Ariel Jaduszliwer, Managing Partner at Brainstorm Ventures, joins us to share his journey from Intel to the world of venture capital, offering unparalleled insights into founder-market fit and strategic investment practices. You'll uncover how Brainstorm Ventures remains nimble and industry-agnostic, crafting a unique approach through smaller initial checks that reduce signaling risk while aligning economically with limited partners. Ariel's experiences and strategies reveal the intricate nuances of venture capital, providing listeners with a deep understanding of what it takes to thrive in this dynamic field.
Our conversation also turns to the critical qualities of exceptional founders and the challenges faced by small funds regarding signaling risk. Ariel provides a masterclass on evaluating founders, emphasizing the importance of simplifying complex issues and articulating a powerful vision. We explore how Brainstorm's diverse investment portfolio allows for strategic flexibility, supported by a robust network that keeps the firm informed across various markets. These insights are invaluable for anyone interested in the tactical side of venture capital investing and founder evaluation.
Ariel expands our view to the global stage, highlighting opportunities beyond U.S. borders, with a particular focus on the burgeoning Mexican startup ecosystem. Despite political risks and varying investment landscapes, Mexico presents a promising venture landscape, partly due to evolving trade dynamics with the U.S. Ariel also touches on his role with Defy Ventures, an organization dedicated to transforming lives through entrepreneurial training for incarcerated individuals. His insights into reducing recidivism and fostering economic opportunities reinforce the transformative power of entrepreneurship, offering a hopeful perspective on creating impact in diverse markets.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
It's important for a founder to be able to distill a
complex problem down intolayman's terms Again, we're
agnostic, we're not experts inevery sector and really
succinctly tell the vision andsolution in a compelling way.
So that's something thatobviously comes across in those
first meetings.
In terms of founder market fit,which is critically important.
(00:20):
It doesn't only mean thisnuanced understanding of the
problem because they've spentyears in industry, but also the
experience necessary to solve itright, Whether that be
technical, having the rightindustry contacts, et cetera.
Speaker 2 (00:36):
Welcome back to Seed to Exit.
I'm your host, Rhys Keck,founder at MindHire, a
recruiting firm that helpsventure-backed startups find the
technical talent they need toscale.
Today, I'm thrilled to welcomeAriel Jadus-Lewer, Managing
Partner at Brainstorm Ventures,to the show.
For nearly 12 years, Ariel hasbeen leading investments at the
earliest stages of some of themost exciting tech startups in
North America, includingunicorns like OpenTable, Zappos,
(00:59):
KIO Networks and Turing.
Beyond venture capital, Arielis deeply committed to
mentorship and giving back.
He serves on the board of DefyVentures, providing
entrepreneurship training toincarcerated people, and mentors
for programs like TechstarsMiami and Unreasonable Mexico,
and he is the co-owner of an18th century palace in Barcelona
.
From his early days as animpact investor to advising
(01:21):
foundations like Gates andserving on portfolio company
boards, Ariel brings a wealth ofexperience and insights to our
conversation.
We're going to talk some moreabout his journey, investing
philosophy and what's next forBrainstorm Ventures.
So with that, let's dive in.
Speaker 3 (01:36):
You're listening to the Seed to Exit podcast with
your host, rhys Keck.
Here you'll learn from startupexecutives, founders, investors
and industry experts.
You'll learn from the bestabout building amazing products,
scaling companies, raisingcapital, hiring the right people
and more.
Subscribe and listen in for newepisodes and enjoy the show.
Speaker 2 (02:00):
All right, ariel, welcome onto the show.
Excited to have you.
Thanks for inviting me,absolutely so.
There's a lot of stuff that Iwant to talk with you about
today and you know you've donesome really things, both in
terms of international investing, working and investing in some,
you know, very large brand namecompanies at a very early stage
.
But for those of you, of thelisteners, who are not familiar
(02:22):
with your background, justbefore we really dive into
things, would you mind giving mean overview of yourself and
your background and how you gotto where you're at today?
Speaker 1 (02:28):
Yeah, definitely, I'll try to keep it brief, but,
born and raised in New York City, my family's, from Argentina
studied industrial engineeringin undergrad, started my tech
career, I guess you can say, atIntel Corporation, when once
upon a time it was one of themore exciting companies in
(02:49):
Silicon Valley, and then I'vedone a pretty random variety of
things.
So I did that for a few yearsand then, after getting my MBA,
I worked briefly for the UnitedNations Development Program in
Venezuela.
I worked in strategy consultingfor a couple of years at a
group that was within Bain,called the Bridgeband Group.
(03:10):
That works a lot withnonprofits, foundations,
governments etc.
And then I joined one of thepioneering impact investment
firms after I realized thatconsulting definitely wasn't for
me, worked there for a numberof years investing in a mix of
companies Most of them wereconsumer facing, some were tech,
(03:31):
some were non-tech.
And then, yeah, I think eversince, you know, 2015 or so,
I've been pretty focused onbrainstorm ventures, which I'm
sure we'll get into, but that'sour super early stage, super
industry agnostic venturecapital firm that we're
currently investing out of itsfund three.
Speaker 2 (03:52):
Oh, so you're a fund three already.
Nice, tell me a little bit moreabout Brainstorm because you
know I, like you mentionedyou're you've kept it small on
purpose and you've kept itindustry agnostic.
And oftentimes VCs, especiallywhen they are a little bit
smaller, they tend to specializein, call it, two or three niche
areas.
I was just curious what'sbehind the decision to remain
industry agnostic?
Speaker 1 (04:13):
Yeah, I mean even in terms of staying small, right, I
think most VC firms, oncethey're able to achieve a
certain degree of success, theytry to grow their assets under
management, try to increase thesize of their subsequent funds.
For us, to your point, bothstaying small and staying
industry agnostic is really coreto our strategy, and that's for
(04:34):
a bunch of different reasons.
In terms of staying small, forus, being able to write small
initial checks really helps usget into some of the more
competitive space constrainedrounds that we're looking at.
In many cases we're investingin founders before there's a
round being formed, so that'snot an issue, but in a bunch of
cases it is, and staying smallhelps us get into those deals.
(04:56):
This might be a little bitcontroversial, but another
benefit for us staying small andwriting small checks is that it
minimizes the signaling riskwhen we're not participating in
follow on rounds of some of ourportfolio companies, so that we
can really concentrate ourfollow on checks into those you
(05:16):
know handful of best performingportfolio companies and
concentrate our positions therewithout adversely impacting our
other portfolio companies.
So that's another importantreason.
And then I would say that Ithink it keeps us a little bit
more economically aligned withour LPs.
We're clearly not getting richoff of management fees.
(05:38):
And then the last thing is youknow it's not a reason for us in
particular, but I think thedata out there suggests that
smaller VC funds tend tooutperform larger ones in
aggregate Obviously there's ahuge variation from fund to fund
but that that it allows us toinvest in really the best deals
(06:08):
that arise from our network,regardless of what industry,
vertical or type of technologythey they they land in.
Um, you know, we really viewourselves as as a firm that
invests in networks, as opposedto investing in particular,
theses or, um, obviously, ourindustries or even technologies.
Another reason that's a littlebit particular to us is that it
(06:32):
allows us to diversify away thesector risk within each of our
funds, and that's important forus in particular, because many
of our LPs are high net worthsor small family offices who have
very small fund portfolios.
So, you know, from the point ofview of a large institutional
(07:02):
investor that's investing in 50funds, know, one of the sectors
we invest in goes to shit.
Call it blockchain.
That's not going to affect ourfund too much as a whole.
So I think that's that'simportant and, yeah, I would say
.
The other thing is, you know, Irarely invest in, you know, a
thesis that I have in my mindfor what the world will look
(07:22):
like, and this kind of goes tothe being agnostic.
Instead, you know, I reallyrely on a founder to convey
their vision for what they thinkthe world will look like.
That, you know, in many casesI've never thought of before and
we're betting on their vision,not our vision.
So I think that's that's a keycomponent to the agnostic piece
as well.
Speaker 2 (07:41):
Super interesting and there's so many things that you
said there that I want to diginto further and I'm probably
not going to remember all ofthem off the top of my head, but
I'm going to do my best here.
So, on the on the staying smallside, just for context, you
mentioned you're on fund threeand that you remained relatively
small throughout the fund.
So if you don't mind me asking,what are the fund sizes of you
know, say, one, two and three?
Speaker 1 (08:12):
You know.
So funds one and two wereslightly less than 10 million
each, fund three at 15 million.
Um, we'll start raising fundfor next year and we won't
exceed call it 25 million by anyum stretch of the imagination.
So so that's.
That's.
That's what we mean by small,pretty small.
Speaker 2 (08:18):
Okay, and so then, what are the initial uh checks
that you're typically writingfor?
First investments, not, notfollow-ons.
Speaker 1 (08:25):
So I would say, on average it's about $250,000.
Speaker 2 (08:32):
Okay, and then you mentioned that you also you
don't want to write too big ofchecks also so that it's not too
large of a signal for potentialfollow-ons.
Speaker 1 (08:36):
Just curious how frequently or what percentage of
the time are you doing afollow-on investment from an
initial yes, and I think thesignaling risk has less to do
with the checks that weultimately write in the
follow-ons and more to do withthe fact that, since we're this
small pre-seed and seed fund,for the most part there's no
expectation that we're going tobe playing a role in our
(08:57):
portfolio company's series A.
So when we do choose toparticipate in the series A
great, and we can do so in aconcentrated fashion, a large
check for our relative size.
But when we don't participatein the series a, the, the, the
new investors that are cominginto that, that are leading that
series a, they're not going toask oh, why isn't brainstorm
participating?
It's like no, brainstorms is alittle fun.
(09:18):
They did our pre-seed and orour seed there's because we're
small there, there's noexpectation that we'll be in in
those in those series A's, forexample.
Um, I think you know we we tendto do meaningful follow-ons and
let's call it three to five ofof the companies in each fund's
portfolio and, just for context,we typically invest in about 25
(09:39):
companies per per fund.
Speaker 2 (09:41):
Okay, so math wise about 10, 15%.
Um, yeah, yeah, um, yeah, yeahokay so so, really, when you're
talking about signal, you're,what you're looking for is to
avoid it being seen as anegative signal, that it's like
you don't have faith in thefounder and it's like, no, we
kind of did our part in what wewere meant to do.
100 exactly got you okay.
Um, I'm just curious.
(10:02):
I mean, you know, of course,particularly atseed level, it's
such a large risk.
I mean, what are you evenreally looking for at the
individual company level?
You're, you're a hundredpercent right.
Speaker 1 (10:11):
Um, you know at the stage we invest in um, we look
(10:32):
for strong founders and foundermarket fit for, uh, first and
foremost, um, what is that right?
It's, you know, kind ofdemonstrated ability to be able
to hustle, to be able to hack.
Um, it's important for afounder to be able to hustle, to
be able to hack.
It's important for a founder tobe able to distill a complex
problem down into layman's termsAgain, we're agnostic, we're
not experts in every sector andreally succinctly tell the
(10:55):
vision and solution in acompelling way.
So that's something that youknow obviously comes across in
those first meetings.
In terms of founder market fit,which is, you know, critically
important, it doesn't only meanyou know this nuanced
understanding of the problembecause they've spent years in
industry, but also theexperience necessary to solve it
right, whether that betechnical, having the right
(11:16):
industry contacts, et cetera.
And you know we, I think, asmost folks, we love seeing
repeat founders and co-founderswith the history together.
It's a.
It's a little bizarre, but Ithink two of our current
portfolio companies haveco-founders who are married to
one another.
Oh, really.
Speaker 2 (11:35):
Oh, wow, yeah, OK.
Speaker 1 (11:37):
Which I think is probably statistically above the
majority of VC firms out there.
But you know, being a repeatfounder isn't isn't necessary.
And then there's, you know, theother things that folks
typically look for.
Right, we want to see anopportunity to build a huge
business with strong uniteconomics so that you know, if
successful, the company canscale efficiently and become
(11:59):
very profitable one day.
You know, therefore, the markethas to be large or become large
in the next five or 10 yearsand ideally, the product or
service that the startup isoffering is an order of
magnitude improvement over thestatus quo right that exists
today.
I would say we, you know, giventhe stage at which we invest, we
(12:23):
want to believe that there'sthe potential for a hundred X
return in each investment Ifeverything plays out as well as
possible.
We we think about it from thatpoint of view instead of having
specific ownership targets inmind.
For example, you know, thisoutcome can look really
different for a company in whichwe invest at a $3 million
(12:43):
valuation in the initial round,versus one where perhaps we came
in at a $40 million valuationin the initial round.
And, in terms of our duediligence when we're evaluating
investment opportunities, whatwe try to do to be efficient is
to identify and get comfortablewith what we perceive to be the
(13:06):
you know really small set of keyrisks that would prevent that
particular company fromachieving this type of 100X or
unicorn type outcome and, youknow, really honing in on those
instead of doing a blanket duediligence on every aspect of the
company.
So, yeah, that's kind of how weapproach investing and how we
(13:28):
think about risk at the stage atwhich we're investing.
Speaker 2 (13:31):
So to press back a little bit on the industry
agnostic component, of coursethat does diversify your risk,
as in, like you said, ifblockchain goes to shit like it
did in 2022, then your wholethesis is sunk.
But doesn't that give you somesort of limitation in terms of
how well you can evaluate whatthat market will look like in
the next five to 10 years?
Because naturally, the foundersare going to be optimistic.
(13:52):
That's why they're founders,right.
Speaker 1 (13:54):
Yeah, I would say good question.
I mean in cases in which we'refurther removed from the
particular technology orindustry, we lean pretty heavily
on.
You know what we think is areally strong network of folks
that we're really close with andhave built relationships over
the last dozen, two dozen yearsand you know they help us assess
(14:15):
those types of questionsbecause, yeah, clearly our
personal opinion on you know,we're invested in and currently
doing an SPV in a really areally novel, groundbreaking
gene insertion biotech company.
That's kind of at theintersection of computer,
computational bio, machinelearning and biotech.
My opinion on where that spaceis going means little to nothing
(14:38):
.
So we we lean close, we lean inon folks that are close with us
, right, and that's what helpsus get there so important to
just have a strong advisornetwork.
Yep, yeah both formal advisorsand informal 100%.
Speaker 2 (14:52):
Okay, and then do those folks just typically come
from your network?
Are they LPs, other foundersyou've gotten to know over the
year?
Speaker 1 (14:59):
Yeah, it's a mix.
It's our network right, butwhat our network really means is
it's peers, other VCs that maybe focusing on those spaces,
founders that we've previouslybacked, that they themselves
understand those spaces or knowfolks that do, and just folks
that are, you know, leadingreally, really interesting
organizations across a varietyof different segments of the
(15:21):
kind of broader tech ecosystem.
Speaker 2 (15:23):
Gotcha, how do you approach it when you know, let's
say, you meet a really goodfounder and they seem to have
that founder market fit thatyou're looking for, but you
think the model is not bad, but,you know, maybe not the best.
Let's call it a, you know, six,seven out of 10.
Is that still something you'dconsider investing in because of
(15:44):
the founder themselves, or whatdo you look like from that
perspective?
Speaker 1 (15:50):
Yeah, I mean, I think my cop out answer is that it
depends on how kind ofdemonstrably great the founder
is and how you know mediocre oryou know decent the business is.
I think the devil is really inthe details and kind of how well
the founder can can make thatcase.
Um, so in that case one of therisks that we would identify is
(16:14):
shit, this market doesn't seemthat attractive, either because
of size or competitive landscapeor or kind of inherent
economics or what have you.
How can we get comfortable withwhat the founder is trying to
portray?
Right?
Speaker 2 (16:27):
I guess.
And also there's also thethought that if there, you know,
is a, you know, mediocre tosemi-good business opportunity,
how great is the founder ifthey're pursuing something that
doesn't seem that great, youknow, does that speak to their
decision-making skills?
100%, that's exactly right.
So when you're talking aboutthe investments and you
(16:47):
mentioned 100x earlier, which isreally what you would be
looking for in an ideal scenariohow many on a percentage basis?
How many do you expect toactually hit that threshold?
Speaker 1 (17:00):
Yeah, I mean 100x.
I mean we can return a fundseveral times over with one or
two investments in our portfolioof 25 that reach those types of
returns.
Anything more than that is, youknow, obviously icing on the
cake.
I think you know it kind ofdepends from fund to fund.
(17:21):
There could be one fund wherewe have a bunch of 10 to 30x
returns.
It could be one fund where wejust had one 200 X return and
the rest of the portfolio wasn't.
That didn't perform that well.
Speaker 2 (17:33):
Yeah Well, and I think too, the other thing that
people often think about whenthey think about early stage VC
is that it's all or nothing.
It's either you hit that ahundred X or it's a total loss
right, and I'm sure there are,you know, plenty of, plenty of
total losses in the portfolio.
But then you also have thosecompanies that get to say the
Series A, you mentioned earlier,the Series B, and then things
may not go quite as planned, butthen they do get a buyout or an
(17:55):
acquisition level at that offerand you still get some
meaningful return.
Speaker 1 (18:00):
Yeah, obviously, at the point of investment, we're
always shooting for these homeruns, but the reality is that
you're happy when you knowseveral of the companies in your
portfolio end up getting thesedoubles or triples, especially
if they had to overcome, youknow, adversity, um difficult
situations, and they stillmanage to to to have a pretty
good outcome, right absolutelyand you have had some home runs.
Speaker 2 (18:23):
I mean you back to unicorns.
You've backed open table zapposin the early stages Turing.
I'm just curious.
I mean, are there any commontraits that you saw when you
were doing that early stageinvesting that you felt like
Chuck Templeton at OpenTableTony?
Speaker 1 (18:37):
Hsieh at Zappos and both Jonathan and Vijay at
Turing were all proven strongoperators with a really clear
vision for where they saw theworld going.
(18:58):
In the case of Chuck, he wasliterally an operator as an army
ranger prior to foundingOpenTable, which at the time was
called Easy Eats.
You know, we have to kind of goback in time to a period when
reservations were done by penand paper.
He saw a really interestingopportunity to disrupt this huge
(19:22):
restaurant industry withsoftware, beginning with
managing the reservation processthat restaurants have to do and
and and, yeah, and.
Then, with you know, tony Hsieh, who you know, as you know I'm
sure, sadly passed away fouryears ago, next month actually.
He had really rolled up hissleeves as a fellow board member
(19:46):
at OpenTable and so we saw kindof his operating ability there
and he had this novel vision forZappos at the time that
involved, you know, not carryinginventory and offering really
incredible customer service foran e-commerce play like
Nordstrom's at the time andstill does, I think, offer in
(20:07):
its brick and mortar locations.
And you know now it soundsreally trivial, but at the time
this kind of relentless focus onthe customer and servicing them
didn't really exist ine-commerce.
So we bought into his visionthere and we knew what his kind
of operating skills were.
And then with, with more youknow, much more recently with
(20:30):
Jonathan and BJ at Turing.
They had previously foundedanother startup called Rover,
which they exited and where theyactually used engineering
talent overseas to scale thatcompany more efficiently, and
that was their inspiration forTuring, which you know, as you
may know, is kind of completelyAI powered platform to assess,
(20:52):
match onboard and even managetop tier remote software
engineers for what is now like avery long list of Fortune 100
customers.
So, yeah, I would say those arethe kind of.
If you had to some kind of findcommonality, those would be the
two traits.
It's the the operating skillsand the and the the clear vision
(21:13):
.
Speaker 2 (21:14):
Yeah, well, and it's also.
It's funny.
You mentioned that the you know, the focus on the customer and
e-commerce seems like tablestakes.
But that's isn't that really?
Just what a lot of unicorns dois is take something that at the
time is novel and grow it sosuccessfully that, yes, it then
becomes just part of the publicconsciousness.
Like, of course, I can reservea reservation on my phone, why
wouldn't I be able to?
Um, I actually did not know.
(21:36):
I I know.
I know what turing is, I'mfamiliar with it outside of
doing research for the podcast.
I did not know that thefounders of rover were, uh, also
the of Turing, so that'sinteresting.
Speaker 1 (21:47):
It was a company called Rover AI.
It was a recommendation engine,not a dog walking, Not the dog
walking.
Okay, I was going to say thoseare two very different things.
Speaker 2 (21:57):
Good to know.
Okay, so you also then count.
And obviously you know secondtime founder is great.
You mentioned earlier for atime that they don't have to be,
and over at OpenTable hisbackground was an army ranger,
so it doesn't necessarily haveto be.
You know company operatingexperience like biz ops or
something like that, butsomething where expectations are
(22:19):
high.
You have to perform at a highlevel and for a consistent
period of time, for a consistentperiod of time.
Speaker 1 (22:25):
Yeah, Although you know, just realistically, the
overwhelming majority of folkswe see have much more
quote-unquote relevant operatingexperience.
Speaker 2 (22:33):
Of course, but yeah, yep, well, I love that you can
see the potential.
Yep, awesome, switching gears alittle bit.
You don't just invest inUS-based startups, you also
invest in Mexico City-basedstartups or Mexico-based
startups.
I was just curious where didthe inspiration for that come
from and how is the Mexican VCecosystem yeah, good question.
Speaker 1 (22:56):
So I'll preface it by saying that you know we've been
investing in Mexico on and offsince 2000,.
Believe it or not, I think thatmakes us the first kind of
US-Mexico cross-border VC firmout there.
We wrote the first check inMexico's first unicorn, this
company called Keo Networks,where we actually played a role
(23:16):
transferring the initialtechnology that Keo Networks was
based on from a company in ournetwork in Silicon Valley.
My partner, eduardo Rayo, grewup in Mexico, studied in the US
and spent most of his adult lifein the US, but grew up in
Mexico.
My family, as I mentionedearlier, is from Argentina and
randomly, kind of over the years, had built kind of an
(23:38):
interesting network of folks inthe tech space in Mexico.
So that's a little bit.
You know why we continue to, toinvest in in in the ecosystem,
on top of a bunch of reasons forwhich we're bullish about
Mexico specifically and also,honestly, latin America in
general.
Um, so some of these things yourlisteners might know, some they
(24:01):
might not, but you know Mexicois the world's most popular
Spanish speaking country.
Mexico city is the world's mostpopulous.
Um, spanish speaking city.
Mexico is the world's mostpopular Spanish speaking country
.
Mexico city is the world's mostpopulous Spanish speaking city
and one of the world's topdepends, I think, how you
measure it, but handful ofcities in the world population
wise, very high digitalpenetration.
I think Mexico city isSpotify's largest market in the
(24:23):
world and Mexico country isUber's second largest market
after the United States.
Obviously, mexico shares this2000 mile long border with the
United States and I thinkroughly 10% of the US population
is of Mexican descent.
We're currently experiencingthis really interesting and
(24:45):
exciting near shore shoringmomentum with everything that's
happening with with China.
I was actually at an event inMexico City a couple of weeks
ago with Ken Salazar, who's theUS ambassador to Mexico, and he
told us that Mexico justsurpassed China as the United
States largest trading partner,which, which is interesting.
(25:05):
Honestly, I think some of thegrowth in trade is actually from
Chinese companies who set upshop and manufacturing
facilities in Mexico to bothavoid tariffs and take advantage
of NAFTA.
I guess now it's called USMCA,you know, but still,
directionally, you know thingsare moving in the right
direction and you know this ismore at a regional level, but
(25:29):
despite the growth of thestartup ecosystem in LATAM,
which, you know, we'veexperienced firsthand over the
last, you know, five or sevenyears, there's still relatively
low VC investment as apercentage of GDP in the region
as compared to similar regions,like Southeast Asia is the one
that comes to mind.
(25:50):
Yet Latin America has had moresuccess cases than Southeast
Asia or some of these otherregions that are comparable.
So I think there's still areally important opportunity for
VCs in Mexico and Latin America.
Another thing that I've noticedis that in you know, in the
early days, what would happen isyou would see a lot of founders
(26:12):
in Mexico and I think this istrue for Latin America as a
whole that we're basicallytropicalizing models that worked
in the US and just applyingthem to their domestic market in
Mexico and just fine tuning themodel based on the realities of
being on the ground in Mexicoor in Argentina or what have you
instead of in the US More andmore.
Which is, you know, makes meproud is you're seeing founders
(26:33):
still do that, but you're seeinga lot of founders that are
actually building companies inMexico and Latin America now
that are innovative companiesworldwide and they're competing
on the world stage, and theyjust happen to be companies that
are based in Latin America, um,but they're competing with
players around the world Um, andI think that's been um, you
(26:54):
know, kind of a strong umindicator of of the their
ecosystem you know, reallyprogressing Um.
So it's been, it's been greatto see.
Speaker 2 (27:02):
You mentioned that there's been less activity,
despite more GDP, in Mexico asopposed to Southeast Asian
countries.
Why do you think that is?
You mentioned that there's beenless activity, despite more GDP
, in Mexico as opposed toSoutheast Asian countries.
Why do you think that is?
Speaker 1 (27:10):
I don't know.
I mean, I think I think part ofit might be that I don't really
have a good answer for that.
I think there's people viewMexico and Latin America as
having a lot of political risk.
I think naturally a lot of thedollars that would go into
Mexico, for example, would comefrom the United States, but the
(27:30):
United States has this huge,vibrant tech ecosystem of its
own, Whereas maybe in SoutheastAsia there's more wealth nearby
that they don't have as manyalternatives for where to invest
that capital as money in the USwould have.
That's just kind of ahypothesis.
Speaker 2 (27:52):
Is there a language barrier at all, or do most of
the founders tend to speakEnglish in Mexico?
Speaker 1 (27:56):
Most of the founders speak English.
Yeah, and honestly, you know,culturally I think when you
compare the US to Mexico,culturally there's so much more
aligned and you know there's alot of US-based and Sand Hill
Road-based VC firms that investa lot in or historically invest
a lot in Israel, in China,that's kind of kind of comes to
a halt.
Culturally, time zone wise, etc.
(28:19):
There's just so much morecommonality with Mexico and
Latin America that I thinkthat's a non-issue.
If anything, I think that's areason to invest in Latin
America.
Speaker 2 (28:28):
And do then most of those I know you mentioned.
Some of the startups are nowcompeting on the world stage,
but would you say most of theMexican startups are servicing
the Mexican population, or whatpercentage of them tend to go
international?
That SaaS products.
Anyone can use it Good question.
Speaker 1 (28:45):
I think most of them are still targeting the Mexican
market, but I think there it's,there's, you know, step one is
the Mexican market.
Step two oftentimes is isbecoming market leader in Latin
America, whether that be Spanishspeaking Latin America or Latin
America including Brazil, whichis kind of an animal of its own
but obviously a huge market.
(29:06):
But there there are companiesin Latin America that and some
of them are in deep tech, forexample that are from day one
targeting the global market.
I think that's one place whereMexico might be at a slight
disadvantage of, let's say, inArgentina, where, you know,
mexico in and of itself is anattractive enough market, where
a lot of founders just viewbecoming the market leader in
(29:27):
Mexico as a win, whereascountries like Argentina or, you
know, basically all the smallercountries in Latin America,
have a mindset that's a littlemore similar, I would say, to
Israel, where they know thattheir domestic market is small
and then so from day one they'rebuilding for a global audience,
because they can't achievesignificant success just from
(29:50):
being a dominant player in theirlocal market.
Speaker 2 (29:53):
Yeah, it's like if you're the number one in Ecuador
.
It's like you're the biggestkid in the neighborhood.
Speaker 1 (29:58):
So that actually works as a little bit of a
disadvantage to founders inMexico in some ways versus
founders from smaller countries.
Speaker 2 (30:06):
Super interesting.
Okay, so that's the opportunity.
What are the challenges from aninvestment standpoint?
Speaker 1 (30:11):
I mentioned that before.
I think there's always currencyrisk.
You know, for us in particular,we're more focused on Mexico
and I should say, you know, ineach of our funds I would say
you know, 75 to 80% of ourportfolio companies are US based
and then the remainder tend tobe Mexico based.
But I would say that, you know,for the Mexican peso in
(30:35):
particular, it's been relativelystable versus the US dollar for
the last eight years or so.
So we don't view thatparticularly as a risk, but I
think other folks do.
I think it's important to inorder to be able to get into the
more most interesting deals.
It's important to put in theeffort, obviously, and invest
the resources to maintaining andgrowing a presence and a
network in country, right.
And then you know I will saythat things have gotten more
(30:59):
competitive in Mexico with theentrance of many US and Sand
Hill Road based VC firms overthe last five years or so, given
a lot of the reasons that Igave before.
But obviously, on the flip side, that's a great development for
Mexican founders and I thinkit's great for the ecosystem
overall.
Another challenge that not onlyaffects Mexico but I think
(31:23):
affects Latin America as a wholeand probably all kind of
developing ecosystems or most is, there tends to be a lack of
growth capital.
So you tend to see a lot moreearly stage funds in the early
days and less growth stage fundsthat can kind of take those
companies from.
You know, beyond the series Athat's changing slowly in Mexico
(31:47):
, you know, beyond the Series Athat's changing slowly in Mexico
and I think with this kind ofinterest over the last five
years or so from US-based firms,that's another source of growth
capital.
But there have been, you know,kind of new local growth stage
VC firms that have kind ofarrived on the scene over the
last couple of years, which is agreat development.
But that over time historicallythat's been an issue is access
(32:10):
to growth capital for some ofthese Mexican and Latin American
startups.
Speaker 2 (32:14):
And when we're talking growth capital, just for
the clarification of anyonelistening.
So it's, you know they canraise their pre-seed or seed
fund round from you.
But when it comes to gettingthat series A, series B, series
C, et cetera's, that's where themajor challenge comes.
(32:34):
In 100, I would say, it'sparticularly series b and beyond
gotcha.
Okay, um, to switch gears alittle bit again.
So the the story of mecom, um,it's a, it's an interesting
story in the sense that, uh, youknow, it was wholly owned and
then eventually, um,transitioned into what you know
now has become known as icloud.
Uh, tell me the story aboutthat.
I'm very curious to know, sure.
Speaker 1 (32:51):
You did your homework .
Yeah, I mean, you know, mecomis a somewhat unique case in
which we incubated the company,as we did with Keo Networks, but
where we did own it outright,unlike Keo Networks where the
company raised a bunch ofoutside capital.
We initially owned the domainname.
We brought in someone from ournetwork named Mac Tilling to
(33:15):
buildmecom into what at the timewas kind of like an online
repository for users' personalinformation, and then Apple
eventually reached out toinquire about acquiringmecom.
But you know without sayingthat they were Apple.
We think you know that was toavoid us raising the asking
(33:36):
price.
So you know, fortunately Maceventually figured out it was
Apple and we ended up sellingfor a good price, and the rest
is history.
We can't take any credit for itwhatsoever.
But, to your point, iteventually evolved into what is
today iCloud, but it's nice tohave played a small role in the
(34:02):
creation of iCloud.
We actually still have LPs andfolks within our network that
use their uh mecom emails, whichis always, always fun to see,
really, I still see a few ofthose occasionally.
Speaker 2 (34:14):
Yeah, what, um, what was it like?
I'm going to pause here.
Um, if you want me to not askthis question, I was going to
ask, like, what, what?
What was it like being on theM&A process side, like, as like
the seller as opposed to the VC?
Do you want to avoid that?
Speaker 1 (34:26):
Oh, yeah, beyond what I said, I wouldn't say anything
.
Speaker 2 (34:29):
Okay, all right, we'll cut this out.
Okay, all right.
Sorry, I'm just gathering howto mentally take it back and
change the subject.
Yeah, well, that's.
I mean, that's super cool.
Just to play a small part ofhistory.
I love that.
And then, a little bit outsidethe scope of what we normally
talk about on this show, butyou're also the treasurer and
you're on the board of DeFiVentures and I looked it up, did
(34:51):
some research.
I absolutely love the missionof what you're doing.
Could you tell listeners alittle bit more about what it is
and your involvement in it?
Speaker 1 (34:59):
Yeah, I'd love to Thanks for asking.
So DeFi Ventures providesentrepreneurial training to
people who are incarcerated.
So Defy Ventures providesentrepreneurial training to
people who are incarcerated.
The premise is putting thehustling skills that you know
many folks that are in prisonpossess to good use and to, in
turn, reduce recidivism andcreate economic opportunities
(35:22):
for both them and they're oftenunderserved communities when
they're eventually released fromprison.
So, you know, some end upmaking the business plans that
they worked on during the DeFiVentures programming a reality
once they parole and becomeentrepreneurs.
Others, you know, they gainemployment, often with the help
(35:43):
of DeFi Ventures, but end upapplying the kind of the skills
that they learned through DeFiVentures to being more
entrepreneurs at the companiesor places at which they're hired
.
And you know, either way, wesee that as a win.
I've been on the board since2019.
(36:04):
Honestly, the leadership teamdid an outstanding job
navigating a tough couple ofyears after I joined the board
during the pandemic, where a lotof kind of in-person
programming at prisons was shutdown, as you can imagine, and
things got pretty tough If youthink that you know folks on the
outside had it hard during thepandemic.
Speaker 2 (36:25):
Yeah Well, I love that mission because I just
think it becomes such a catch 22when people get out of prison.
It's like, okay, well, you wantto avoid, you know, doing
something wrong and having to goback, but then also no one
wants to hire you because youwere in prison.
So it's like, how do yousupport yourself, except for the
you know, perhaps involvementin the previous activities that
got you there in the first place?
Speaker 1 (36:45):
Yeah, no, 100%.
You know, fortunately we have agrowing number of kind of fair
chance hiring partners that youknow see the value in hiring
these folks and you know we'reable to make these connections
to get gainful employment.
But yeah, I mean honestly,after the pandemic, defi
Ventures has been killing it.
They're in seven states,including California and New
(37:08):
York, rapidly growing withinthose states and also looking to
expand to new states.
So, yeah, things are on the upand up, super passionate about
it and yeah, they're doingreally good work.
Barack Obama actually laudedthem back in the day.
Oh, really, yeah, yeah, that'sawesome, yeah, yeah yeah, that's
(37:29):
awesome.
Speaker 2 (37:30):
Well, harry, this has been a super good conversation.
I've really enjoyed it.
If someone wants to get intouch with you, either to pitch
or to potentially invest, what'sthe best way for them to do
that?
Speaker 1 (37:41):
Yeah, I would say via LinkedIn is probably the
easiest.
I'm getting better and betterat replying to messages on there
, so, whether it be regardingBrainstorm Ventures or Defy
Ventures, please feel free toreach out on LinkedIn.
I actually don't have socialmedia.
I've never had social media,not even Twitter, so I think
that's the best way.
Speaker 2 (38:01):
All right, awesome, sounds like a plan.
Well, again, thank you forcoming on.
Really appreciate it.
Thank you, thanks for having me.
Speaker 3 (38:07):
Thanks for listening to See to Exit.
If you enjoyed the episode,don't forget to subscribe and
we'll see you next time.
It's important for a founder to be able to distill a
complex problem down intolayman's terms Again, we're
agnostic, we're not experts inevery sector and really
succinctly tell the vision andsolution in a compelling way.
So that's something thatobviously comes across in those
first meetings.
In terms of founder market fit,which is critically important.
(00:20):
It doesn't only mean thisnuanced understanding of the
problem because they've spentyears in industry, but also the
experience necessary to solve itright, Whether that be
technical, having the rightindustry contacts, et cetera.
Speaker 2 (00:36):
Welcome back to Seed to Exit.
I'm your host, Rhys Keck,founder at MindHire, a
recruiting firm that helpsventure-backed startups find the
technical talent they need toscale.
Today, I'm thrilled to welcomeAriel Jadus-Lewer, Managing
Partner at Brainstorm Ventures,to the show.
For nearly 12 years, Ariel hasbeen leading investments at the
earliest stages of some of themost exciting tech startups in
North America, includingunicorns like OpenTable, Zappos,
(00:59):
KIO Networks and Turing.
Beyond venture capital, Arielis deeply committed to
mentorship and giving back.
He serves on the board of DefyVentures, providing
entrepreneurship training toincarcerated people, and mentors
for programs like TechstarsMiami and Unreasonable Mexico,
and he is the co-owner of an18th century palace in Barcelona
.
From his early days as animpact investor to advising
(01:21):
foundations like Gates andserving on portfolio company
boards, Ariel brings a wealth ofexperience and insights to our
conversation.
We're going to talk some moreabout his journey, investing
philosophy and what's next forBrainstorm Ventures.
So with that, let's dive in.
Speaker 3 (01:36):
You're listening to the Seed to Exit podcast with
your host, rhys Keck.
Here you'll learn from startupexecutives, founders, investors
and industry experts.
You'll learn from the bestabout building amazing products,
scaling companies, raisingcapital, hiring the right people
and more.
Subscribe and listen in for newepisodes and enjoy the show.
Speaker 2 (02:00):
All right, ariel, welcome onto the show.
Excited to have you.
Thanks for inviting me,absolutely so.
There's a lot of stuff that Iwant to talk with you about
today and you know you've donesome really things, both in
terms of international investing, working and investing in some,
you know, very large brand namecompanies at a very early stage
.
But for those of you, of thelisteners, who are not familiar
(02:22):
with your background, justbefore we really dive into
things, would you mind giving mean overview of yourself and
your background and how you gotto where you're at today?
Speaker 1 (02:28):
Yeah, definitely, I'll try to keep it brief, but,
born and raised in New York City, my family's, from Argentina
studied industrial engineeringin undergrad, started my tech
career, I guess you can say, atIntel Corporation, when once
upon a time it was one of themore exciting companies in
(02:49):
Silicon Valley, and then I'vedone a pretty random variety of
things.
So I did that for a few yearsand then, after getting my MBA,
I worked briefly for the UnitedNations Development Program in
Venezuela.
I worked in strategy consultingfor a couple of years at a
group that was within Bain,called the Bridgeband Group.
(03:10):
That works a lot withnonprofits, foundations,
governments etc.
And then I joined one of thepioneering impact investment
firms after I realized thatconsulting definitely wasn't for
me, worked there for a numberof years investing in a mix of
companies Most of them wereconsumer facing, some were tech,
(03:31):
some were non-tech.
And then, yeah, I think eversince, you know, 2015 or so,
I've been pretty focused onbrainstorm ventures, which I'm
sure we'll get into, but that'sour super early stage, super
industry agnostic venturecapital firm that we're
currently investing out of itsfund three.
Speaker 2 (03:52):
Oh, so you're a fund three already.
Nice, tell me a little bit moreabout Brainstorm because you
know I, like you mentionedyou're you've kept it small on
purpose and you've kept itindustry agnostic.
And oftentimes VCs, especiallywhen they are a little bit
smaller, they tend to specializein, call it, two or three niche
areas.
I was just curious what'sbehind the decision to remain
industry agnostic?
Speaker 1 (04:13):
Yeah, I mean even in terms of staying small, right, I
think most VC firms, oncethey're able to achieve a
certain degree of success, theytry to grow their assets under
management, try to increase thesize of their subsequent funds.
For us, to your point, bothstaying small and staying
industry agnostic is really coreto our strategy, and that's for
(04:34):
a bunch of different reasons.
In terms of staying small, forus, being able to write small
initial checks really helps usget into some of the more
competitive space constrainedrounds that we're looking at.
In many cases we're investingin founders before there's a
round being formed, so that'snot an issue, but in a bunch of
cases it is, and staying smallhelps us get into those deals.
(04:56):
This might be a little bitcontroversial, but another
benefit for us staying small andwriting small checks is that it
minimizes the signaling riskwhen we're not participating in
follow on rounds of some of ourportfolio companies, so that we
can really concentrate ourfollow on checks into those you
(05:16):
know handful of best performingportfolio companies and
concentrate our positions therewithout adversely impacting our
other portfolio companies.
So that's another importantreason.
And then I would say that Ithink it keeps us a little bit
more economically aligned withour LPs.
We're clearly not getting richoff of management fees.
(05:38):
And then the last thing is youknow it's not a reason for us in
particular, but I think thedata out there suggests that
smaller VC funds tend tooutperform larger ones in
aggregate Obviously there's ahuge variation from fund to fund
but that that it allows us toinvest in really the best deals
(06:08):
that arise from our network,regardless of what industry,
vertical or type of technologythey they they land in.
Um, you know, we really viewourselves as as a firm that
invests in networks, as opposedto investing in particular,
theses or, um, obviously, ourindustries or even technologies.
Another reason that's a littlebit particular to us is that it
(06:32):
allows us to diversify away thesector risk within each of our
funds, and that's important forus in particular, because many
of our LPs are high net worthsor small family offices who have
very small fund portfolios.
So, you know, from the point ofview of a large institutional
(07:02):
investor that's investing in 50funds, know, one of the sectors
we invest in goes to shit.
Call it blockchain.
That's not going to affect ourfund too much as a whole.
So I think that's that'simportant and, yeah, I would say
.
The other thing is, you know, Irarely invest in, you know, a
thesis that I have in my mindfor what the world will look
(07:22):
like, and this kind of goes tothe being agnostic.
Instead, you know, I reallyrely on a founder to convey
their vision for what they thinkthe world will look like.
That, you know, in many casesI've never thought of before and
we're betting on their vision,not our vision.
So I think that's that's a keycomponent to the agnostic piece
as well.
Speaker 2 (07:41):
Super interesting and there's so many things that you
said there that I want to diginto further and I'm probably
not going to remember all ofthem off the top of my head, but
I'm going to do my best here.
So, on the on the staying smallside, just for context, you
mentioned you're on fund threeand that you remained relatively
small throughout the fund.
So if you don't mind me asking,what are the fund sizes of you
know, say, one, two and three?
Speaker 1 (08:12):
You know.
So funds one and two wereslightly less than 10 million
each, fund three at 15 million.
Um, we'll start raising fundfor next year and we won't
exceed call it 25 million by anyum stretch of the imagination.
So so that's.
That's.
That's what we mean by small,pretty small.
Speaker 2 (08:18):
Okay, and so then, what are the initial uh checks
that you're typically writingfor?
First investments, not, notfollow-ons.
Speaker 1 (08:25):
So I would say, on average it's about $250,000.
Speaker 2 (08:32):
Okay, and then you mentioned that you also you
don't want to write too big ofchecks also so that it's not too
large of a signal for potentialfollow-ons.
Speaker 1 (08:36):
Just curious how frequently or what percentage of
the time are you doing afollow-on investment from an
initial yes, and I think thesignaling risk has less to do
with the checks that weultimately write in the
follow-ons and more to do withthe fact that, since we're this
small pre-seed and seed fund,for the most part there's no
expectation that we're going tobe playing a role in our
(08:57):
portfolio company's series A.
So when we do choose toparticipate in the series A
great, and we can do so in aconcentrated fashion, a large
check for our relative size.
But when we don't participatein the series a, the, the, the
new investors that are cominginto that, that are leading that
series a, they're not going toask oh, why isn't brainstorm
participating?
It's like no, brainstorms is alittle fun.
(09:18):
They did our pre-seed and orour seed there's because we're
small there, there's noexpectation that we'll be in in
those in those series A's, forexample.
Um, I think you know we we tendto do meaningful follow-ons and
let's call it three to five ofof the companies in each fund's
portfolio and, just for context,we typically invest in about 25
(09:39):
companies per per fund.
Speaker 2 (09:41):
Okay, so math wise about 10, 15%.
Um, yeah, yeah, um, yeah, yeahokay so so, really, when you're
talking about signal, you're,what you're looking for is to
avoid it being seen as anegative signal, that it's like
you don't have faith in thefounder and it's like, no, we
kind of did our part in what wewere meant to do.
100 exactly got you okay.
Um, I'm just curious.
(10:02):
I mean, you know, of course,particularly atseed level, it's
such a large risk.
I mean, what are you evenreally looking for at the
individual company level?
You're, you're a hundredpercent right.
Speaker 1 (10:11):
Um, you know at the stage we invest in um, we look
(10:32):
for strong founders and foundermarket fit for, uh, first and
foremost, um, what is that right?
It's, you know, kind ofdemonstrated ability to be able
to hustle, to be able to hack.
Um, it's important for afounder to be able to hustle, to
be able to hack.
It's important for a founder tobe able to distill a complex
problem down into layman's termsAgain, we're agnostic, we're
not experts in every sector andreally succinctly tell the
(10:55):
vision and solution in acompelling way.
So that's something that youknow obviously comes across in
those first meetings.
In terms of founder market fit,which is, you know, critically
important, it doesn't only meanyou know this nuanced
understanding of the problembecause they've spent years in
industry, but also theexperience necessary to solve it
right, whether that betechnical, having the right
(11:16):
industry contacts, et cetera.
And you know we, I think, asmost folks, we love seeing
repeat founders and co-founderswith the history together.
It's a.
It's a little bizarre, but Ithink two of our current
portfolio companies haveco-founders who are married to
one another.
Oh, really.
Speaker 2 (11:35):
Oh, wow, yeah, OK.
Speaker 1 (11:37):
Which I think is probably statistically above the
majority of VC firms out there.
But you know, being a repeatfounder isn't isn't necessary.
And then there's, you know, theother things that folks
typically look for.
Right, we want to see anopportunity to build a huge
business with strong uniteconomics so that you know, if
successful, the company canscale efficiently and become
(11:59):
very profitable one day.
You know, therefore, the markethas to be large or become large
in the next five or 10 yearsand ideally, the product or
service that the startup isoffering is an order of
magnitude improvement over thestatus quo right that exists
today.
I would say we, you know, giventhe stage at which we invest, we
(12:23):
want to believe that there'sthe potential for a hundred X
return in each investment Ifeverything plays out as well as
possible.
We we think about it from thatpoint of view instead of having
specific ownership targets inmind.
For example, you know, thisoutcome can look really
different for a company in whichwe invest at a $3 million
(12:43):
valuation in the initial round,versus one where perhaps we came
in at a $40 million valuationin the initial round.
And, in terms of our duediligence when we're evaluating
investment opportunities, whatwe try to do to be efficient is
to identify and get comfortablewith what we perceive to be the
(13:06):
you know really small set of keyrisks that would prevent that
particular company fromachieving this type of 100X or
unicorn type outcome and, youknow, really honing in on those
instead of doing a blanket duediligence on every aspect of the
company.
So, yeah, that's kind of how weapproach investing and how we
(13:28):
think about risk at the stage atwhich we're investing.
Speaker 2 (13:31):
So to press back a little bit on the industry
agnostic component, of coursethat does diversify your risk,
as in, like you said, ifblockchain goes to shit like it
did in 2022, then your wholethesis is sunk.
But doesn't that give you somesort of limitation in terms of
how well you can evaluate whatthat market will look like in
the next five to 10 years?
Because naturally, the foundersare going to be optimistic.
(13:52):
That's why they're founders,right.
Speaker 1 (13:54):
Yeah, I would say good question.
I mean in cases in which we'refurther removed from the
particular technology orindustry, we lean pretty heavily
on.
You know what we think is areally strong network of folks
that we're really close with andhave built relationships over
the last dozen, two dozen yearsand you know they help us assess
(14:15):
those types of questionsbecause, yeah, clearly our
personal opinion on you know,we're invested in and currently
doing an SPV in a really areally novel, groundbreaking
gene insertion biotech company.
That's kind of at theintersection of computer,
computational bio, machinelearning and biotech.
My opinion on where that spaceis going means little to nothing
(14:38):
.
So we we lean close, we lean inon folks that are close with us
, right, and that's what helpsus get there so important to
just have a strong advisornetwork.
Yep, yeah both formal advisorsand informal 100%.
Speaker 2 (14:52):
Okay, and then do those folks just typically come
from your network?
Are they LPs, other foundersyou've gotten to know over the
year?
Speaker 1 (14:59):
Yeah, it's a mix.
It's our network right, butwhat our network really means is
it's peers, other VCs that maybe focusing on those spaces,
founders that we've previouslybacked, that they themselves
understand those spaces or knowfolks that do, and just folks
that are, you know, leadingreally, really interesting
organizations across a varietyof different segments of the
(15:21):
kind of broader tech ecosystem.
Speaker 2 (15:23):
Gotcha, how do you approach it when you know, let's
say, you meet a really goodfounder and they seem to have
that founder market fit thatyou're looking for, but you
think the model is not bad, but,you know, maybe not the best.
Let's call it a, you know, six,seven out of 10.
Is that still something you'dconsider investing in because of
(15:44):
the founder themselves, or whatdo you look like from that
perspective?
Speaker 1 (15:50):
Yeah, I mean, I think my cop out answer is that it
depends on how kind ofdemonstrably great the founder
is and how you know mediocre oryou know decent the business is.
I think the devil is really inthe details and kind of how well
the founder can can make thatcase.
Um, so in that case one of therisks that we would identify is
(16:14):
shit, this market doesn't seemthat attractive, either because
of size or competitive landscapeor or kind of inherent
economics or what have you.
How can we get comfortable withwhat the founder is trying to
portray?
Right?
Speaker 2 (16:27):
I guess.
And also there's also thethought that if there, you know,
is a, you know, mediocre tosemi-good business opportunity,
how great is the founder ifthey're pursuing something that
doesn't seem that great, youknow, does that speak to their
decision-making skills?
100%, that's exactly right.
So when you're talking aboutthe investments and you
(16:47):
mentioned 100x earlier, which isreally what you would be
looking for in an ideal scenariohow many on a percentage basis?
How many do you expect toactually hit that threshold?
Speaker 1 (17:00):
Yeah, I mean 100x.
I mean we can return a fundseveral times over with one or
two investments in our portfolioof 25 that reach those types of
returns.
Anything more than that is, youknow, obviously icing on the
cake.
I think you know it kind ofdepends from fund to fund.
(17:21):
There could be one fund wherewe have a bunch of 10 to 30x
returns.
It could be one fund where wejust had one 200 X return and
the rest of the portfolio wasn't.
That didn't perform that well.
Speaker 2 (17:33):
Yeah Well, and I think too, the other thing that
people often think about whenthey think about early stage VC
is that it's all or nothing.
It's either you hit that ahundred X or it's a total loss
right, and I'm sure there are,you know, plenty of, plenty of
total losses in the portfolio.
But then you also have thosecompanies that get to say the
Series A, you mentioned earlier,the Series B, and then things
may not go quite as planned, butthen they do get a buyout or an
(17:55):
acquisition level at that offerand you still get some
meaningful return.
Speaker 1 (18:00):
Yeah, obviously, at the point of investment, we're
always shooting for these homeruns, but the reality is that
you're happy when you knowseveral of the companies in your
portfolio end up getting thesedoubles or triples, especially
if they had to overcome, youknow, adversity, um difficult
situations, and they stillmanage to to to have a pretty
good outcome, right absolutelyand you have had some home runs.
Speaker 2 (18:23):
I mean you back to unicorns.
You've backed open table zapposin the early stages Turing.
I'm just curious.
I mean, are there any commontraits that you saw when you
were doing that early stageinvesting that you felt like
Chuck Templeton at OpenTableTony?
Speaker 1 (18:37):
Hsieh at Zappos and both Jonathan and Vijay at
Turing were all proven strongoperators with a really clear
vision for where they saw theworld going.
(18:58):
In the case of Chuck, he wasliterally an operator as an army
ranger prior to foundingOpenTable, which at the time was
called Easy Eats.
You know, we have to kind of goback in time to a period when
reservations were done by penand paper.
He saw a really interestingopportunity to disrupt this huge
(19:22):
restaurant industry withsoftware, beginning with
managing the reservation processthat restaurants have to do and
and and, yeah, and.
Then, with you know, tony Hsieh, who you know, as you know I'm
sure, sadly passed away fouryears ago, next month actually.
He had really rolled up hissleeves as a fellow board member
(19:46):
at OpenTable and so we saw kindof his operating ability there
and he had this novel vision forZappos at the time that
involved, you know, not carryinginventory and offering really
incredible customer service foran e-commerce play like
Nordstrom's at the time andstill does, I think, offer in
(20:07):
its brick and mortar locations.
And you know now it soundsreally trivial, but at the time
this kind of relentless focus onthe customer and servicing them
didn't really exist ine-commerce.
So we bought into his visionthere and we knew what his kind
of operating skills were.
And then with, with more youknow, much more recently with
(20:30):
Jonathan and BJ at Turing.
They had previously foundedanother startup called Rover,
which they exited and where theyactually used engineering
talent overseas to scale thatcompany more efficiently, and
that was their inspiration forTuring, which you know, as you
may know, is kind of completelyAI powered platform to assess,
(20:52):
match onboard and even managetop tier remote software
engineers for what is now like avery long list of Fortune 100
customers.
So, yeah, I would say those arethe kind of.
If you had to some kind of findcommonality, those would be the
two traits.
It's the the operating skillsand the and the the clear vision
(21:13):
.
Speaker 2 (21:14):
Yeah, well, and it's also.
It's funny.
You mentioned that the you know, the focus on the customer and
e-commerce seems like tablestakes.
But that's isn't that really?
Just what a lot of unicorns dois is take something that at the
time is novel and grow it sosuccessfully that, yes, it then
becomes just part of the publicconsciousness.
Like, of course, I can reservea reservation on my phone, why
wouldn't I be able to?
Um, I actually did not know.
(21:36):
I I know.
I know what turing is, I'mfamiliar with it outside of
doing research for the podcast.
I did not know that thefounders of rover were, uh, also
the of Turing, so that'sinteresting.
Speaker 1 (21:47):
It was a company called Rover AI.
It was a recommendation engine,not a dog walking, Not the dog
walking.
Okay, I was going to say thoseare two very different things.
Speaker 2 (21:57):
Good to know.
Okay, so you also then count.
And obviously you know secondtime founder is great.
You mentioned earlier for atime that they don't have to be,
and over at OpenTable hisbackground was an army ranger,
so it doesn't necessarily haveto be.
You know company operatingexperience like biz ops or
something like that, butsomething where expectations are
(22:19):
high.
You have to perform at a highlevel and for a consistent
period of time, for a consistentperiod of time.
Speaker 1 (22:25):
Yeah, Although you know, just realistically, the
overwhelming majority of folkswe see have much more
quote-unquote relevant operatingexperience.
Speaker 2 (22:33):
Of course, but yeah, yep, well, I love that you can
see the potential.
Yep, awesome, switching gears alittle bit.
You don't just invest inUS-based startups, you also
invest in Mexico City-basedstartups or Mexico-based
startups.
I was just curious where didthe inspiration for that come
from and how is the Mexican VCecosystem yeah, good question.
Speaker 1 (22:56):
So I'll preface it by saying that you know we've been
investing in Mexico on and offsince 2000,.
Believe it or not, I think thatmakes us the first kind of
US-Mexico cross-border VC firmout there.
We wrote the first check inMexico's first unicorn, this
company called Keo Networks,where we actually played a role
(23:16):
transferring the initialtechnology that Keo Networks was
based on from a company in ournetwork in Silicon Valley.
My partner, eduardo Rayo, grewup in Mexico, studied in the US
and spent most of his adult lifein the US, but grew up in
Mexico.
My family, as I mentionedearlier, is from Argentina and
randomly, kind of over the years, had built kind of an
(23:38):
interesting network of folks inthe tech space in Mexico.
So that's a little bit.
You know why we continue to, toinvest in in in the ecosystem,
on top of a bunch of reasons forwhich we're bullish about
Mexico specifically and also,honestly, latin America in
general.
Um, so some of these things yourlisteners might know, some they
(24:01):
might not, but you know Mexicois the world's most popular
Spanish speaking country.
Mexico city is the world's mostpopulous.
Um, spanish speaking city.
Mexico is the world's mostpopular Spanish speaking country
.
Mexico city is the world's mostpopulous Spanish speaking city
and one of the world's topdepends, I think, how you
measure it, but handful ofcities in the world population
wise, very high digitalpenetration.
I think Mexico city isSpotify's largest market in the
(24:23):
world and Mexico country isUber's second largest market
after the United States.
Obviously, mexico shares this2000 mile long border with the
United States and I thinkroughly 10% of the US population
is of Mexican descent.
We're currently experiencingthis really interesting and
(24:45):
exciting near shore shoringmomentum with everything that's
happening with with China.
I was actually at an event inMexico City a couple of weeks
ago with Ken Salazar, who's theUS ambassador to Mexico, and he
told us that Mexico justsurpassed China as the United
States largest trading partner,which, which is interesting.
(25:05):
Honestly, I think some of thegrowth in trade is actually from
Chinese companies who set upshop and manufacturing
facilities in Mexico to bothavoid tariffs and take advantage
of NAFTA.
I guess now it's called USMCA,you know, but still,
directionally, you know thingsare moving in the right
direction and you know this ismore at a regional level, but
(25:29):
despite the growth of thestartup ecosystem in LATAM,
which, you know, we'veexperienced firsthand over the
last, you know, five or sevenyears, there's still relatively
low VC investment as apercentage of GDP in the region
as compared to similar regions,like Southeast Asia is the one
that comes to mind.
(25:50):
Yet Latin America has had moresuccess cases than Southeast
Asia or some of these otherregions that are comparable.
So I think there's still areally important opportunity for
VCs in Mexico and Latin America.
Another thing that I've noticedis that in you know, in the
early days, what would happen isyou would see a lot of founders
(26:12):
in Mexico and I think this istrue for Latin America as a
whole that we're basicallytropicalizing models that worked
in the US and just applyingthem to their domestic market in
Mexico and just fine tuning themodel based on the realities of
being on the ground in Mexicoor in Argentina or what have you
instead of in the US More andmore.
Which is, you know, makes meproud is you're seeing founders
(26:33):
still do that, but you're seeinga lot of founders that are
actually building companies inMexico and Latin America now
that are innovative companiesworldwide and they're competing
on the world stage, and theyjust happen to be companies that
are based in Latin America, um,but they're competing with
players around the world Um, andI think that's been um, you
(26:54):
know, kind of a strong umindicator of of the their
ecosystem you know, reallyprogressing Um.
So it's been, it's been greatto see.
Speaker 2 (27:02):
You mentioned that there's been less activity,
despite more GDP, in Mexico asopposed to Southeast Asian
countries.
Why do you think that is?
You mentioned that there's beenless activity, despite more GDP
, in Mexico as opposed toSoutheast Asian countries.
Why do you think that is?
Speaker 1 (27:10):
I don't know.
I mean, I think I think part ofit might be that I don't really
have a good answer for that.
I think there's people viewMexico and Latin America as
having a lot of political risk.
I think naturally a lot of thedollars that would go into
Mexico, for example, would comefrom the United States, but the
(27:30):
United States has this huge,vibrant tech ecosystem of its
own, Whereas maybe in SoutheastAsia there's more wealth nearby
that they don't have as manyalternatives for where to invest
that capital as money in the USwould have.
That's just kind of ahypothesis.
Speaker 2 (27:52):
Is there a language barrier at all, or do most of
the founders tend to speakEnglish in Mexico?
Speaker 1 (27:56):
Most of the founders speak English.
Yeah, and honestly, you know,culturally I think when you
compare the US to Mexico,culturally there's so much more
aligned and you know there's alot of US-based and Sand Hill
Road-based VC firms that investa lot in or historically invest
a lot in Israel, in China,that's kind of kind of comes to
a halt.
Culturally, time zone wise, etc.
(28:19):
There's just so much morecommonality with Mexico and
Latin America that I thinkthat's a non-issue.
If anything, I think that's areason to invest in Latin
America.
Speaker 2 (28:28):
And do then most of those I know you mentioned.
Some of the startups are nowcompeting on the world stage,
but would you say most of theMexican startups are servicing
the Mexican population, or whatpercentage of them tend to go
international?
That SaaS products.
Anyone can use it Good question.
Speaker 1 (28:45):
I think most of them are still targeting the Mexican
market, but I think there it's,there's, you know, step one is
the Mexican market.
Step two oftentimes is isbecoming market leader in Latin
America, whether that be Spanishspeaking Latin America or Latin
America including Brazil, whichis kind of an animal of its own
but obviously a huge market.
(29:06):
But there there are companiesin Latin America that and some
of them are in deep tech, forexample that are from day one
targeting the global market.
I think that's one place whereMexico might be at a slight
disadvantage of, let's say, inArgentina, where, you know,
mexico in and of itself is anattractive enough market, where
a lot of founders just viewbecoming the market leader in
(29:27):
Mexico as a win, whereascountries like Argentina or, you
know, basically all the smallercountries in Latin America,
have a mindset that's a littlemore similar, I would say, to
Israel, where they know thattheir domestic market is small
and then so from day one they'rebuilding for a global audience,
because they can't achievesignificant success just from
(29:50):
being a dominant player in theirlocal market.
Speaker 2 (29:53):
Yeah, it's like if you're the number one in Ecuador
.
It's like you're the biggestkid in the neighborhood.
Speaker 1 (29:58):
So that actually works as a little bit of a
disadvantage to founders inMexico in some ways versus
founders from smaller countries.
Speaker 2 (30:06):
Super interesting.
Okay, so that's the opportunity.
What are the challenges from aninvestment standpoint?
Speaker 1 (30:11):
I mentioned that before.
I think there's always currencyrisk.
You know, for us in particular,we're more focused on Mexico
and I should say, you know, ineach of our funds I would say
you know, 75 to 80% of ourportfolio companies are US based
and then the remainder tend tobe Mexico based.
But I would say that, you know,for the Mexican peso in
(30:35):
particular, it's been relativelystable versus the US dollar for
the last eight years or so.
So we don't view thatparticularly as a risk, but I
think other folks do.
I think it's important to inorder to be able to get into the
more most interesting deals.
It's important to put in theeffort, obviously, and invest
the resources to maintaining andgrowing a presence and a
network in country, right.
And then you know I will saythat things have gotten more
(30:59):
competitive in Mexico with theentrance of many US and Sand
Hill Road based VC firms overthe last five years or so, given
a lot of the reasons that Igave before.
But obviously, on the flip side, that's a great development for
Mexican founders and I thinkit's great for the ecosystem
overall.
Another challenge that not onlyaffects Mexico but I think
(31:23):
affects Latin America as a wholeand probably all kind of
developing ecosystems or most is, there tends to be a lack of
growth capital.
So you tend to see a lot moreearly stage funds in the early
days and less growth stage fundsthat can kind of take those
companies from.
You know, beyond the series Athat's changing slowly in Mexico
(31:47):
, you know, beyond the Series Athat's changing slowly in Mexico
and I think with this kind ofinterest over the last five
years or so from US-based firms,that's another source of growth
capital.
But there have been, you know,kind of new local growth stage
VC firms that have kind ofarrived on the scene over the
last couple of years, which is agreat development.
But that over time historicallythat's been an issue is access
(32:10):
to growth capital for some ofthese Mexican and Latin American
startups.
Speaker 2 (32:14):
And when we're talking growth capital, just for
the clarification of anyonelistening.
So it's, you know they canraise their pre-seed or seed
fund round from you.
But when it comes to gettingthat series A, series B, series
C, et cetera's, that's where themajor challenge comes.
(32:34):
In 100, I would say, it'sparticularly series b and beyond
gotcha.
Okay, um, to switch gears alittle bit again.
So the the story of mecom, um,it's a, it's an interesting
story in the sense that, uh, youknow, it was wholly owned and
then eventually, um,transitioned into what you know
now has become known as icloud.
Uh, tell me the story aboutthat.
I'm very curious to know, sure.
Speaker 1 (32:51):
You did your homework .
Yeah, I mean, you know, mecomis a somewhat unique case in
which we incubated the company,as we did with Keo Networks, but
where we did own it outright,unlike Keo Networks where the
company raised a bunch ofoutside capital.
We initially owned the domainname.
We brought in someone from ournetwork named Mac Tilling to
(33:15):
buildmecom into what at the timewas kind of like an online
repository for users' personalinformation, and then Apple
eventually reached out toinquire about acquiringmecom.
But you know without sayingthat they were Apple.
We think you know that was toavoid us raising the asking
(33:36):
price.
So you know, fortunately Maceventually figured out it was
Apple and we ended up sellingfor a good price, and the rest
is history.
We can't take any credit for itwhatsoever.
But, to your point, iteventually evolved into what is
today iCloud, but it's nice tohave played a small role in the
(34:02):
creation of iCloud.
We actually still have LPs andfolks within our network that
use their uh mecom emails, whichis always, always fun to see,
really, I still see a few ofthose occasionally.
Speaker 2 (34:14):
Yeah, what, um, what was it like?
I'm going to pause here.
Um, if you want me to not askthis question, I was going to
ask, like, what, what?
What was it like being on theM&A process side, like, as like
the seller as opposed to the VC?
Do you want to avoid that?
Speaker 1 (34:26):
Oh, yeah, beyond what I said, I wouldn't say anything
.
Speaker 2 (34:29):
Okay, all right, we'll cut this out.
Okay, all right.
Sorry, I'm just gathering howto mentally take it back and
change the subject.
Yeah, well, that's.
I mean, that's super cool.
Just to play a small part ofhistory.
I love that.
And then, a little bit outsidethe scope of what we normally
talk about on this show, butyou're also the treasurer and
you're on the board of DeFiVentures and I looked it up, did
(34:51):
some research.
I absolutely love the missionof what you're doing.
Could you tell listeners alittle bit more about what it is
and your involvement in it?
Speaker 1 (34:59):
Yeah, I'd love to Thanks for asking.
So DeFi Ventures providesentrepreneurial training to
people who are incarcerated.
So Defy Ventures providesentrepreneurial training to
people who are incarcerated.
The premise is putting thehustling skills that you know
many folks that are in prisonpossess to good use and to, in
turn, reduce recidivism andcreate economic opportunities
(35:22):
for both them and they're oftenunderserved communities when
they're eventually released fromprison.
So, you know, some end upmaking the business plans that
they worked on during the DeFiVentures programming a reality
once they parole and becomeentrepreneurs.
Others, you know, they gainemployment, often with the help
(35:43):
of DeFi Ventures, but end upapplying the kind of the skills
that they learned through DeFiVentures to being more
entrepreneurs at the companiesor places at which they're hired
.
And you know, either way, wesee that as a win.
I've been on the board since2019.
(36:04):
Honestly, the leadership teamdid an outstanding job
navigating a tough couple ofyears after I joined the board
during the pandemic, where a lotof kind of in-person
programming at prisons was shutdown, as you can imagine, and
things got pretty tough If youthink that you know folks on the
outside had it hard during thepandemic.
Speaker 2 (36:25):
Yeah Well, I love that mission because I just
think it becomes such a catch 22when people get out of prison.
It's like, okay, well, you wantto avoid, you know, doing
something wrong and having to goback, but then also no one
wants to hire you because youwere in prison.
So it's like, how do yousupport yourself, except for the
you know, perhaps involvementin the previous activities that
got you there in the first place?
Speaker 1 (36:45):
Yeah, no, 100%.
You know, fortunately we have agrowing number of kind of fair
chance hiring partners that youknow see the value in hiring
these folks and you know we'reable to make these connections
to get gainful employment.
But yeah, I mean honestly,after the pandemic, defi
Ventures has been killing it.
They're in seven states,including California and New
(37:08):
York, rapidly growing withinthose states and also looking to
expand to new states.
So, yeah, things are on the upand up, super passionate about
it and yeah, they're doingreally good work.
Barack Obama actually laudedthem back in the day.
Oh, really, yeah, yeah, that'sawesome, yeah, yeah yeah, that's
(37:29):
awesome.
Speaker 2 (37:30):
Well, harry, this has been a super good conversation.
I've really enjoyed it.
If someone wants to get intouch with you, either to pitch
or to potentially invest, what'sthe best way for them to do
that?
Speaker 1 (37:41):
Yeah, I would say via LinkedIn is probably the
easiest.
I'm getting better and betterat replying to messages on there
, so, whether it be regardingBrainstorm Ventures or Defy
Ventures, please feel free toreach out on LinkedIn.
I actually don't have socialmedia.
I've never had social media,not even Twitter, so I think
that's the best way.
Speaker 2 (38:01):
All right, awesome, sounds like a plan.
Well, again, thank you forcoming on.
Really appreciate it.
Thank you, thanks for having me.
Speaker 3 (38:07):
Thanks for listening to See to Exit.
If you enjoyed the episode,don't forget to subscribe and
we'll see you next time.
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