution side.
I think we had a lot of thesame ideas.
We would brainstorm and do ourresearch and come up with what
we thought it should look like,and then we'd go and try to do
it and filter that down, kind ofmorph into something else.
You'd end up getting some no's,you know, as you try to
(09:45):
implement something.
And these fintech companieswere able to just do it.
They had the urgency and theownership over it, so they were
able to.
Not only were they able to kindof build the products that I
thought we wanted to build, butthey really had a passion and I
don't know intensity about howthey thought about the world
(10:06):
Right.
And so I was really drawn tothose two things.
And you know, again, I think ofmyself as somebody who had
pretty high personal ownershipover what I was doing.
But you know, when you're in abig company, you rely on a lot
of other people below, above,around you, to get things done.
And that was probably thebiggest thing for me.
And just that iteration led tothings that we hadn't seen or
(10:28):
thought of right In terms of newdata, new ways to engage with
customers, better ways to thinkabout risk.
Those were all things that werehappening at that time.
Speaker 1 (10:38):
So talk about your early days at QED.
We've hired a number ofex-operators to come into QED.
I would say the vast majorityof us have taken a little while
to find our footing.
It is a pretty jarringdifference in a number of
different ways, you know.
I'd love to hear about yourearly days, and where were you
able to sort of quickly applythese?
You already referenced ahandful of your learnings from
(10:58):
Capital One.
Versus where was it justcompletely jarring and you
needed to take a little while tofigure out what you were doing?
Speaker 2 (11:05):
I think it was relatively smooth where problems
were defined.
Working with NewBank in 2016 oncertain projects that they were
doing in their card businesswas a very kind of natural thing
to do, right?
It was something that I'd seenbefore.
I had confidence in the waythat I had done it before and it
(11:26):
was very kind of easy to say,hey, I've done this.
I think that was easy andthat's still a big part of what
we do, right?
It's kind of connecting dots onhey, this company's doing this
or we ran into this situationbefore, and so that was pretty
natural.
Of course, now I've added a lotof experience to that, but I
think the harder part for me wasjust like the ecosystem, like
(11:49):
getting your heads aroundsomething that's totally white
space In venture.
There's infinite things to do,and so it's all about kind of
prioritizing and figuring outhow to do those.
I think that was veryoverwhelming.
And figuring out how to dothose.
I think that's like that wasvery overwhelming.
And yeah, and then just likehaving the confidence or self
awareness that like peopleactually wanted to listen to me
(12:10):
or I could kind of influence theway things went.
I mean, I remember my firstvisit to New Bank, just being
like completely stunned whenDavid Velez was like, so what do
you think?
What should we do?
And I'm like, hey, man, you'rethe CEO, like you should know
what to do.
In seriousness, like he didn'tknow me, right?
I mean, he knew me from aresume, knew me you know because
(12:33):
of you guys who I was workingfor.
But he saw that value, that myspecific experience and the time
that I spent with this team,and he wanted to know what I
thought.
So that was a big moment for meto just be like, oh okay, like
now I, when I think things, Ishould just like say them and
you know, maybe they're notright, but we'll figure out the
problem.
So a little bit of that kind ofconfidence and defining the
(12:54):
problem, I think, was achallenge for me.
And now maybe it's the otherway around, maybe I'm a little
too opinionated on certainthings or too stuck in my ways,
but those were the things thattook me some time to ramp up.
And then the other side ofconfidence of where you're
spending the time I think that'sanother thing that I've gotten
more comfortable with as I'veseen more things over the years.
Speaker 1 (13:15):
Makes sense.
I mean a little bit of an aside.
I do think that's one of thethings that makes Velez so
incredible as a CEO.
I mean, he's just alwayssurrounded himself by massive
talent and has never been thetype that has the need to be the
smartest person in the room andis always listening for input,
and when he makes a decision,they move 100%.
You describe one of his truestrengths as a leader, which is
(13:36):
impressive to see.
So, in your early days at QED,you already described some of
the work you did with NewBank,but you also spent a fair amount
of time with our own fintechjunkie, frank Rotman, looking at
a handful of things in the US.
Can you describe some of thedifferences?
Maybe, and ultimately, now youspend the vast, vast majority of
your time leading our LatinAmerican business.
How did those early days ofdabbling in a little bit of
(13:59):
places, a bunch of time withNewBank, sometimes looking at US
deals how did those early daysinfluence you and lead?
Speaker 2 (14:08):
you to really the Latin American world as your
focus.
I think a lot of it washappenstance, maybe a little bit
of luck or opportunism.
Frank and I were in 2016,.
He was doing a lot of researchin the prop tech real estate
space, so I got to spend a lotof time in kind of that world
talking to companies, travelingaround trying to figure out how
to screen companies and findcompanies.
(14:29):
That was a pretty awesome thingto see and, of course, working
with Frank on a few deals.
Most actually, I don't think wedid any deals, but I think we
worked on, you know, like half adozen together.
So just you know the rigor ofkind of seeing how deals done.
It was good to get some repsthere and ultimately I just
(14:49):
spent a lot of time on I guessat that time it was our venture
build program now kind of ourbelay program kicking around a
few ideas and ultimately helpedstart Motorifi, which is now
Caribou, which was an incredibleexperience in and of itself.
But some of the differencesbetween Latin America and US you
and I were right there togetherand we talk about this a lot,
but in 2016, 2017, it didn'ttake much to get your head
(15:11):
around everything that was goingon in fintech and it was very
early days of applying some ofthe hypotheses that we had about
digitization, new styles ofbanking serving the underserved
these are just major, majorthemes and still are in Latin
America.
And so I think because we kindof knew the space, because we
(15:32):
saw the opportunities from theground up, it felt much more
tangible to me than the US, andI think that's still true.
I mean, you would agree withthis right?
I mean in any of our marketsthat we're in that are quote
unquote smaller right, we cankind of wrap our heads around
the ecosystem a little easier.
You know, in the US, if you'rechasing after a theme or an idea
, you might be talking to fiveor 10 companies that are doing
(15:55):
that, and there might be anotherdozen or three dozen companies
out there that you don't knowstarting up, and so I think that
was early on.
There's a huge advantage oftrying to figure out how to be a
you know, the investmentdecision right, because you're
kind of sourcing is much moreboxed in.
So I was kind of drawn to thatand drawn to the size of the
problems and the challenges andthen just super energized by all
(16:18):
the people that I was meeting,and then we just started kind of
rolling with it.
Once you launched the ScotiaFund and our desks were full of
new pitches and ideas, it waseasy to get distracted there.
Speaker 1 (16:28):
I certainly didn't realize at the time how big the
opportunity was in Latin America, but I still maintain Brazil is
the best fintech lab in theworld.
You know just the margins thatare made in banking and other
financial services and how lousyeven sitting here today after
you know, 10 years after fintechreally hit Brazil you know how
lousy the customer experience isfor the incumbents.
(16:49):
I mean, it's just a perfectlaboratory for innovation to
make a difference, and Mexico isnot far behind.
Speaker 2 (16:55):
The regulators have done an amazing job there.
When you think about what thepaths for regulated companies
you companies maybe we couldargue India or some places in
Southeast Asia have some forwardprograms, I think, in terms of
the size of the market, theopportunity for fintech and then
how the road's been cleared, Itotally agree it's the best
(17:15):
risk-adjusted market in theworld for fintech.
I kind of lucked into itbecause you guys had already
invested in Nubank before I came, but since we've hired Kami
there, I've been building ourportfolio out.
We just continue to uncoverreally, really cool
opportunities and spaces where Ithink we can take big bets.
Speaker 1 (17:30):
Yeah, it's a great call out of the Brazilian
central bank.
I know in the early days ofNewBank the biggest worry is
that at some point the big bankswere just going to make a few
phone calls and find a way toget NewBank just squashed, and
the fact that that didn't happenand there were definitely some
attempts.
The Brazilian central bank, themain regulator, has been a huge
advocate of competition, forgood reason.
Right In a country where peoplepay over 100% APR for
(17:53):
installment loans, they needmore competition, and the
rollout of PIX, the real-timepayment network in Brazil, is
just an unbelievable, stunningachievement.
Rightfully call that out asanother key recipe.
So talk about your first coupleinvestments in Latin America in
general.
I wonder if there's one or twothat you could call out as
examples.
What led you to get excited inthose early days?
Speaker 2 (18:15):
Ironically, my first few investments were not in
Brazil, so maybe that's somefeedback for me after what we
just talked about.
But yeah, I mean a first kindof few to think about.
I was kind of really interestedin this small business problem
broadly I mean small businessbanking, having seen it from the
inside and then having startedto work with Confio which was an
investment that you made beforeI joined and we did some work
(18:37):
together, kind of continuing tosee the theme of how just
underserved small businesses areand especially in Latin America
there's an extremely long tailof both businesses and
underserved businesses, and sothat credit gap was extremely
obvious and very large.
And so in Mexico and I guessacross Latin America, that was a
theme that we were following,and two of my first investments
(19:00):
that were in that theme wereTienda Pago and Credit Usto,
which is now Covalto, and theability to kind of make a
digital product to try to fixdistribution, early traction
that those companies that had interms of finding good unit
economics like all those thingsjust kind of fit really kind of
into what I thought would begood investments and that theme
(19:24):
was just full of thoseopportunities.
To just plug Covalto, sincewe've called them by multiple
names.
They're the only fullyregulated bank fintech company
in Mexico right now, so they'reup to some interesting stuff.
But they were doing securedlending in Mexico.
And then, bill, you had donethe investment in Creditas,
which was doing secured lendingin Brazil, and we saw how well
(19:46):
that was working both theability to kind of streamline
the operations of assessing,securing collateral, doing
underwriting, delivering kind ofa product that would add value.
I was doing a lot of research indifferent asset classes and, of
course, was drawn to the autospace and other geographies,
which ultimately led us to Kavak, which was a fun one to find
(20:07):
earlier.
That was a very interesting onefor us because they were, of
course, buying and selling carsnot really doing fintech at the
time but having seen CarMax overthe years and then the
emergence of Carvana, we sawthat there was going to be a
fintech platform put alongsidethis and, of course, they've
gone on to grow into quite asizable fintech company.
They're one of the top autolenders in Mexico today, which
(20:29):
is a crazy stat.
So, yeah, those are a few ofthe first themes.
So it was very much tied tothings that I had seen in my
past, that we had seen in theportfolio and then from an
entrepreneur's perspective, justfinding people who were going
after these big problems, thathad a ton of resiliency and
tenacity and they weren't goingto give up.
Just to see them, the way theywere approaching these problems,
(20:50):
the passion that they have forthese problems, was really
inspiring at that time.
Speaker 1 (20:54):
Are there any commonalities of the
entrepreneurs you look for thatare specific sort of traits or
attributes, or have you foundjust hey, it's all different
shapes and sizes and they're alldifferent.
Anything you'd share there?
Speaker 2 (21:05):
I try to keep an open mind to it.
But I think the most importantthing for me is that we kind of
mesh or get along and understandeach other.
So there is a portion I reallybelieve in like how we fit
together right.
So if this thing works out,this thing, if investment works
out, we're going to be stucktogether for 7, 10, 12 years,
whatever it is, and I want totry to have good read on that
(21:27):
kind of fit.
But the things I think that I'vefound and a lot of these are
commonalities in QED.
But somebody who has goodcommand over the details has a
hint of humility in terms ofwhat they know, what they don't
know.
I love people who think interms of, like data orientation
what do I need to test to learnthis?
Where can I find data tosupport my hypothesis?
(21:51):
People don't just kind oftotally jump off the cliff
without the parachute.
They at least know, have a planto kind of put together one or
pick up one on the way down.
So that's a fine line there too, because you want somebody who
has a huge vision and passionover those things.
But those are probably the fewof the main common threads that
I like to look for.
Speaker 1 (22:10):
Oh, that's super helpful.
So you described a little bitof the early days of Latin
America.
We had done a coupleinvestments in Brazil before you
got there.
I think you were very active inthe early days at a few of the
non-Brazil investments.
How have you seen the ecosystemchange?
Qed actually did the firstinvestment in NewBank before I
got here, even in 2014, whenthere wasn't a whole lot going
(22:31):
on.
What are some of the main waysthat you've seen the ecosystem
change over the years?
Speaker 2 (22:34):
Yeah, I mean so just talking about Brazil for a
second, and then maybe we cantalk about Mexico and the rest
(22:56):
of LATAM.
I mean, it's gotten just somuch bigger, right.
Just the number of companies,the amount of capital that went
into, you know f kind ofeverything on the way down.
And again, the Brazil.
I think the best thing that'scome is just the talent.
People want to be part ofstartups.
They've seen successfulstartups.
They want to leave bigcompanies or they want to go to
MBA and then come back or evenjoin a startup from under.
Guys become a career path, ifyou will, and I think that's an
(23:17):
amazing testament to what'shappened in recent years.
And then I think the last thingI'll just touch on in Brazil
but this is also true in therest of the region is you see a
lot more ideas that aren't thekind of X, of Y, so like the
business that has beensuccessful or on the verge of
being successful in the US or UKor China.
You know, coming to Brazil, yousee a lot more of the kind of
(23:38):
unique ideas.
I mean you talked about PIXearlier, several other
regulatory changes that havedriven innovation, that are
specific to Brazil, and I thinkthe combination of talent and
that opportunity is unfathomablewhere it is today versus where
it was in 2016.
Mexico, of course, is the samething.
I mean it's gotten bigger, it'sgotten more sophisticated.
(23:59):
In Mexico, the maturing of theecosystem has been pretty
striking, but I think there arestill ways behind Brazil.
I think mostly on the talentside because, honestly, we're
still all waiting for a coupleexits to come out of there and I
think once that happens, theenergy on the ground in Mexico
City or I was in Monterey lastyear I mean it's pretty stunning
(24:21):
just the opportunities peopleare seeing.
And then that's something youdidn't see 2017, 2018.
It was a lot more caution.
It was, I think, a lot harderto see kind of opportunity,
whether that was risk-taking oractual opportunity.
You know who knows opportunity,who knows we spend time in.
(24:42):
Colombia is probably the nextmarket, and then a little bit
probably in Chile and Peru and afew other places.
Ecuador we're seeing someactivity, but all those places
are just like another stepbehind.
But still you're seeingentrepreneurs go and continue to
come and again, I think we'vehad a very slow year.
Maybe year two of companyformation.
It's still just strikinglydifferent from what it was eight
years ago.
(25:02):
Think we've had a very slowyear, maybe year or two, of
company formation.
It's still just strikinglydifferent from what it was eight
years ago.
So we've kind of hit someversion of the inflection curve,
you know 2019, or kind of thehangover impact of 2021.
But people are risk taking,they're looking to apply
innovation, they're trying toand you see this in industry too
, right, you see this at theincumbents, whether it's kind of
banks or big consumer companies.
Everybody's looking to changethings and innovate, invest, and
(25:23):
that's a big change in theecosystem too.
Speaker 1 (25:25):
So if you look at, you know around the region and
pick your country or pick yoursector of it, what are a couple
of the trends that you'reactively watching and personally
quite excited about?
Speaker 2 (25:35):
I'm going to hit on PIX in Brazil and some of the
other changes that are going onthere.
Pix and the receivableslegislation the ability to kind
of use receivables as collateralI think these two things can
change the way payments are doneand commerce is done.
We've seen a lot of it on theconsumer side so far and I think
in the B2B space we're going tocontinue to see some innovation
(25:57):
there.
So we're very excited aboutcompanies that are trying to
find new ways to streamlineworkflows, streamline payments,
streamline credit across thesenew channels and seeing lots of
companies innovate in that space.
And then, I think, across theregion broadly in the B2B space
B2B payments, back office,financial tools for businesses
(26:19):
there's a lot of kind of spacethere.
There's a lot of inefficienciesin still the way that
businesses have or haven't beendigitized in the small business
and middle market spaces.
So we continue to be quiteexcited about a lot of things
there.
I very much continue to followInsurTech.
I think it hasn't had a lot ofactivity by comparison to some
(26:39):
of the other trends that we'reseeing, but the opportunity from
a macro perspective and theneed for certain types of
insurance is totally thereacross multiple markets.
So we're seeing some innovationand progress there and kind of
hopeful that there's going to besome good companies.
And then, lastly, kind of thiscategory of cross-border
payments, global trade.
(27:01):
I think it's just fascinating.
Right now Cross-border paymentsare very kind of hard for a lot
of companies again, especiallyif you're not a large enterprise
or if you're not working with alarge kind of international
bank, and even then things canbe quite clunky and slow and
hard.
So we're spending a lot of timereally trying to understand the
rails there, where theefficiencies come from and then
(27:22):
how that's tied to actualtransactions.
So what are these cross-borderpayments paying for?
A lot of it is kind ofimport-export services and
whether it's logistics or actualgoods, there's a ton of
complexity there.
There's lots of things I thinkfintech and data and platforms
can and are starting to do.
And then the last kind of subtheme there which is absolutely
(27:42):
on fire in Mexico or at leastlike getting a lot of airtime in
Mexico is this is nearshoring,right.
So that's also a global trend.
It's not just the US, mexico,but everyone trying to bring
supply chains closer or changingwhich jurisdictions you have to
transact to, how you buildrelationships across border, how
you manage all these things,and I think that trend is going
(28:03):
to continue to push change.
Speaker 1 (28:05):
Yeah, I mean I'd love to maybe go just a little
deeper into that.
It does seem like, as a resultof the supply chain disruptions
due to COVID and some of thepolitical issues going on in
China, mexico certainly seemsvery well positioned again
beyond fintech but just globally, to take advantage of these
trends.
I know that you sponsored a bitof a field trip to the Monterey
(28:25):
region with a number of ourportfolio companies and a number
of our internal folks.
I wonder if you can just talkabout kind of what you're seeing
on the ground, either for thenearshoring in general, but also
then maybe its implications onfintech.
Speaker 2 (28:38):
Yeah, so I went to Monterey last fall.
We had an incredible trip butit totally felt like a boomtown.
It was like everywhere you wentyou could feel a version of
booming of the manufacturingsector.
And there's some crazy data outthere about some of the growth
in foreign direct investmentmanufacturing space, number of
companies that have kind ofmoved in.
But what's happening is peopleare moving production out of
(29:01):
places like China and SoutheastAsia and mostly to either
because they're US companiesthat are manufacturing and then
selling kind of out of the US,or companies that are trying to
manufacture and sell to the US,and so what's happening is both
of those forms of manufacturingare moving closer to the source
because of a lot of the supplychain disruptions that you
(29:23):
mentioned.
And the crazy thing about all ofthis, the biggest conclusion I
had is that it's all driven bygeography.
There's economics, there'spolitics, there's a whole host
of things, but it's driven bygeography and control.
Companies just want to be ableto control things more and the
way that you control things moreis bring them closer.
I mean, maybe there's ananalogy to remote work and
(29:43):
in-person work here, if we wantto go that way.
But these companies arebasically saying, hey, I got to
get it into Texas or I got toget into the US, and getting
into Texas or California is alot easier to come from Mexico
than, you know, china or Vietnamand so, and so that's just
happening very, very fast.
The implications of that, Ithink, for fintech are still TBD
(30:04):
in my mind.
I think if you're any companydoing commerce in Mexico,
broadly this is a tailwind ofgrowth, right.
So if you're banking, lendingsoftware to any kind of types of
business, you should be aroundthese regions that are booming
up.
So I think that's one thingthat's quite clear is there's a
(30:25):
newness, like it's a marketexpansion as opposed to market
competition, and I thinkwhenever you can get a market
that's expanding, it's a loteasier to grow.
So that's kind of one.
And then I think there's justlike some opportunity around the
building of business.
Literally we're in betweenMonterey and Centio and there'd
(30:45):
be these manufacturing centersor industrial centers, and then
you need a place for people tolive and you need a place for
people to eat and you need aplace for people to kind of stay
when they visit, and you need aplace to shop and you need a
school, and so everything kindof tied to.
That is an opportunity there.
So a lot of that needs to befinanced.
Again, there's a lot ofcross-border opportunities
because of where these companiesare coming from and what
(31:08):
they're shipping to.
So I think companies likeFinCargo are extremely well
positioned to help these kind ofcompanies.
I mean Covalta, we mentionedbefore Confio.
Those types of companies shouldbe able to benefit from this.
What if anything comesspecifically from it?
We're looking for it.
So if you're out there, reachout to us.
Speaker 1 (31:26):
I love it.
You know, another oneinvestment that's kind of split
between New York and Mexico isNuvo Cargo trying to be a
digital platform forcross-border trucking, wrapped
with a number of differentpayments, insurance, lending.
You know types of fintechproducts?
Yeah.
Speaker 2 (31:40):
Deepak and team were great help to our trip.
We were trying to learn fromthe portfolio and help the
portfolio learn too.
So a great call out for Deepakand Nuvo Cargo there.
Speaker 1 (31:50):
We've just lived through an unbelievable boom in
2020 and 2021 in venture andthen a pretty serious bust in 22
and 23.
Who knows whether the recoverywill be this year, whether it'll
be next year, who knows?
Have you seen notable parallelsbetween going through the kind
of recession when you're runninga credit business to now, kind
of this particular cycle inventure and any particular
(32:12):
learnings that the venture worldor us at QED can take from that
parallel?
Speaker 2 (32:18):
There's probably a lot.
I mean, I think the one truismis the markets are always going
to be kind of up or down andreality usually somewhere in the
middle, and so bothunderstanding that that you
can't get too exuberant or toodown I think is true In the
venture world.
(32:38):
I think it reminds me about howlong-term this game is and how
building great businesses neverhappens overnight, it's never
easy, it's very rarely, I shouldsay, maybe not quite never.
A straight line straight up,and so having the conviction in
the business model and kind ofwhat you're doing, irrespective
(32:59):
of the value of the company orthe capital on your balance
sheet, I think that's probablythe biggest lesson here.
The Capital One parallel wouldbe we were kind of underwriting
and preparing for a version ofthat and we proved that to the
market, that we would make it tothe other side.
And I think companies today whoare at profitability or trying
(33:20):
to get to profitability ortrying to kind of minimize the
burn so that they can kind ofprove the next unlock is a
version of that right.
So proving kind of yourbusiness one step at a time,
whether you're a seed stagebusiness trying to get the
product market fit or you're apre-IPO business trying to prove
sustainable profitability.
Speaker 1 (33:39):
I think that that lesson goes from one to the you
know I think we have I don'tknow close to 50 investments in
Latin America at this point,both through the core QED
business as well as our seedprogram Fontes.
You know you talked about anumber of the early investments
that we did.
Are there one or two companiesyou think that are worth that
we've done more recently?
That would be interesting toshare.
Speaker 2 (34:00):
I mentioned earlier a company called FinCargo in
Colombia and Mexico, workingwith companies who are importing
goods from around the world andthey're particularly interested
in financing those goods andtrying to make things more
efficient.
So right kind of squarely inthe zone of an underserved
market and something that'sgoing through a lot of change.
They're growing extremely fastand have huge ambitions to
(34:21):
expand the product and veryexcited to see what's next for
them and very excited to seewhat's next for them.
Cobre is another company,ironically also in Colombia, in
Mexico, working on B2B paymentsand treasury management, so
making kind of payments moretransparent, faster, easier, and
they're kind of touching on alot of the themes that we talked
about in terms ofinefficiencies in these markets
(34:44):
around money movement andstarting to do some really
interesting things in thecross-border space as well.
So, squarely and Themes andright now finding a really
interesting market and growingquite fast.
I've been in a lot of boardmeetings the past two weeks.
There's a lot going through mymind but saw the hat behind me
was Sulphaseal down in Brazil.
Sulphaseal, I think, is reallykind of hitting its stride as a
(35:05):
market leader in Brazil and youknow, it's just really exciting
to see a company in a marketthat's changing so fast, getting
close to at scale andprofitability and kind of seeing
lots of opportunity ahead ofthem.
So those are three companies, Ithink, that are all hitting it
in all cylinders across a coupleof different kind of phases and
stages the Series A, b and C orD company.
(35:27):
There in those three they're ofcourse not the only ones that
are exciting, but those are topof mind.
Speaker 1 (35:32):
We spent some time earlier in the podcast talking
about the early days of LATAM.
For a while it was just me, fora while it was you and me, but
over time we've had a number ofgreat team members working on
the Latin American business.
We must have 10 people at QEDthat do something related to
Latin.
But we've got two amazingpeople on the team, cami and
Anna-Kris, who are alongside you, dedicated to helping us build
(35:54):
this.
I wonder if you can chat realquick about the two of them and
what they uniquely bring to thetable for us.
Speaker 2 (36:00):
I feel proud to be part of QED.
Broadly, I think the team'sbeen, is and will be kind of
amazing.
It's one of the things I thinkis most exciting about what we
do.
And yeah, I have to keep upwith Cami and Anna Chris on a
daily basis.
So they keep me going, theygive me tons of energy, they're
lots of fun to work with andthey accomplished incredible
things.
I mean, both of them have greatnetworks.
(36:21):
They leverage them to getthings done super efficient,
very resourceful, and thenthey're very curious,
intellectually curious.
So that's part of like thekeeping up with them part.
But particularly I love how kindof relentless Kami is.
I think when Kami finds aproblem, you know she's going to
find an answer and usually it'sthe answer.
And so her ability to kind ofhunt things down and get them to
(36:44):
end points is unmatched andsomething that's extremely
valuable.
And Anna Chris I think she'sparticularly good at seeing
multiple angles of things.
First of all, she gets veryhard things done and I think in
part because she can see notjust the investor perspective or
the entrepreneur perspective orthe customer perspective, but
be able to kind of blend thoseperspectives together, and so a
lot of times I'm gettingadditional perspectives from her
(37:07):
or challenges on wanting tolook at a problem a different
way, and it definitely makes mea better problem solver working
with her.
Speaker 1 (37:14):
Well, the Latin team continues to grow.
Since both Anna-Chris and Camihave become new mothers in the
last year, we're building ourteam for 25 years from now you
know, in Latin America.
So that just shows how committedwe are to the long term.
Well, mike, it's been awesometalking to you today.
I mean, we talk together allthe time, but it's usually about
kind of urgent, timely topics,so it's great to kind of take a
(37:36):
step back and be a littleretrospective.
You encounter literallyhundreds of entrepreneurs out
there and see pitches all overthe place.
If there was one piece ofadvice that you would share with
an aspiring new entrepreneur,what would it be?
Speaker 2 (37:47):
I've got to give two, so I'm cheating already, I
think, if I had to give one.
I think it's keep going.
You're not going to have allthe answers.
Actions are going to give youthe information to know whether
you're on the right track or not.
Everything's not going to gothe way you want it to go, but
just keep going, find the thingthat works and then keep going,
(38:08):
find the next thing that works.
I see a lot of entrepreneurswho kind of you know they either
get caught up in their idea orthesis and it's hard to get off
of that.
And I think the other thingwhich kind of tied to some of
the other things we talked about, I mean you got to be yourself
as an entrepreneur but you can'tbe alone.
Like you got to find a supportsystem, whether it's a
co-founder or a mentor, advisoror investor.
(38:28):
Don't feel like you have to bealone because it's a long, long
journey.
Like I said, you got to keepgoing and go for it with
somebody you can trust.
Speaker 1 (38:36):
That's a great piece of advice.
Mike.
It's been amazing talking toyou today.
Thank you for joining the podand to all of our listeners,
take care and thanks forlistening.
Thanks, bill.
This has been the FinTechThought Leaders podcast your
(38:57):
window into the world of venturecapital and financial services
with today's digital disruptors.
Qed is proud to provide thebest FinTech advice you can get.
To learn more or to read thefull show notes from today's
episode, check outQEDinvestorscom and be sure to
also follow QED on Twitter andLinkedIn at QEDinvestors.
Thanks for listening.
Thank you.
Venture capital firm focused oninvesting in fintech companies
all the way from pre-seed to IPO.
Fintech Thought Leaders bringstogether the most talented
entrepreneurs, tackling today'sbiggest problems.
If you're looking to learn moreabout what motivates our
founders and team members tosucceed, you're in the right
place.
Hello and welcome to theFintech Thought Leaders podcast.
(00:41):
I'm Bill Salufo, head of EarlyStage Investments at QED
Investors and today on thepodcast, I'm really excited to
be joined by Mike Packer,partner and Head of Latin
America for QED.
Mike, welcome to the podcast.
Happy to be here.
Thanks for having me.
We go way back, having workedtogether for both sections of
our careers, both here at QEDand at Capital One.
(01:02):
Let's just start by talking tothe audience a little bit about
how you got roped into joiningus all here at QED.
Speaker 2 (01:06):
Yeah, I mean I should probably ask you how you
allowed me to kind of stickaround this long.
I was at Capital One for 10years and got to see a lot of
interesting things and hopefullydo a lot of interesting things
there as well.
I'm sure we'll talk about a fewof them, but you know, my last
job there was trying to digitizethe small business bank, in
particular, the lendingoperations of the bank, and we
(01:28):
had 40,000 small businesscustomers all over the kind of
East Coast to Texas in the US.
Trying to transition that andlaunch new products was a really
exciting challenge.
And this was in 2013, 14.
And at that time a lot offintech companies were starting
to pop up.
I don't know when the term wascoined, but it was probably a
few years old at that point.
The short story of that is weended up not accomplishing what
(01:50):
we wanted to accomplishinternally at Capital One, but I
saw and was really drawn to thesuccess or the progress that
some of these fintech companieswere making, and so I had a
couple moments of truth, oftruth myself, and really
realized that I wanted to dosomething smaller, not be at a
big company anymore, really tryto get a little bit more
(02:12):
ownership over things, and thenwanted to do something in the
fintech space, but one of mycalls ended up being to Frank
Rotman.
That led to a bunch of reallyinteresting conversations and,
yeah, I think the ideaoriginally was to try to help
the portfolio and see if I couldlearn investing Still working
on the second one, but I think afew portfolio companies have
benefited from our work thatwe've been able to do together
(02:33):
and it's been an awesome journey.
Speaker 1 (02:35):
So why investing?
Probably called Frank becauseyou knew Frank.
You weren't actually allowed totalk to me, given my exit
agreement with Capital One, so Istayed out of your process.
I'm glad we got that on therecord.
Given my exit agreement withCapital One, so I stayed out of
your process.
I'm glad we got that on therecord.
Understandable why you madethat call, but did you also
pursue the idea of operating andjoining a startup, or was there
a particular attraction toinvesting?
Speaker 2 (02:59):
I thought I was going to be an operator in kind of
the next phase of my career.
I mean, I enjoyed leading anorganization, interacting with
customers and clients, gettingthings done.
Seeing the kind of output ofthat hands-on, I initially was
kind of drawn to the idea ofbeing part of something like
that.
And you know the back of mymind before this kind of
transition, when I did my MBA, Ikind of always thought I would
(03:21):
want to explore investing at onepoint or another, because I
really like this idea ofownership, owning companies
whether it's owning your owncompany or owning investment but
owning something that you canchange the results of, right or
impact the results of.
And if you go back even further, I'd always kind of thought
about my job at Capital One as acapital allocator.
Right At the end of the day,the things I was trying to
(03:41):
figure out in any of my jobs waswhy should we spend money here,
why should we lend money here,or how much capital we put to a
certain business, and so tyingtogether a little bit of kind of
the always thinking about thereturns on kind of things that
we're doing and trying to be acapital allocator, learning a
little bit about investing inthe MBA and wanting to kind of
(04:03):
be an owner of what I was doing.
And then meeting QED, it kind ofall happened a lot faster.
I mean it took six monthsbefore I kind of came over.
And then even even then, wewere like, well, what am I going
to do here?
At that point, you know QED wasa lot smaller and so you know,
I first just took it on almostlike as a experiment.
Can I learn investing?
(04:25):
Am I going to like investing?
I knew I liked a bunch of theideas of it and so that was how
it started.
And then, you know now, if Ikind of look back on it, I
really like the being able tospread my viewpoint out across
multiple companies, the type ofinvesting that we do.
We get really active, reallyinvolved.
You know, I think about it asan operator still and I'm
obviously not making as muchimpact as our entrepreneurs and
(04:46):
the executives and teams on theground, but I'm I do feel like
I'm part of the teams.
And then so it kind of startedto connect the dots in the in
reverse but not going forward.
So yeah, I think honestly Ilucked into it.
It kind of got a little aheadof me in my career.
I probably thought it was goingto be my next stop after going
and doing something, but got theopportunity to test it out and
I've really, really enjoyed it.
Speaker 1 (05:07):
Can you talk a little bit about your journey at
Capital One and maybe you knowwhat are a couple of the main
things that stick with you andare helpful as you work on
investing today?
Speaker 2 (05:16):
I started in the credit card business, which I
made a mistake.
Introducing myself to someonethis week I said oh yeah, I
spent five years in the cardbusiness and if you don't talk
to someone in the card businessI don't know what that means.
But in the credit card businessand doing particularly in
subprime card business, whichwas a big part of Capital One
when I joined, and I got to seethat business kind of from the
(05:37):
bottoms up pre Great Recessionand post Great Recession.
It was an incredible experienceas an early, early 20 year old
because you got to see thingskind of crash and come back and
fortunately for me I was rightin the middle of a bunch of
really interesting decisionsthere.
Speaker 1 (05:51):
You're probably one of the few people out here that
say fortunately for me, I wasright in the middle of the Great
Recession, but I totally, Itotally understand what you're
saying.
Speaker 2 (06:01):
So I was 25, 26.
And you're just reading theheadlines.
I'm basically running datamodels and trying to figure out
what our accounts are worth on aday-to-day basis, our customer
accounts.
And then you see the stockprice go from 90 to I think it
was 8 or 7.
I mean, I don't know if youremember the exact number, and
so it literally felt like thosedays people's hair was on fire,
(06:24):
but I didn't have much of a 401kor stake in anything at that
point.
Speaker 1 (06:28):
But at the end of the day though, I totally get what
you're saying.
I mean, if you look, there'sthe individual learning
component of it.
But you also sort of abstractto looking at Capital One.
I mean Capital One needed thatto happen.
It had been 15 years of talkingto the street about how great
it was at managing credit, howgood it was at assuming a
downturn, but it was like thelongest run of prosperity in the
history of mankind.
That's right.
So Capital One actually neededthe recession to kind of prove
(06:51):
out that it fully worked and, Ithink, passed with pretty flying
colors.
Speaker 2 (06:54):
Yeah, and then the lessons on resiliency and why
it's important from a justbusiness building perspective
are just totally ingrained in me.
And then I think the flip sideof that was also how to think
about the re-entry.
When everybody's hair was onfire, everything kind of stopped
and it was all about defense.
But how do you flip to offense?
I had the opportunity to bekind of the front lines when we
decided to go on offense andthat was fascinating because a
(07:17):
lot of being in a big businessis all about optimization.
Right, it's all about keepingthe lights on making sure things
are working, tweaking thingshere and there.
But at that point and I guess itwas probably ended up being
early 2010, when we started togo, again really felt like it
was high urgency, super intense.
For me as a I don't know whatthe title was or whatever, but
(07:38):
somebody who was just startingto be a manager or kind of
understand things, be able tointeract with the top of the
organization.
It was just a very excitingtime and part of what was so
exciting about that to me wasagain a little bit of the
newness, the urgency.
You know it was an unsolvedproblem which led me to join
your group.
Eventually, once things kind ofstabilized there, I saw a new
(07:59):
group kind of joining across andwe went and did partnerships
together.
It was when I was working foryou that opened my eyes to a
whole world outside of CapitalOne, which we might need to talk
about more over beers, orsometimes we do.
Dealing with partners is hardbut is a huge part of kind of
the way things work, and so thatwas a really kind of pivotal
moment for me to both tryingsomething new again but opening
(08:22):
my eyes to the external world.
And then we already talked alittle bit about the small
business space.
So to try to distill that toyour question about you know
what did I take away?
You know I love theintellectual kind of rigor at
Capital One.
You know the way decisions aremade sometimes can be slow but
they're very data oriented, verythoughtful, thinking about you
know all the ways that thingscan play out and thinking about
(08:44):
that as a capital allocator Imean that was probably my major
takeaway.
And the other thing is theimportance of surrounding
yourself with smart people andengaging people, people you get
along with and how big of a partof your job that is.
I think I had a greatexperience there.
So those are probably two ofthe top things that came out of
that, and a bunch of kind ofmore detailed skills around
credit and data and whatnot.
But those are probably themajor lessons.
Speaker 1 (09:06):
You were trying to digitize the bank found that you
weren't having the success youguys all wanted to, in part
because you know fintechs hadsome advantages and you got
exposure.
Are there one or two examplesof things that you saw outside
that got you particularlyexcited about fintech, that were
sort of inspiring, as you sawit from the Capital One lens?
Speaker 2 (09:24):
I think the biggest thing was on the product and
execution side.
I think we had a lot of thesame ideas.
We would brainstorm and do ourresearch and come up with what
we thought it should look like,and then we'd go and try to do
it and filter that down, kind ofmorph into something else.
You'd end up getting some no's,you know, as you try to
(09:45):
implement something.
And these fintech companieswere able to just do it.
They had the urgency and theownership over it, so they were
able to.
Not only were they able to kindof build the products that I
thought we wanted to build, butthey really had a passion and I
don't know intensity about howthey thought about the world
(10:06):
Right.
And so I was really drawn tothose two things.
And you know, again, I think ofmyself as somebody who had
pretty high personal ownershipover what I was doing.
But you know, when you're in abig company, you rely on a lot
of other people below, above,around you, to get things done.
And that was probably thebiggest thing for me.
And just that iteration led tothings that we hadn't seen or
(10:28):
thought of right In terms of newdata, new ways to engage with
customers, better ways to thinkabout risk.
Those were all things that werehappening at that time.
Speaker 1 (10:38):
So talk about your early days at QED.
We've hired a number ofex-operators to come into QED.
I would say the vast majorityof us have taken a little while
to find our footing.
It is a pretty jarringdifference in a number of
different ways, you know.
I'd love to hear about yourearly days, and where were you
able to sort of quickly applythese?
You already referenced ahandful of your learnings from
(10:58):
Capital One.
Versus where was it justcompletely jarring and you
needed to take a little while tofigure out what you were doing?
Speaker 2 (11:05):
I think it was relatively smooth where problems
were defined.
Working with NewBank in 2016 oncertain projects that they were
doing in their card businesswas a very kind of natural thing
to do, right?
It was something that I'd seenbefore.
I had confidence in the waythat I had done it before and it
(11:26):
was very kind of easy to say,hey, I've done this.
I think that was easy andthat's still a big part of what
we do, right?
It's kind of connecting dots onhey, this company's doing this
or we ran into this situationbefore, and so that was pretty
natural.
Of course, now I've added a lotof experience to that, but I
think the harder part for me wasjust like the ecosystem, like
(11:49):
getting your heads aroundsomething that's totally white
space In venture.
There's infinite things to do,and so it's all about kind of
prioritizing and figuring outhow to do those.
I think that was veryoverwhelming.
And figuring out how to dothose.
I think that's like that wasvery overwhelming.
And yeah, and then just likehaving the confidence or self
awareness that like peopleactually wanted to listen to me
(12:10):
or I could kind of influence theway things went.
I mean, I remember my firstvisit to New Bank, just being
like completely stunned whenDavid Velez was like, so what do
you think?
What should we do?
And I'm like, hey, man, you'rethe CEO, like you should know
what to do.
In seriousness, like he didn'tknow me, right?
I mean, he knew me from aresume, knew me you know because
(12:33):
of you guys who I was workingfor.
But he saw that value, that myspecific experience and the time
that I spent with this team,and he wanted to know what I
thought.
So that was a big moment for meto just be like, oh okay, like
now I, when I think things, Ishould just like say them and
you know, maybe they're notright, but we'll figure out the
problem.
So a little bit of that kind ofconfidence and defining the
(12:54):
problem, I think, was achallenge for me.
And now maybe it's the otherway around, maybe I'm a little
too opinionated on certainthings or too stuck in my ways,
but those were the things thattook me some time to ramp up.
And then the other side ofconfidence of where you're
spending the time I think that'sanother thing that I've gotten
more comfortable with as I'veseen more things over the years.
Speaker 1 (13:15):
Makes sense.
I mean a little bit of an aside.
I do think that's one of thethings that makes Velez so
incredible as a CEO.
I mean, he's just alwayssurrounded himself by massive
talent and has never been thetype that has the need to be the
smartest person in the room andis always listening for input,
and when he makes a decision,they move 100%.
You describe one of his truestrengths as a leader, which is
(13:36):
impressive to see.
So, in your early days at QED,you already described some of
the work you did with NewBank,but you also spent a fair amount
of time with our own fintechjunkie, frank Rotman, looking at
a handful of things in the US.
Can you describe some of thedifferences?
Maybe, and ultimately, now youspend the vast, vast majority of
your time leading our LatinAmerican business.
How did those early days ofdabbling in a little bit of
(13:59):
places, a bunch of time withNewBank, sometimes looking at US
deals how did those early daysinfluence you and lead?
Speaker 2 (14:08):
you to really the Latin American world as your
focus.
I think a lot of it washappenstance, maybe a little bit
of luck or opportunism.
Frank and I were in 2016,.
He was doing a lot of researchin the prop tech real estate
space, so I got to spend a lotof time in kind of that world
talking to companies, travelingaround trying to figure out how
to screen companies and findcompanies.
(14:29):
That was a pretty awesome thingto see and, of course, working
with Frank on a few deals.
Most actually, I don't think wedid any deals, but I think we
worked on, you know, like half adozen together.
So just you know the rigor ofkind of seeing how deals done.
It was good to get some repsthere and ultimately I just
(14:49):
spent a lot of time on I guessat that time it was our venture
build program now kind of ourbelay program kicking around a
few ideas and ultimately helpedstart Motorifi, which is now
Caribou, which was an incredibleexperience in and of itself.
But some of the differencesbetween Latin America and US you
and I were right there togetherand we talk about this a lot,
but in 2016, 2017, it didn'ttake much to get your head
(15:11):
around everything that was goingon in fintech and it was very
early days of applying some ofthe hypotheses that we had about
digitization, new styles ofbanking serving the underserved
these are just major, majorthemes and still are in Latin
America.
And so I think because we kindof knew the space, because we
(15:32):
saw the opportunities from theground up, it felt much more
tangible to me than the US, andI think that's still true.
I mean, you would agree withthis right?
I mean in any of our marketsthat we're in that are quote
unquote smaller right, we cankind of wrap our heads around
the ecosystem a little easier.
You know, in the US, if you'rechasing after a theme or an idea
, you might be talking to fiveor 10 companies that are doing
(15:55):
that, and there might be anotherdozen or three dozen companies
out there that you don't knowstarting up, and so I think that
was early on.
There's a huge advantage oftrying to figure out how to be a
you know, the investmentdecision right, because you're
kind of sourcing is much moreboxed in.
So I was kind of drawn to thatand drawn to the size of the
problems and the challenges andthen just super energized by all
(16:18):
the people that I was meeting,and then we just started kind of
rolling with it.
Once you launched the ScotiaFund and our desks were full of
new pitches and ideas, it waseasy to get distracted there.
Speaker 1 (16:28):
I certainly didn't realize at the time how big the
opportunity was in Latin America, but I still maintain Brazil is
the best fintech lab in theworld.
You know just the margins thatare made in banking and other
financial services and how lousyeven sitting here today after
you know, 10 years after fintechreally hit Brazil you know how
lousy the customer experience isfor the incumbents.
(16:49):
I mean, it's just a perfectlaboratory for innovation to
make a difference, and Mexico isnot far behind.
Speaker 2 (16:55):
The regulators have done an amazing job there.
When you think about what thepaths for regulated companies
you companies maybe we couldargue India or some places in
Southeast Asia have some forwardprograms, I think, in terms of
the size of the market, theopportunity for fintech and then
how the road's been cleared, Itotally agree it's the best
(17:15):
risk-adjusted market in theworld for fintech.
I kind of lucked into itbecause you guys had already
invested in Nubank before I came, but since we've hired Kami
there, I've been building ourportfolio out.
We just continue to uncoverreally, really cool
opportunities and spaces where Ithink we can take big bets.
Speaker 1 (17:30):
Yeah, it's a great call out of the Brazilian
central bank.
I know in the early days ofNewBank the biggest worry is
that at some point the big bankswere just going to make a few
phone calls and find a way toget NewBank just squashed, and
the fact that that didn't happenand there were definitely some
attempts.
The Brazilian central bank, themain regulator, has been a huge
advocate of competition, forgood reason.
Right In a country where peoplepay over 100% APR for
(17:53):
installment loans, they needmore competition, and the
rollout of PIX, the real-timepayment network in Brazil, is
just an unbelievable, stunningachievement.
Rightfully call that out asanother key recipe.
So talk about your first coupleinvestments in Latin America in
general.
I wonder if there's one or twothat you could call out as
examples.
What led you to get excited inthose early days?
Speaker 2 (18:15):
Ironically, my first few investments were not in
Brazil, so maybe that's somefeedback for me after what we
just talked about.
But yeah, I mean a first kindof few to think about.
I was kind of really interestedin this small business problem
broadly I mean small businessbanking, having seen it from the
inside and then having startedto work with Confio which was an
investment that you made beforeI joined and we did some work
(18:37):
together, kind of continuing tosee the theme of how just
underserved small businesses areand especially in Latin America
there's an extremely long tailof both businesses and
underserved businesses, and sothat credit gap was extremely
obvious and very large.
And so in Mexico and I guessacross Latin America, that was a
theme that we were following,and two of my first investments
(19:00):
that were in that theme wereTienda Pago and Credit Usto,
which is now Covalto, and theability to kind of make a
digital product to try to fixdistribution, early traction
that those companies that had interms of finding good unit
economics like all those thingsjust kind of fit really kind of
into what I thought would begood investments and that theme
(19:24):
was just full of thoseopportunities.
To just plug Covalto, sincewe've called them by multiple
names.
They're the only fullyregulated bank fintech company
in Mexico right now, so they'reup to some interesting stuff.
But they were doing securedlending in Mexico.
And then, bill, you had donethe investment in Creditas,
which was doing secured lendingin Brazil, and we saw how well
(19:46):
that was working both theability to kind of streamline
the operations of assessing,securing collateral, doing
underwriting, delivering kind ofa product that would add value.
I was doing a lot of research indifferent asset classes and, of
course, was drawn to the autospace and other geographies,
which ultimately led us to Kavak, which was a fun one to find
(20:07):
earlier.
That was a very interesting onefor us because they were, of
course, buying and selling carsnot really doing fintech at the
time but having seen CarMax overthe years and then the
emergence of Carvana, we sawthat there was going to be a
fintech platform put alongsidethis and, of course, they've
gone on to grow into quite asizable fintech company.
They're one of the top autolenders in Mexico today, which
(20:29):
is a crazy stat.
So, yeah, those are a few ofthe first themes.
So it was very much tied tothings that I had seen in my
past, that we had seen in theportfolio and then from an
entrepreneur's perspective, justfinding people who were going
after these big problems, thathad a ton of resiliency and
tenacity and they weren't goingto give up.
Just to see them, the way theywere approaching these problems,
(20:50):
the passion that they have forthese problems, was really
inspiring at that time.
Speaker 1 (20:54):
Are there any commonalities of the
entrepreneurs you look for thatare specific sort of traits or
attributes, or have you foundjust hey, it's all different
shapes and sizes and they're alldifferent.
Anything you'd share there?
Speaker 2 (21:05):
I try to keep an open mind to it.
But I think the most importantthing for me is that we kind of
mesh or get along and understandeach other.
So there is a portion I reallybelieve in like how we fit
together right.
So if this thing works out,this thing, if investment works
out, we're going to be stucktogether for 7, 10, 12 years,
whatever it is, and I want totry to have good read on that
(21:27):
kind of fit.
But the things I think that I'vefound and a lot of these are
commonalities in QED.
But somebody who has goodcommand over the details has a
hint of humility in terms ofwhat they know, what they don't
know.
I love people who think interms of, like data orientation
what do I need to test to learnthis?
Where can I find data tosupport my hypothesis?
(21:51):
People don't just kind oftotally jump off the cliff
without the parachute.
They at least know, have a planto kind of put together one or
pick up one on the way down.
So that's a fine line there too, because you want somebody who
has a huge vision and passionover those things.
But those are probably the fewof the main common threads that
I like to look for.
Speaker 1 (22:10):
Oh, that's super helpful.
So you described a little bitof the early days of Latin
America.
We had done a coupleinvestments in Brazil before you
got there.
I think you were very active inthe early days at a few of the
non-Brazil investments.
How have you seen the ecosystemchange?
Qed actually did the firstinvestment in NewBank before I
got here, even in 2014, whenthere wasn't a whole lot going
(22:31):
on.
What are some of the main waysthat you've seen the ecosystem
change over the years?
Speaker 2 (22:34):
Yeah, I mean so just talking about Brazil for a
second, and then maybe we cantalk about Mexico and the rest
(22:56):
of LATAM.
I mean, it's gotten just somuch bigger, right.
Just the number of companies,the amount of capital that went
into, you know f kind ofeverything on the way down.
And again, the Brazil.
I think the best thing that'scome is just the talent.
People want to be part ofstartups.
They've seen successfulstartups.
They want to leave bigcompanies or they want to go to
MBA and then come back or evenjoin a startup from under.
Guys become a career path, ifyou will, and I think that's an
(23:17):
amazing testament to what'shappened in recent years.
And then I think the last thingI'll just touch on in Brazil
but this is also true in therest of the region is you see a
lot more ideas that aren't thekind of X, of Y, so like the
business that has beensuccessful or on the verge of
being successful in the US or UKor China.
You know, coming to Brazil, yousee a lot more of the kind of
(23:38):
unique ideas.
I mean you talked about PIXearlier, several other
regulatory changes that havedriven innovation, that are
specific to Brazil, and I thinkthe combination of talent and
that opportunity is unfathomablewhere it is today versus where
it was in 2016.
Mexico, of course, is the samething.
I mean it's gotten bigger, it'sgotten more sophisticated.
(23:59):
In Mexico, the maturing of theecosystem has been pretty
striking, but I think there arestill ways behind Brazil.
I think mostly on the talentside because, honestly, we're
still all waiting for a coupleexits to come out of there and I
think once that happens, theenergy on the ground in Mexico
City or I was in Monterey lastyear I mean it's pretty stunning
(24:21):
just the opportunities peopleare seeing.
And then that's something youdidn't see 2017, 2018.
It was a lot more caution.
It was, I think, a lot harderto see kind of opportunity,
whether that was risk-taking oractual opportunity.
You know who knows opportunity,who knows we spend time in.
(24:42):
Colombia is probably the nextmarket, and then a little bit
probably in Chile and Peru and afew other places.
Ecuador we're seeing someactivity, but all those places
are just like another stepbehind.
But still you're seeingentrepreneurs go and continue to
come and again, I think we'vehad a very slow year.
Maybe year two of companyformation.
It's still just strikinglydifferent from what it was eight
years ago.
(25:02):
Think we've had a very slowyear, maybe year or two, of
company formation.
It's still just strikinglydifferent from what it was eight
years ago.
So we've kind of hit someversion of the inflection curve,
you know 2019, or kind of thehangover impact of 2021.
But people are risk taking,they're looking to apply
innovation, they're trying toand you see this in industry too
, right, you see this at theincumbents, whether it's kind of
banks or big consumer companies.
Everybody's looking to changethings and innovate, invest, and
(25:23):
that's a big change in theecosystem too.
Speaker 1 (25:25):
So if you look at, you know around the region and
pick your country or pick yoursector of it, what are a couple
of the trends that you'reactively watching and personally
quite excited about?
Speaker 2 (25:35):
I'm going to hit on PIX in Brazil and some of the
other changes that are going onthere.
Pix and the receivableslegislation the ability to kind
of use receivables as collateralI think these two things can
change the way payments are doneand commerce is done.
We've seen a lot of it on theconsumer side so far and I think
in the B2B space we're going tocontinue to see some innovation
(25:57):
there.
So we're very excited aboutcompanies that are trying to
find new ways to streamlineworkflows, streamline payments,
streamline credit across thesenew channels and seeing lots of
companies innovate in that space.
And then, I think, across theregion broadly in the B2B space
B2B payments, back office,financial tools for businesses
(26:19):
there's a lot of kind of spacethere.
There's a lot of inefficienciesin still the way that
businesses have or haven't beendigitized in the small business
and middle market spaces.
So we continue to be quiteexcited about a lot of things
there.
I very much continue to followInsurTech.
I think it hasn't had a lot ofactivity by comparison to some
(26:39):
of the other trends that we'reseeing, but the opportunity from
a macro perspective and theneed for certain types of
insurance is totally thereacross multiple markets.
So we're seeing some innovationand progress there and kind of
hopeful that there's going to besome good companies.
And then, lastly, kind of thiscategory of cross-border
payments, global trade.
(27:01):
I think it's just fascinating.
Right now Cross-border paymentsare very kind of hard for a lot
of companies again, especiallyif you're not a large enterprise
or if you're not working with alarge kind of international
bank, and even then things canbe quite clunky and slow and
hard.
So we're spending a lot of timereally trying to understand the
rails there, where theefficiencies come from and then
(27:22):
how that's tied to actualtransactions.
So what are these cross-borderpayments paying for?
A lot of it is kind ofimport-export services and
whether it's logistics or actualgoods, there's a ton of
complexity there.
There's lots of things I thinkfintech and data and platforms
can and are starting to do.
And then the last kind of subtheme there which is absolutely
(27:42):
on fire in Mexico or at leastlike getting a lot of airtime in
Mexico is this is nearshoring,right.
So that's also a global trend.
It's not just the US, mexico,but everyone trying to bring
supply chains closer or changingwhich jurisdictions you have to
transact to, how you buildrelationships across border, how
you manage all these things,and I think that trend is going
(28:03):
to continue to push change.
Speaker 1 (28:05):
Yeah, I mean I'd love to maybe go just a little
deeper into that.
It does seem like, as a resultof the supply chain disruptions
due to COVID and some of thepolitical issues going on in
China, mexico certainly seemsvery well positioned again
beyond fintech but just globally, to take advantage of these
trends.
I know that you sponsored a bitof a field trip to the Monterey
(28:25):
region with a number of ourportfolio companies and a number
of our internal folks.
I wonder if you can just talkabout kind of what you're seeing
on the ground, either for thenearshoring in general, but also
then maybe its implications onfintech.
Speaker 2 (28:38):
Yeah, so I went to Monterey last fall.
We had an incredible trip butit totally felt like a boomtown.
It was like everywhere you wentyou could feel a version of
booming of the manufacturingsector.
And there's some crazy data outthere about some of the growth
in foreign direct investmentmanufacturing space, number of
companies that have kind ofmoved in.
But what's happening is peopleare moving production out of
(29:01):
places like China and SoutheastAsia and mostly to either
because they're US companiesthat are manufacturing and then
selling kind of out of the US,or companies that are trying to
manufacture and sell to the US,and so what's happening is both
of those forms of manufacturingare moving closer to the source
because of a lot of the supplychain disruptions that you
(29:23):
mentioned.
And the crazy thing about all ofthis, the biggest conclusion I
had is that it's all driven bygeography.
There's economics, there'spolitics, there's a whole host
of things, but it's driven bygeography and control.
Companies just want to be ableto control things more and the
way that you control things moreis bring them closer.
I mean, maybe there's ananalogy to remote work and
(29:43):
in-person work here, if we wantto go that way.
But these companies arebasically saying, hey, I got to
get it into Texas or I got toget into the US, and getting
into Texas or California is alot easier to come from Mexico
than, you know, china or Vietnamand so, and so that's just
happening very, very fast.
The implications of that, Ithink, for fintech are still TBD
(30:04):
in my mind.
I think if you're any companydoing commerce in Mexico,
broadly this is a tailwind ofgrowth, right.
So if you're banking, lendingsoftware to any kind of types of
business, you should be aroundthese regions that are booming
up.
So I think that's one thingthat's quite clear is there's a
(30:25):
newness, like it's a marketexpansion as opposed to market
competition, and I thinkwhenever you can get a market
that's expanding, it's a loteasier to grow.
So that's kind of one.
And then I think there's justlike some opportunity around the
building of business.
Literally we're in betweenMonterey and Centio and there'd
(30:45):
be these manufacturing centersor industrial centers, and then
you need a place for people tolive and you need a place for
people to eat and you need aplace for people to kind of stay
when they visit, and you need aplace to shop and you need a
school, and so everything kindof tied to.
That is an opportunity there.
So a lot of that needs to befinanced.
Again, there's a lot ofcross-border opportunities
because of where these companiesare coming from and what
(31:08):
they're shipping to.
So I think companies likeFinCargo are extremely well
positioned to help these kind ofcompanies.
I mean Covalta, we mentionedbefore Confio.
Those types of companies shouldbe able to benefit from this.
What if anything comesspecifically from it?
We're looking for it.
So if you're out there, reachout to us.
Speaker 1 (31:26):
I love it.
You know, another oneinvestment that's kind of split
between New York and Mexico isNuvo Cargo trying to be a
digital platform forcross-border trucking, wrapped
with a number of differentpayments, insurance, lending.
You know types of fintechproducts?
Yeah.
Speaker 2 (31:40):
Deepak and team were great help to our trip.
We were trying to learn fromthe portfolio and help the
portfolio learn too.
So a great call out for Deepakand Nuvo Cargo there.
Speaker 1 (31:50):
We've just lived through an unbelievable boom in
2020 and 2021 in venture andthen a pretty serious bust in 22
and 23.
Who knows whether the recoverywill be this year, whether it'll
be next year, who knows?
Have you seen notable parallelsbetween going through the kind
of recession when you're runninga credit business to now, kind
of this particular cycle inventure and any particular
(32:12):
learnings that the venture worldor us at QED can take from that
parallel?
Speaker 2 (32:18):
There's probably a lot.
I mean, I think the one truismis the markets are always going
to be kind of up or down andreality usually somewhere in the
middle, and so bothunderstanding that that you
can't get too exuberant or toodown I think is true In the
venture world.
(32:38):
I think it reminds me about howlong-term this game is and how
building great businesses neverhappens overnight, it's never
easy, it's very rarely, I shouldsay, maybe not quite never.
A straight line straight up,and so having the conviction in
the business model and kind ofwhat you're doing, irrespective
(32:59):
of the value of the company orthe capital on your balance
sheet, I think that's probablythe biggest lesson here.
The Capital One parallel wouldbe we were kind of underwriting
and preparing for a version ofthat and we proved that to the
market, that we would make it tothe other side.
And I think companies today whoare at profitability or trying
(33:20):
to get to profitability ortrying to kind of minimize the
burn so that they can kind ofprove the next unlock is a
version of that right.
So proving kind of yourbusiness one step at a time,
whether you're a seed stagebusiness trying to get the
product market fit or you're apre-IPO business trying to prove
sustainable profitability.
Speaker 1 (33:39):
I think that that lesson goes from one to the you
know I think we have I don'tknow close to 50 investments in
Latin America at this point,both through the core QED
business as well as our seedprogram Fontes.
You know you talked about anumber of the early investments
that we did.
Are there one or two companiesyou think that are worth that
we've done more recently?
That would be interesting toshare.
Speaker 2 (34:00):
I mentioned earlier a company called FinCargo in
Colombia and Mexico, workingwith companies who are importing
goods from around the world andthey're particularly interested
in financing those goods andtrying to make things more
efficient.
So right kind of squarely inthe zone of an underserved
market and something that'sgoing through a lot of change.
They're growing extremely fastand have huge ambitions to
(34:21):
expand the product and veryexcited to see what's next for
them and very excited to seewhat's next for them.
Cobre is another company,ironically also in Colombia, in
Mexico, working on B2B paymentsand treasury management, so
making kind of payments moretransparent, faster, easier, and
they're kind of touching on alot of the themes that we talked
about in terms ofinefficiencies in these markets
(34:44):
around money movement andstarting to do some really
interesting things in thecross-border space as well.
So, squarely and Themes andright now finding a really
interesting market and growingquite fast.
I've been in a lot of boardmeetings the past two weeks.
There's a lot going through mymind but saw the hat behind me
was Sulphaseal down in Brazil.
Sulphaseal, I think, is reallykind of hitting its stride as a
(35:05):
market leader in Brazil and youknow, it's just really exciting
to see a company in a marketthat's changing so fast, getting
close to at scale andprofitability and kind of seeing
lots of opportunity ahead ofthem.
So those are three companies, Ithink, that are all hitting it
in all cylinders across a coupleof different kind of phases and
stages the Series A, b and C orD company.
(35:27):
There in those three they're ofcourse not the only ones that
are exciting, but those are topof mind.
Speaker 1 (35:32):
We spent some time earlier in the podcast talking
about the early days of LATAM.
For a while it was just me, fora while it was you and me, but
over time we've had a number ofgreat team members working on
the Latin American business.
We must have 10 people at QEDthat do something related to
Latin.
But we've got two amazingpeople on the team, cami and
Anna-Kris, who are alongside you, dedicated to helping us build
(35:54):
this.
I wonder if you can chat realquick about the two of them and
what they uniquely bring to thetable for us.
Speaker 2 (36:00):
I feel proud to be part of QED.
Broadly, I think the team'sbeen, is and will be kind of
amazing.
It's one of the things I thinkis most exciting about what we
do.
And yeah, I have to keep upwith Cami and Anna Chris on a
daily basis.
So they keep me going, theygive me tons of energy, they're
lots of fun to work with andthey accomplished incredible
things.
I mean, both of them have greatnetworks.
(36:21):
They leverage them to getthings done super efficient,
very resourceful, and thenthey're very curious,
intellectually curious.
So that's part of like thekeeping up with them part.
But particularly I love how kindof relentless Kami is.
I think when Kami finds aproblem, you know she's going to
find an answer and usually it'sthe answer.
And so her ability to kind ofhunt things down and get them to
(36:44):
end points is unmatched andsomething that's extremely
valuable.
And Anna Chris I think she'sparticularly good at seeing
multiple angles of things.
First of all, she gets veryhard things done and I think in
part because she can see notjust the investor perspective or
the entrepreneur perspective orthe customer perspective, but
be able to kind of blend thoseperspectives together, and so a
lot of times I'm gettingadditional perspectives from her
(37:07):
or challenges on wanting tolook at a problem a different
way, and it definitely makes mea better problem solver working
with her.
Speaker 1 (37:14):
Well, the Latin team continues to grow.
Since both Anna-Chris and Camihave become new mothers in the
last year, we're building ourteam for 25 years from now you
know, in Latin America.
So that just shows how committedwe are to the long term.
Well, mike, it's been awesometalking to you today.
I mean, we talk together allthe time, but it's usually about
kind of urgent, timely topics,so it's great to kind of take a
(37:36):
step back and be a littleretrospective.
You encounter literallyhundreds of entrepreneurs out
there and see pitches all overthe place.
If there was one piece ofadvice that you would share with
an aspiring new entrepreneur,what would it be?
Speaker 2 (37:47):
I've got to give two, so I'm cheating already, I
think, if I had to give one.
I think it's keep going.
You're not going to have allthe answers.
Actions are going to give youthe information to know whether
you're on the right track or not.
Everything's not going to gothe way you want it to go, but
just keep going, find the thingthat works and then keep going,
(38:08):
find the next thing that works.
I see a lot of entrepreneurswho kind of you know they either
get caught up in their idea orthesis and it's hard to get off
of that.
And I think the other thingwhich kind of tied to some of
the other things we talked about, I mean you got to be yourself
as an entrepreneur but you can'tbe alone.
Like you got to find a supportsystem, whether it's a
co-founder or a mentor, advisoror investor.
(38:28):
Don't feel like you have to bealone because it's a long, long
journey.
Like I said, you got to keepgoing and go for it with
somebody you can trust.
Speaker 1 (38:36):
That's a great piece of advice.
Mike.
It's been amazing talking toyou today.
Thank you for joining the podand to all of our listeners,
take care and thanks forlistening.
Thanks, bill.
This has been the FinTechThought Leaders podcast your
(38:57):
window into the world of venturecapital and financial services
with today's digital disruptors.
Qed is proud to provide thebest FinTech advice you can get.
To learn more or to read thefull show notes from today's
episode, check outQEDinvestorscom and be sure to
also follow QED on Twitter andLinkedIn at QEDinvestors.
Thanks for listening.
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