August 25, 2025 • 28 mins
In this episode I speak with Rafael Costa, who co-founded Across Capital to back category-leading software companies across the U.S. and Latin America. We dive deep on the Brazil tech flywheel — from why the central bank and Pix have accelerated fintech innovation, to the infrastructure winners like QI Tech that are becoming foundational rails for payments, banking and credit. Rafael walks me through Across Capital’s concentrated, high-conviction approach (a ten-company portfolio, deliberate sizing, then backing winners over time), how they underwrite downside protection in growth equity, and what AI actually changes for regulated industries. Along the way he shares practical diligence habits (the “what really matters” slide), how they build conviction over ~17 months, and one piece of advice he’d give his younger self about focusing on the present to compound relationships and learning.
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Episode Transcript
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(00:00):
Rafael, welcome to the How Invest podcast.
Thank you for having me, David.
Pleasure to be here.
You started your career at some of the reallytop growth equity firms on the planet.
You were at Summit Partners.
You were at Vulcan, which was the investing armof Paul Allen.
And today, you have your own fund.
Tell me about what you're focusing on today.
(00:22):
Cross Capital really started over a decade ago.
It's a combination of who I am as anindividual.
I was born in Brazil.
Been in The US for the last twenty five plusyears.
I'm always investing in technology throughoutmy career.
So I went down the traditional path.
As you alluded to, I had great opportunity tokind of cut my teeth into the world of
investing initially at Summit and subsequentlyat Vulcan.
(00:44):
And now within ACROSS, bring with us a lot ofthe learnings from those times, and we're
focused on backing software businesses acrossThe Americas.
We started out a decade ago, the thesis forACROSS, which was predicated on the fact that I
was Brazilian in Silicon Valley.
I saw a lot of entrepreneurs come through here,particularly from Latin America, trying to
(01:05):
raise money in in Sandhill.
And I was helping them think through how toposition their businesses for the Silicon
Valley VCs.
And at that time, I started personallyinvesting in what went on to become the first
crop of unicorns in LatAm.
That gave me conviction.
So our timing in LatAm made us a little bit ofa unique animal in The US where our portfolio
company was seeking us out to help them withLatin America, whether that was on the talent
(01:29):
front, whether that was in the businessdevelopment side.
And that was a genesis for Across.
Tell me about the Brazil tech ecosystem.
How's that evolved in the last decade?
Great question.
Look, I think Brazil has delivered one of themost successful returns in all emerging markets
when it comes to TAIC.
I'll say it's LatAm's Silicon Valley, right?
Whether you want to look at the MercadoLibre ofthe world, which is $100,000,000,000 plus
(01:52):
market cap company, NewBank, which is60,000,000,000 plus market cap business,
perhaps one of most successful fintechsglobally, or others such as PagSeguro or XP.
We have had some M and A also happen downthere.
But a further ground for innovation.
I think the backdrop is a big market measureboth in terms of population and GDP that is
(02:15):
extremely tech savvy, both on the consumerside, but also on the enterprise side.
And we're reaching a point where the talentdensity is there, right?
We're kicking into this flywheel where we havehad exits.
We have had folks building 10,000,000,000 pluscompanies, and they're onto their second or
third go around.
So again, it's pretty fertile ground forinnovation in fact in general.
(02:37):
One of the under told stories of Brazil is itsfintech and financial infrastructure.
Why is Brazil have such high market share whenit comes to these fintech startups?
If you take a step back and you understand kindof how the banking system in Brazil was built,
it was really built out of chaos, right?
(02:58):
If you look at the 80s and the 90s, thecountries suffered from hyperinflation that
required the banking system to operate ineffectively real time with same day settlement.
And that kind of sets the tone for a lot of theinnovation we have seen in the Brazilian
fintech ecosystem, which is further propelledby a central bank that like a startup, one of
(03:21):
the most innovative central banks in the world,extremely progressive when it comes to
innovation.
What they've done in the last decade is nothingshort of remarkable.
We have had innovations such as PIX, which isthe real time payments rail provided by the
Central Bank, which now has a penetration of80% plus of the adult population in Brazil,
(03:43):
whether that's open finance and providing fordata portability, embedded finance and a lot of
innovation within the financial markets.
And then you have other more structural nuancesthat makes it quite compelling to perhaps
disrupt these incumbents, right?
You have a very concentrated banking system,extremely high spreads when it comes to credit,
(04:08):
but still penetration to be had as it relatesto just financial products in general.
And that ultimately translates into a verycompelling market when it comes to innovating
the fintech side.
You have a Brazilian company, QiTech, thatreally powers a lot of the infrastructure and
the fintech in Brazil?
(04:28):
Very fortunate to have had the opportunity towork with the team over at QY Tech.
It was actually the first investment we did outof the across capital fund.
And we have been spending a great deal of timewithin financial infrastructure in Brazil
specifically.
And the notion being, picks and shovels playsinto this massive team, which I just alluded to
earlier, betting the race, not in the horse.
(04:49):
And QI Tech, what it does is provides theinfrastructure that enables any company,
whether that's a retailer, a FinTech, ashopping mall, a big pharma company to offer
financial products.
So think of it as a Stripe of that part of theworld, but with other elements as well.
It is a business that was extremely capitalefficient when we had the opportunity to get
(05:12):
involved, had explosive growth growing 200%plus year over year with EBITDA margins in
excess of 50%, something that you do not seeevery day and still with plenty of runway ahead
as it relates to the market itself.
Tell me the difference between a LATAM FinTechcompany and a US FinTech company.
(05:35):
How is it different to start a company thereversus in The US?
The way we see it is, down in Latin America,you had the opportunity to build more end to
end platforms.
And this is just driven by just the overallmarket dynamics.
If you look at QI Tech, you really started outoffering much more of a lending as a service
product whereby they were providing theinfrastructure for traditional companies or
fintechs to provide credit.
(05:56):
Now we have a banking as a service product,which is checking accounts and payments.
Now we have a fund administration business,which also helps custody the funds of clients.
So it is building much more of an end to endplatform, which is very different from The US
whereby oftentimes we're trying to solve aspecific pain point or going after a big, but
(06:18):
perhaps narrow market.
In Latin America, there's an opportunity tobuild things that are much more platform driven
and platform oriented.
And why is that?
Is that the barriers to entry?
Is there some technological advantage?
Why are you able to kind of verticalize thesesolutions?
Resources are just more scarce down there,whether that's capital, whether that's talent.
And as a result of that, the winners tend tocompound and drive barrier to entry for new
(06:43):
entrants, whereas the capital is more abundanthere in The US, talent definitely density is
much deeper relative to LatAm.
So those dynamics drives some of these forces Ijust mentioned.
And you have very concentrated portfolioconstruction, 10 companies.
Tell me about the strategy behind concentratinginto less than a dozen companies.
(07:04):
Concentration forces clarity in the end of theday.
When you only get 10 shots, you tend to dodeeper diligence.
You lean into your edge, right?
It gives you the ability to partner withcompanies in a meaningful and active way.
So ultimately, it is something that'sfoundational across our investment philosophy.
(07:25):
It's not a mindset of buying call options,right?
It's every single one of our partnerships aremeaningful to us and that drives alignment with
the entrepreneur.
We don't have a portfolio of thirty, fortynames.
It's 10 of those.
So everything, it's incredibly meaningful tous.
It drives a scarcity mindset, which, you know,for us means, you know, we need to have, you
(07:51):
know, ruthless prioritization, I'll say, on howwe spend our time.
And that changes the way we source.
It changes the way we engage with the companiesand changes the way we pick them.
So the punchline is, look, by only investing to10 companies that forces us to be incredibly
focused, you know, everything is meaningful tous.
(08:11):
And we like that alignment with ourentrepreneurs.
And we also like the fact that gives us theability to drive, in our view, very good risk
adjusted returns for LPs.
And you said it forces ruthless prioritization.
Why does having a concentrated portfolio changeyour sourcing capacity or your sourcing
function?
Top of the funnel, we're still talking tothousands of companies, right?
(08:34):
But on the middle of the funnel and bottom ofthe funnel, that's where the ruthless
prioritization comes in, because we arespending a great deal of time with efficiency
and speed to get to the bottom of things thatreally matters on the investment decision.
So ultimately, we're spending, you know,incredible amount of time, probably around 30
or so opportunities per quarter where we'rediving in and really conducting deep diligence.
(08:57):
On average, we get to know companies seventeenmonths prior to making the investment.
So that diligence is occurring over a year anda half period.
That allows us to one, ideally have built arelationship with that entrepreneur and have
earned our seat at the table.
Two, to have the conviction to move withefficiency and speed at the time that they're
looking to raise or transact, if you will.
(09:20):
We have these top companies that we'repursuing.
We're ultimately aiming to do two to fourinvestments in any given year, and we need to
focus on the companies that are going be thosetwo to four.
And that is where the ruthless polarizationcomes into play.
It's Warren Buffett that popularized this idea.
When you become an investor, you graduatecollege, you should have a punch card of 20
companies, and you only get to invest in 20companies kind of throughout your career.
(09:44):
And it's this kind of ruthless conviction, Iwould call it, that you have to be so
convicted.
Also think there's this bias towardsdiversification on a fund level that's
unnecessary, and that's a very pro GP strategy,not a pro LP strategy.
LPs actually want to have high concentrationhat, want to have a basket of highly
concentrated names.
(10:05):
Those tend to be the best performing funds.
You could argue it's not the case for theprecinct seed where there's power laws, where
any one company, you want a lot of shots ongoal.
But once you get to a certain stage, youtypically want your managers to be highly
concentrated.
Couldn't agree more.
It's actually it's interesting because I can'tspeak for LPs, but if you think about it at the
(10:25):
LP portfolio level, they have amplediversification, right?
Because you're investing across multiple funds.
Each one of these funds are investing inunderlying companies that provide further
diversification.
So they are diversified for all intentspurposes.
In our view, as a manager of a fund, we likeconcentration because of the points I alluded
to earlier.
And to give you a practical example, ourQYTech, which we talked to about it earlier, is
(10:47):
a 20% position in our fund.
We truly live by these high conviction, highconcentration mindset.
Is that a fund returner?
It's looking like it.
We just actually announced yesterday a followon round, which marks the fourth time we're
investing into the company.
We co edit with General Linac.
Given where the pricing of that came out, whichis close to $2,000,000,000 we first invested in
(11:10):
the business at 300,000,000 it's very close tobeing a fund
return already.
I just interviewed John Felix, who was at WashUSt.
Louis and worked under the the FayettevilleCIO, Scott Wilson.
And Scott Wilson not only invested into fundsthat are very concentrated, but he would meet
and his team would meet with the managers andfind out their top concentrated positions,
(11:32):
whether there's an opportunity to deploy evenmore.
So you had this kind of, like, ruthlessconcentration.
Now that being said, it probably was stillhundreds of positions, but the idea that you
have to have every fund be 30 to 50 companiesand then you have 20 funds, the math does not
justify that kind of diversification.
Makes a lot of sense to me.
(11:53):
We had this back and forth last time wechatted, you believe that growth equity does
not, is not about the power laws, it's aboutconsistency and maybe even downside protection.
What leads you to think that growth equity iskind of a different asset class than
traditional early stage venture?
There's different types of strategies withinthe growth equity.
I think growth equity, you know, has evolvedquite a bit over the last decade.
(12:16):
You could argue there's what say some of you astraditional growth equity, which is minority
investing into high growth businesses that tendto be capital efficient or profitable.
This is how the likes of Summit, TA in themid-80s were born, right?
So you're effectively sitting between ventureand buyout, but still driving returns
predominantly through growth and have been aminority investor.
(12:38):
And obviously, I think to a large extent thereis venture growth, which is just later stage
growth rounds.
And that resembles much more of the growthequity two point zero than the growth equity
one point zero.
But to your question related to consistencyversus parallel, particularly the way we think
(12:58):
about it, given the concentration of ourportfolio, we're much more focused on
consistency of three to five X returns versuschasing something that can be binary, right?
Which is chasing the power law, something thatcould potentially return ten, twenty, 30 X or
be a zero.
We're less interested in those.
We're much more interested in finding thingsthat we have extremely high conviction on
(13:21):
hitting our minimum return threshold of 3X withthe downside protection, whether that's driven
by the stage we're investing, the structurewe're investing, the IP the company has, but we
have high confidence that capital impairment isgoing be very low.
In fact, if you look across our track record,we only lost money in one deal.
So that speaks to our mindset around downsideprotection and being mindful of capital
(13:44):
impairment, while still preserving thecapability of still achieving a 5x plus return.
So that's ultimately what we're looking for isthis notion of consistency.
That does not mean that we won't have perhapsone or two companies in the portfolio, in our
case, of 10 companies that will drive a lot ofthe returns in the fund, we just alluded to QI
(14:06):
type being a 20% position and being a fundreturner.
Obviously, the fund returning component drivesby us sizing that position accordingly, which I
think is something that we don't talk aboutenough is how sizing matters.
And that's a byproduct of concentration on thereturn of the overall fund and portfolio.
But I, as a manager, I cannot be chasing thingsthat you know, could potentially have capital
(14:32):
impairment because the portfolio constructiondoes not allow for that.
I want you to double click on the sizingcomponent.
You're at Summit, you're at Vulcan, you saw thekind of the best practices.
Obviously, you invested 20% in one company andyou have a 10 portfolio position.
So it's roughly double your your averageposition.
Is that basically how you explain your sizingstrategy, which is invest even more into your
(14:55):
higher conviction bets?
Is there more math behind that or, double clickon your strategy?
On Qi Tech, like I said, we invested four timesin the business.
So we built this position over time.
So it was not from the get go that we got to20%.
But from the get go, we did size this positionat 12.5%.
That was our initial check.
And then subsequent to that, we have increasedit to 20% as the company has beaten our plan
(15:19):
every single time we have re underwritten thebusiness.
And that's part of the strategy.
Part of the strategy is to back your winners,if you will, and put more money in things that
are working.
And we think there's still on a risk adjustedbasis, a compelling case to be had to allocate
capital to it.
I think, you know, QY Tech is prime example ofour strategy.
One of the things that you see a lot in theventure space, growth equity space, is this
(15:42):
retrofitting of the thesis where you fit yourthesis to what the current situation is with a
company.
And sometimes cynically, that's done to LPs tokind of paint a new narrative, but also it's
done to fool investors themselves.
So tell me about that.
And it seems like you've institutionalized memowriting and assumptions and underwriting
(16:03):
outcomes.
And how important is that to stay on coursewith, you know, being a good investor?
For us, discipline is core, right?
We're not in the business of getting lucky.
We're in the business of driving consistentreturns and having a methodology to do so in a
framework by in which we do that.
And that translates into system frameworks andprocesses that we hold internally.
(16:25):
So to your point, yes, every time we reunderwrote the business, we looked at, you
know, the underwriting we did, whether that,you know, top line, bottom line, margins,
returns, the drivers of each one of thosethings, how has it performed relative to plan?
Why did it go better?
Why did it go worse?
Every memo we write, we have a slide that'swhat we call what really matters slide is
really forcing ourselves to pick no more thanfive drivers of the investment case, right?
(16:50):
Ultimately, investment decision, in our view,comes down to, you know, three to five factors.
And that's what really matters.
And in a very objective way, assessing that.
And then as we underwrite the business,assessing how those what really matter points
have changed.
And as in an as objective manner as possibleand as quantitative as possible, obviously,
there's qualitative assessment that goes intoany investment, but that's how we think about
(17:14):
it.
The second time we invested into QI Tech, Idon't have the number top of my mind, but it
was 20% to 30% above our underwriting plan thatgave us conviction to put more money behind the
business.
Margins actually expanded.
We underwrote margins decreasing and sufferingfrom competition was actually the opposite that
happened.
And as a result of that, we decided to put moremoney into the company.
(17:35):
So it's all about having a process, which we'reconstantly fine tuning.
I'll say that.
That's also an element of for us, it'sextremely important.
That's what makes investing for me really funand intellectually challenging because you need
to be adapting and improving yourself everystep of the way.
Tyler Soson, who spent seventeen years at Menloand Excel, he told me that no company ever died
(17:59):
because they saturated the market.
In other words, if you go in, you saturate amarket, you execute well, there's always these
tangential markets that oftentimes you don'tsee until you you've gone to that level.
So I I often think about this embeddedasymmetry in companies that succeed.
A famous case is Carta.
They went in, they did the cap tables and thenthey did fund admin four zero nine evaluations
(18:20):
and all these different markets.
Have you seen that over your career, thisembedded asymmetry of if you do execute
sometimes a three to four X could end up beinga 20 X?
Or is that an extremely rare case?
I the way I think about it is the compounderskeep compounding and the compound is much more
powerful than at times you go in thinking aboutit.
(18:42):
And to your point is exactly that I think isthis notion that these businesses that are
foundationally solid with phenomenal teamsbehind them, they consistently find ways to
keep compounding.
And in this case, whether that's expandingtime, that's expanding products organically,
inorganically.
And I have seen that.
I think you are tech something that we'reliving through as we speak.
(19:05):
The business has expanded TAM considerablysince the first time we invested both
organically and inorganically.
At times we see geography geographically aswell.
So you're operating in one given market, whichwe on the road, the base case on them just
playing that market, all of a sudden they areplaying regionally or globally.
(19:26):
So I completely buy that.
And I think we at a different sort of level, wesee that with the significant with the MAX
seven, right?
These are businesses that just have they justkeep compounding, right?
It's a flywheel that just keeps gettingstronger, whether that's because they have
phenomenally sound businesses, which I think isthe case, but also talent, capital, products,
(19:52):
is a flywheel that just has gotten stronger andstronger.
And I firmly believe that.
And why I think investing, you know, one thingI learned in my career, investing in the number
one player in a given market is incrediblyimportant because the value disproportionately
accrues to that number one player.
Going full circle to these businesses thatcompound in Brazil once they have an advantage,
(20:17):
but even The US, even Uber, who would havethought that Uber Eats and now probably at some
point they'll have driverless Ubers.
It's it's almost literally unknowable what theopportunities will come either from within the
company or something happens in the industry.
When Uber started out, it was just black carsand then Lyft started with their pink mustaches
and the peer to peer and then this unlock thiswhole industry.
(20:39):
So, there is something extremely valuable tostaying alive and compounding that I think is
underpriced.
Absolutely.
Absolutely.
I I couldn't agree more.
And I think just to to thread the needle alittle bit, I I think as an investor, it is
almost like the blue sky case scenario that wetalked about earlier, the whole notion of
parallel within growth and how we think aboutit.
Ultimately, we're investing businesses thathave that tail potential outcome of keeping
(21:04):
compounding and being the parallel.
We want to have that.
We do not want to depend on that.
So that's, I think, a very different way.
And in fact, when we underwrite, we underwritecases and we assign probability to them.
And those we can get to like a weightedprobability set of outcomes.
And oftentimes in the upside case scenario, ifI will, it relies on this expansion of product,
(21:27):
time and future compounding.
And think on the best ones, we alwaysundershoot it, always, but you cannot rely on
that.
Perhaps an obvious question, but what compoundsin the market leaders?
Is there anything non obvious that compounds ina market leader?
Look.
I I think the obvious one is is what is oftentalked about whether that's network effects,
(21:48):
data network effects.
But ultimately, if you think, you know, in avery first principles thinking, you're ideally
investing in businesses that as they scale, thevalue that they provide for their customers
increases over time, and perhaps the cost toserve that additional customer decreases over
(22:09):
time.
And that drives the compounding effects,whether that's grounded on the data network
effects, whether that's grounded on just thesocial network effects, whether that's grounded
on the infrastructure that they built, whatwe're seeing now with LLMs and the likes of
OpenAI, we're talking about the compoundingeffects.
(22:29):
I think that's a business that's going keepcompounding for a long time.
Why is that?
Users drive data, data drives monetization,monetization drives capital.
As capital comes in, they can drive more usersand drives that flywheel effect and drives the
stickiness.
And they're able to drive more value with theunit cost of serving that additional user
decreasing over time.
(22:50):
So that is ultimately what drives thiscompounding effect.
You mentioned AI.
How is AI affecting the growth equity space?
There's this thesis that in the future, there'sonly gonna be the pre seed investors and the
Andreessens and the Sequoias writing billiondollar checks.
You know, there's this concept of seedstrapping where you just raise a seed round and
(23:12):
then you don't have to raise more money.
How's that affecting you today, day to day?
It's an interesting question.
Look, I think bootstrap companies have existedfor a long time, that's nothing new.
I think that's the reality of it.
We talked about the growth equity one pointzero.
100% of growth equity one point zero waspredicated on backing bootstrap companies that
had gotten to growth and scale without a singlepenny.
(23:35):
You know, why is that?
I think it is the best proxy that you have asound business model in a great team, right?
If you're able to get to scale with growth andbeing profitable, it's you probably have a good
business model and you're very good atexecuting behind it.
So it's just empirically a very clean way tolook at things.
(23:55):
So I don't think the whole seed bootstrappingis anything new.
The way we think about it is, look, there'stremendous amount of disruption happening.
And as an investor, creates excitement, butthat also creates a very dynamic environment
that you're investing into, which I tell myteam with a lot of lend minds, right?
Because the level of innovation is onlyspeeding up.
(24:16):
So what may be unique and innovative today maynot be the case tomorrow, may be disrupted
extremely quickly.
So, you know, moats become increasinglyimportant.
What we are very excited about on the advent ofAI as it relates to growth equities regulated
It's industries, you know, a la financialservices, which we just discussed, which are
going to benefit from AI in a massive way.
(24:38):
And perhaps that's driven by efficiency,automation, and drive what was a good business
to become a great business.
But they're not necessarily going to bedisrupted by AI.
They're going to be enabled, I wouldn't call itenabled, but they'll be sort of propelled by
AI.
They're to benefit from AI.
And that's what gets us excited because justplaying on the edge of AI of innovation, I
(25:02):
think for us, it's just tricky.
It's very tricky.
And there you go to the whole notion of bettingon binary outcomes and perhaps having the need
to back 30 or 40 companies and two of them isgoing to pay for the entire portfolio.
Just not the game that we're playing.
So we tend to shy away from those.
Wherever we're excited, it's more regulatedindustries that will benefit from AI in a
(25:22):
massive way and teams are adapting that veryquickly.
So we've known each other since my senior incollege, your freshman year.
So we go way back.
If you could go back and give yourself advicewhen you were graduating from college and
starting at Summit Partners, what would be theone piece of advice that you could give
yourself that would accelerate your growth inyour career and maybe avoid mistakes as well?
(25:44):
It's a great question.
Think, look, focus more on the now and justmake sure that you are, you know, oftentimes I
think a lot of individuals, myself included,that tends to be ambitious, that tends to be,
you know, a builder, if you will.
You tend to focus a lot in the future and kindof how to maximize the future.
And you don't realize the future is being builtnow.
(26:04):
So focusing more on the now, whether that's onthe networking piece, which is incredibly
important and obviously that only compoundswith time.
I think now that fifteen years in my career,I'm still crossing paths with you, as you
alluded to.
We met each other, I was a freshman in collegeand here we are having these conversations.
These relationships compound, whether that'salso on the learning, learning today that will
(26:27):
compound.
So say to someone always focus more on the now.
I think oftentimes I was so caught up with whatthe next step may be, whether that's my career,
my learning, on the investing.
And I lost sight at times that, you know, thefuture depends on what I do today and today is
the most important thing that I can do.
So be ruthless about today.
(26:47):
I've tried to a little bit focus on the now.
I I still respect my future thinking, butsometimes it's like, let's celebrate this.
Like, let's celebrate this milestone.
Yes.
It doesn't mean that we're done.
It doesn't mean that we're at the finish line,but let's take the time to celebrate this
milestone because that'll only motivate us morein the future.
Yeah.
Couldn't agree more.
What would you like our listeners
to know about you, about Across Capital, oranything else you'd to share?
(27:10):
Ultimately, Across is built on conviction, andI think we covered this on Kraft and on our
cross border insight.
We're looking to forge meaningfulrelationships, which I think is the best kind
of relationship where you're mutuallymeaningful to one another.
And that translates into 10 partnerships wherewe can be relevant and additive partners to
them.
We're builders first, investors second.
(27:31):
We're not in the business of chasing momentumof things.
We're in the business of building businessesfor the long haul.
That's ultimately what we stand for and who weare.
The final piece is we value a lot of personalrelationships.
I think this is something that oftentimes getslost.
This is the notion that great businesses arebuilt by people and you wanna be in business
(27:56):
with people you're enjoying, enjoy being inbusiness with and we value that component of it
quite a lot.
Well, I value my relationship with you.
It's 18 and counting probably in a couplemonths, so I appreciate you being my friend and
jumping on podcast.
Appreciate it, David.
Thanks, Rafael.
Thanks for listening to my conversation.
If you enjoyed this episode, please share witha friend.
(28:16):
This helps us grow also provides the very bestfeedback when we review the episode's
analytics.
Thank you for your support.
Rafael, welcome to the How Invest podcast.
Thank you for having me, David.
Pleasure to be here.
You started your career at some of the reallytop growth equity firms on the planet.
You were at Summit Partners.
You were at Vulcan, which was the investing armof Paul Allen.
And today, you have your own fund.
Tell me about what you're focusing on today.
(00:22):
Cross Capital really started over a decade ago.
It's a combination of who I am as anindividual.
I was born in Brazil.
Been in The US for the last twenty five plusyears.
I'm always investing in technology throughoutmy career.
So I went down the traditional path.
As you alluded to, I had great opportunity tokind of cut my teeth into the world of
investing initially at Summit and subsequentlyat Vulcan.
(00:44):
And now within ACROSS, bring with us a lot ofthe learnings from those times, and we're
focused on backing software businesses acrossThe Americas.
We started out a decade ago, the thesis forACROSS, which was predicated on the fact that I
was Brazilian in Silicon Valley.
I saw a lot of entrepreneurs come through here,particularly from Latin America, trying to
(01:05):
raise money in in Sandhill.
And I was helping them think through how toposition their businesses for the Silicon
Valley VCs.
And at that time, I started personallyinvesting in what went on to become the first
crop of unicorns in LatAm.
That gave me conviction.
So our timing in LatAm made us a little bit ofa unique animal in The US where our portfolio
company was seeking us out to help them withLatin America, whether that was on the talent
(01:29):
front, whether that was in the businessdevelopment side.
And that was a genesis for Across.
Tell me about the Brazil tech ecosystem.
How's that evolved in the last decade?
Great question.
Look, I think Brazil has delivered one of themost successful returns in all emerging markets
when it comes to TAIC.
I'll say it's LatAm's Silicon Valley, right?
Whether you want to look at the MercadoLibre ofthe world, which is $100,000,000,000 plus
(01:52):
market cap company, NewBank, which is60,000,000,000 plus market cap business,
perhaps one of most successful fintechsglobally, or others such as PagSeguro or XP.
We have had some M and A also happen downthere.
But a further ground for innovation.
I think the backdrop is a big market measureboth in terms of population and GDP that is
(02:15):
extremely tech savvy, both on the consumerside, but also on the enterprise side.
And we're reaching a point where the talentdensity is there, right?
We're kicking into this flywheel where we havehad exits.
We have had folks building 10,000,000,000 pluscompanies, and they're onto their second or
third go around.
So again, it's pretty fertile ground forinnovation in fact in general.
(02:37):
One of the under told stories of Brazil is itsfintech and financial infrastructure.
Why is Brazil have such high market share whenit comes to these fintech startups?
If you take a step back and you understand kindof how the banking system in Brazil was built,
it was really built out of chaos, right?
(02:58):
If you look at the 80s and the 90s, thecountries suffered from hyperinflation that
required the banking system to operate ineffectively real time with same day settlement.
And that kind of sets the tone for a lot of theinnovation we have seen in the Brazilian
fintech ecosystem, which is further propelledby a central bank that like a startup, one of
(03:21):
the most innovative central banks in the world,extremely progressive when it comes to
innovation.
What they've done in the last decade is nothingshort of remarkable.
We have had innovations such as PIX, which isthe real time payments rail provided by the
Central Bank, which now has a penetration of80% plus of the adult population in Brazil,
(03:43):
whether that's open finance and providing fordata portability, embedded finance and a lot of
innovation within the financial markets.
And then you have other more structural nuancesthat makes it quite compelling to perhaps
disrupt these incumbents, right?
You have a very concentrated banking system,extremely high spreads when it comes to credit,
(04:08):
but still penetration to be had as it relatesto just financial products in general.
And that ultimately translates into a verycompelling market when it comes to innovating
the fintech side.
You have a Brazilian company, QiTech, thatreally powers a lot of the infrastructure and
the fintech in Brazil?
(04:28):
Very fortunate to have had the opportunity towork with the team over at QY Tech.
It was actually the first investment we did outof the across capital fund.
And we have been spending a great deal of timewithin financial infrastructure in Brazil
specifically.
And the notion being, picks and shovels playsinto this massive team, which I just alluded to
earlier, betting the race, not in the horse.
(04:49):
And QI Tech, what it does is provides theinfrastructure that enables any company,
whether that's a retailer, a FinTech, ashopping mall, a big pharma company to offer
financial products.
So think of it as a Stripe of that part of theworld, but with other elements as well.
It is a business that was extremely capitalefficient when we had the opportunity to get
(05:12):
involved, had explosive growth growing 200%plus year over year with EBITDA margins in
excess of 50%, something that you do not seeevery day and still with plenty of runway ahead
as it relates to the market itself.
Tell me the difference between a LATAM FinTechcompany and a US FinTech company.
(05:35):
How is it different to start a company thereversus in The US?
The way we see it is, down in Latin America,you had the opportunity to build more end to
end platforms.
And this is just driven by just the overallmarket dynamics.
If you look at QI Tech, you really started outoffering much more of a lending as a service
product whereby they were providing theinfrastructure for traditional companies or
fintechs to provide credit.
(05:56):
Now we have a banking as a service product,which is checking accounts and payments.
Now we have a fund administration business,which also helps custody the funds of clients.
So it is building much more of an end to endplatform, which is very different from The US
whereby oftentimes we're trying to solve aspecific pain point or going after a big, but
(06:18):
perhaps narrow market.
In Latin America, there's an opportunity tobuild things that are much more platform driven
and platform oriented.
And why is that?
Is that the barriers to entry?
Is there some technological advantage?
Why are you able to kind of verticalize thesesolutions?
Resources are just more scarce down there,whether that's capital, whether that's talent.
And as a result of that, the winners tend tocompound and drive barrier to entry for new
(06:43):
entrants, whereas the capital is more abundanthere in The US, talent definitely density is
much deeper relative to LatAm.
So those dynamics drives some of these forces Ijust mentioned.
And you have very concentrated portfolioconstruction, 10 companies.
Tell me about the strategy behind concentratinginto less than a dozen companies.
(07:04):
Concentration forces clarity in the end of theday.
When you only get 10 shots, you tend to dodeeper diligence.
You lean into your edge, right?
It gives you the ability to partner withcompanies in a meaningful and active way.
So ultimately, it is something that'sfoundational across our investment philosophy.
(07:25):
It's not a mindset of buying call options,right?
It's every single one of our partnerships aremeaningful to us and that drives alignment with
the entrepreneur.
We don't have a portfolio of thirty, fortynames.
It's 10 of those.
So everything, it's incredibly meaningful tous.
It drives a scarcity mindset, which, you know,for us means, you know, we need to have, you
(07:51):
know, ruthless prioritization, I'll say, on howwe spend our time.
And that changes the way we source.
It changes the way we engage with the companiesand changes the way we pick them.
So the punchline is, look, by only investing to10 companies that forces us to be incredibly
focused, you know, everything is meaningful tous.
(08:11):
And we like that alignment with ourentrepreneurs.
And we also like the fact that gives us theability to drive, in our view, very good risk
adjusted returns for LPs.
And you said it forces ruthless prioritization.
Why does having a concentrated portfolio changeyour sourcing capacity or your sourcing
function?
Top of the funnel, we're still talking tothousands of companies, right?
(08:34):
But on the middle of the funnel and bottom ofthe funnel, that's where the ruthless
prioritization comes in, because we arespending a great deal of time with efficiency
and speed to get to the bottom of things thatreally matters on the investment decision.
So ultimately, we're spending, you know,incredible amount of time, probably around 30
or so opportunities per quarter where we'rediving in and really conducting deep diligence.
(08:57):
On average, we get to know companies seventeenmonths prior to making the investment.
So that diligence is occurring over a year anda half period.
That allows us to one, ideally have built arelationship with that entrepreneur and have
earned our seat at the table.
Two, to have the conviction to move withefficiency and speed at the time that they're
looking to raise or transact, if you will.
(09:20):
We have these top companies that we'repursuing.
We're ultimately aiming to do two to fourinvestments in any given year, and we need to
focus on the companies that are going be thosetwo to four.
And that is where the ruthless polarizationcomes into play.
It's Warren Buffett that popularized this idea.
When you become an investor, you graduatecollege, you should have a punch card of 20
companies, and you only get to invest in 20companies kind of throughout your career.
(09:44):
And it's this kind of ruthless conviction, Iwould call it, that you have to be so
convicted.
Also think there's this bias towardsdiversification on a fund level that's
unnecessary, and that's a very pro GP strategy,not a pro LP strategy.
LPs actually want to have high concentrationhat, want to have a basket of highly
concentrated names.
(10:05):
Those tend to be the best performing funds.
You could argue it's not the case for theprecinct seed where there's power laws, where
any one company, you want a lot of shots ongoal.
But once you get to a certain stage, youtypically want your managers to be highly
concentrated.
Couldn't agree more.
It's actually it's interesting because I can'tspeak for LPs, but if you think about it at the
(10:25):
LP portfolio level, they have amplediversification, right?
Because you're investing across multiple funds.
Each one of these funds are investing inunderlying companies that provide further
diversification.
So they are diversified for all intentspurposes.
In our view, as a manager of a fund, we likeconcentration because of the points I alluded
to earlier.
And to give you a practical example, ourQYTech, which we talked to about it earlier, is
(10:47):
a 20% position in our fund.
We truly live by these high conviction, highconcentration mindset.
Is that a fund returner?
It's looking like it.
We just actually announced yesterday a followon round, which marks the fourth time we're
investing into the company.
We co edit with General Linac.
Given where the pricing of that came out, whichis close to $2,000,000,000 we first invested in
(11:10):
the business at 300,000,000 it's very close tobeing a fund
return already.
I just interviewed John Felix, who was at WashUSt.
Louis and worked under the the FayettevilleCIO, Scott Wilson.
And Scott Wilson not only invested into fundsthat are very concentrated, but he would meet
and his team would meet with the managers andfind out their top concentrated positions,
(11:32):
whether there's an opportunity to deploy evenmore.
So you had this kind of, like, ruthlessconcentration.
Now that being said, it probably was stillhundreds of positions, but the idea that you
have to have every fund be 30 to 50 companiesand then you have 20 funds, the math does not
justify that kind of diversification.
Makes a lot of sense to me.
(11:53):
We had this back and forth last time wechatted, you believe that growth equity does
not, is not about the power laws, it's aboutconsistency and maybe even downside protection.
What leads you to think that growth equity iskind of a different asset class than
traditional early stage venture?
There's different types of strategies withinthe growth equity.
I think growth equity, you know, has evolvedquite a bit over the last decade.
(12:16):
You could argue there's what say some of you astraditional growth equity, which is minority
investing into high growth businesses that tendto be capital efficient or profitable.
This is how the likes of Summit, TA in themid-80s were born, right?
So you're effectively sitting between ventureand buyout, but still driving returns
predominantly through growth and have been aminority investor.
(12:38):
And obviously, I think to a large extent thereis venture growth, which is just later stage
growth rounds.
And that resembles much more of the growthequity two point zero than the growth equity
one point zero.
But to your question related to consistencyversus parallel, particularly the way we think
(12:58):
about it, given the concentration of ourportfolio, we're much more focused on
consistency of three to five X returns versuschasing something that can be binary, right?
Which is chasing the power law, something thatcould potentially return ten, twenty, 30 X or
be a zero.
We're less interested in those.
We're much more interested in finding thingsthat we have extremely high conviction on
(13:21):
hitting our minimum return threshold of 3X withthe downside protection, whether that's driven
by the stage we're investing, the structurewe're investing, the IP the company has, but we
have high confidence that capital impairment isgoing be very low.
In fact, if you look across our track record,we only lost money in one deal.
So that speaks to our mindset around downsideprotection and being mindful of capital
(13:44):
impairment, while still preserving thecapability of still achieving a 5x plus return.
So that's ultimately what we're looking for isthis notion of consistency.
That does not mean that we won't have perhapsone or two companies in the portfolio, in our
case, of 10 companies that will drive a lot ofthe returns in the fund, we just alluded to QI
(14:06):
type being a 20% position and being a fundreturner.
Obviously, the fund returning component drivesby us sizing that position accordingly, which I
think is something that we don't talk aboutenough is how sizing matters.
And that's a byproduct of concentration on thereturn of the overall fund and portfolio.
But I, as a manager, I cannot be chasing thingsthat you know, could potentially have capital
(14:32):
impairment because the portfolio constructiondoes not allow for that.
I want you to double click on the sizingcomponent.
You're at Summit, you're at Vulcan, you saw thekind of the best practices.
Obviously, you invested 20% in one company andyou have a 10 portfolio position.
So it's roughly double your your averageposition.
Is that basically how you explain your sizingstrategy, which is invest even more into your
(14:55):
higher conviction bets?
Is there more math behind that or, double clickon your strategy?
On Qi Tech, like I said, we invested four timesin the business.
So we built this position over time.
So it was not from the get go that we got to20%.
But from the get go, we did size this positionat 12.5%.
That was our initial check.
And then subsequent to that, we have increasedit to 20% as the company has beaten our plan
(15:19):
every single time we have re underwritten thebusiness.
And that's part of the strategy.
Part of the strategy is to back your winners,if you will, and put more money in things that
are working.
And we think there's still on a risk adjustedbasis, a compelling case to be had to allocate
capital to it.
I think, you know, QY Tech is prime example ofour strategy.
One of the things that you see a lot in theventure space, growth equity space, is this
(15:42):
retrofitting of the thesis where you fit yourthesis to what the current situation is with a
company.
And sometimes cynically, that's done to LPs tokind of paint a new narrative, but also it's
done to fool investors themselves.
So tell me about that.
And it seems like you've institutionalized memowriting and assumptions and underwriting
(16:03):
outcomes.
And how important is that to stay on coursewith, you know, being a good investor?
For us, discipline is core, right?
We're not in the business of getting lucky.
We're in the business of driving consistentreturns and having a methodology to do so in a
framework by in which we do that.
And that translates into system frameworks andprocesses that we hold internally.
(16:25):
So to your point, yes, every time we reunderwrote the business, we looked at, you
know, the underwriting we did, whether that,you know, top line, bottom line, margins,
returns, the drivers of each one of thosethings, how has it performed relative to plan?
Why did it go better?
Why did it go worse?
Every memo we write, we have a slide that'swhat we call what really matters slide is
really forcing ourselves to pick no more thanfive drivers of the investment case, right?
(16:50):
Ultimately, investment decision, in our view,comes down to, you know, three to five factors.
And that's what really matters.
And in a very objective way, assessing that.
And then as we underwrite the business,assessing how those what really matter points
have changed.
And as in an as objective manner as possibleand as quantitative as possible, obviously,
there's qualitative assessment that goes intoany investment, but that's how we think about
(17:14):
it.
The second time we invested into QI Tech, Idon't have the number top of my mind, but it
was 20% to 30% above our underwriting plan thatgave us conviction to put more money behind the
business.
Margins actually expanded.
We underwrote margins decreasing and sufferingfrom competition was actually the opposite that
happened.
And as a result of that, we decided to put moremoney into the company.
(17:35):
So it's all about having a process, which we'reconstantly fine tuning.
I'll say that.
That's also an element of for us, it'sextremely important.
That's what makes investing for me really funand intellectually challenging because you need
to be adapting and improving yourself everystep of the way.
Tyler Soson, who spent seventeen years at Menloand Excel, he told me that no company ever died
(17:59):
because they saturated the market.
In other words, if you go in, you saturate amarket, you execute well, there's always these
tangential markets that oftentimes you don'tsee until you you've gone to that level.
So I I often think about this embeddedasymmetry in companies that succeed.
A famous case is Carta.
They went in, they did the cap tables and thenthey did fund admin four zero nine evaluations
(18:20):
and all these different markets.
Have you seen that over your career, thisembedded asymmetry of if you do execute
sometimes a three to four X could end up beinga 20 X?
Or is that an extremely rare case?
I the way I think about it is the compounderskeep compounding and the compound is much more
powerful than at times you go in thinking aboutit.
(18:42):
And to your point is exactly that I think isthis notion that these businesses that are
foundationally solid with phenomenal teamsbehind them, they consistently find ways to
keep compounding.
And in this case, whether that's expandingtime, that's expanding products organically,
inorganically.
And I have seen that.
I think you are tech something that we'reliving through as we speak.
(19:05):
The business has expanded TAM considerablysince the first time we invested both
organically and inorganically.
At times we see geography geographically aswell.
So you're operating in one given market, whichwe on the road, the base case on them just
playing that market, all of a sudden they areplaying regionally or globally.
(19:26):
So I completely buy that.
And I think we at a different sort of level, wesee that with the significant with the MAX
seven, right?
These are businesses that just have they justkeep compounding, right?
It's a flywheel that just keeps gettingstronger, whether that's because they have
phenomenally sound businesses, which I think isthe case, but also talent, capital, products,
(19:52):
is a flywheel that just has gotten stronger andstronger.
And I firmly believe that.
And why I think investing, you know, one thingI learned in my career, investing in the number
one player in a given market is incrediblyimportant because the value disproportionately
accrues to that number one player.
Going full circle to these businesses thatcompound in Brazil once they have an advantage,
(20:17):
but even The US, even Uber, who would havethought that Uber Eats and now probably at some
point they'll have driverless Ubers.
It's it's almost literally unknowable what theopportunities will come either from within the
company or something happens in the industry.
When Uber started out, it was just black carsand then Lyft started with their pink mustaches
and the peer to peer and then this unlock thiswhole industry.
(20:39):
So, there is something extremely valuable tostaying alive and compounding that I think is
underpriced.
Absolutely.
Absolutely.
I I couldn't agree more.
And I think just to to thread the needle alittle bit, I I think as an investor, it is
almost like the blue sky case scenario that wetalked about earlier, the whole notion of
parallel within growth and how we think aboutit.
Ultimately, we're investing businesses thathave that tail potential outcome of keeping
(21:04):
compounding and being the parallel.
We want to have that.
We do not want to depend on that.
So that's, I think, a very different way.
And in fact, when we underwrite, we underwritecases and we assign probability to them.
And those we can get to like a weightedprobability set of outcomes.
And oftentimes in the upside case scenario, ifI will, it relies on this expansion of product,
(21:27):
time and future compounding.
And think on the best ones, we alwaysundershoot it, always, but you cannot rely on
that.
Perhaps an obvious question, but what compoundsin the market leaders?
Is there anything non obvious that compounds ina market leader?
Look.
I I think the obvious one is is what is oftentalked about whether that's network effects,
(21:48):
data network effects.
But ultimately, if you think, you know, in avery first principles thinking, you're ideally
investing in businesses that as they scale, thevalue that they provide for their customers
increases over time, and perhaps the cost toserve that additional customer decreases over
(22:09):
time.
And that drives the compounding effects,whether that's grounded on the data network
effects, whether that's grounded on just thesocial network effects, whether that's grounded
on the infrastructure that they built, whatwe're seeing now with LLMs and the likes of
OpenAI, we're talking about the compoundingeffects.
(22:29):
I think that's a business that's going keepcompounding for a long time.
Why is that?
Users drive data, data drives monetization,monetization drives capital.
As capital comes in, they can drive more usersand drives that flywheel effect and drives the
stickiness.
And they're able to drive more value with theunit cost of serving that additional user
decreasing over time.
(22:50):
So that is ultimately what drives thiscompounding effect.
You mentioned AI.
How is AI affecting the growth equity space?
There's this thesis that in the future, there'sonly gonna be the pre seed investors and the
Andreessens and the Sequoias writing billiondollar checks.
You know, there's this concept of seedstrapping where you just raise a seed round and
(23:12):
then you don't have to raise more money.
How's that affecting you today, day to day?
It's an interesting question.
Look, I think bootstrap companies have existedfor a long time, that's nothing new.
I think that's the reality of it.
We talked about the growth equity one pointzero.
100% of growth equity one point zero waspredicated on backing bootstrap companies that
had gotten to growth and scale without a singlepenny.
(23:35):
You know, why is that?
I think it is the best proxy that you have asound business model in a great team, right?
If you're able to get to scale with growth andbeing profitable, it's you probably have a good
business model and you're very good atexecuting behind it.
So it's just empirically a very clean way tolook at things.
(23:55):
So I don't think the whole seed bootstrappingis anything new.
The way we think about it is, look, there'stremendous amount of disruption happening.
And as an investor, creates excitement, butthat also creates a very dynamic environment
that you're investing into, which I tell myteam with a lot of lend minds, right?
Because the level of innovation is onlyspeeding up.
(24:16):
So what may be unique and innovative today maynot be the case tomorrow, may be disrupted
extremely quickly.
So, you know, moats become increasinglyimportant.
What we are very excited about on the advent ofAI as it relates to growth equities regulated
It's industries, you know, a la financialservices, which we just discussed, which are
going to benefit from AI in a massive way.
(24:38):
And perhaps that's driven by efficiency,automation, and drive what was a good business
to become a great business.
But they're not necessarily going to bedisrupted by AI.
They're going to be enabled, I wouldn't call itenabled, but they'll be sort of propelled by
AI.
They're to benefit from AI.
And that's what gets us excited because justplaying on the edge of AI of innovation, I
(25:02):
think for us, it's just tricky.
It's very tricky.
And there you go to the whole notion of bettingon binary outcomes and perhaps having the need
to back 30 or 40 companies and two of them isgoing to pay for the entire portfolio.
Just not the game that we're playing.
So we tend to shy away from those.
Wherever we're excited, it's more regulatedindustries that will benefit from AI in a
(25:22):
massive way and teams are adapting that veryquickly.
So we've known each other since my senior incollege, your freshman year.
So we go way back.
If you could go back and give yourself advicewhen you were graduating from college and
starting at Summit Partners, what would be theone piece of advice that you could give
yourself that would accelerate your growth inyour career and maybe avoid mistakes as well?
(25:44):
It's a great question.
Think, look, focus more on the now and justmake sure that you are, you know, oftentimes I
think a lot of individuals, myself included,that tends to be ambitious, that tends to be,
you know, a builder, if you will.
You tend to focus a lot in the future and kindof how to maximize the future.
And you don't realize the future is being builtnow.
(26:04):
So focusing more on the now, whether that's onthe networking piece, which is incredibly
important and obviously that only compoundswith time.
I think now that fifteen years in my career,I'm still crossing paths with you, as you
alluded to.
We met each other, I was a freshman in collegeand here we are having these conversations.
These relationships compound, whether that'salso on the learning, learning today that will
(26:27):
compound.
So say to someone always focus more on the now.
I think oftentimes I was so caught up with whatthe next step may be, whether that's my career,
my learning, on the investing.
And I lost sight at times that, you know, thefuture depends on what I do today and today is
the most important thing that I can do.
So be ruthless about today.
(26:47):
I've tried to a little bit focus on the now.
I I still respect my future thinking, butsometimes it's like, let's celebrate this.
Like, let's celebrate this milestone.
Yes.
It doesn't mean that we're done.
It doesn't mean that we're at the finish line,but let's take the time to celebrate this
milestone because that'll only motivate us morein the future.
Yeah.
Couldn't agree more.
What would you like our listeners
to know about you, about Across Capital, oranything else you'd to share?
(27:10):
Ultimately, Across is built on conviction, andI think we covered this on Kraft and on our
cross border insight.
We're looking to forge meaningfulrelationships, which I think is the best kind
of relationship where you're mutuallymeaningful to one another.
And that translates into 10 partnerships wherewe can be relevant and additive partners to
them.
We're builders first, investors second.
(27:31):
We're not in the business of chasing momentumof things.
We're in the business of building businessesfor the long haul.
That's ultimately what we stand for and who weare.
The final piece is we value a lot of personalrelationships.
I think this is something that oftentimes getslost.
This is the notion that great businesses arebuilt by people and you wanna be in business
(27:56):
with people you're enjoying, enjoy being inbusiness with and we value that component of it
quite a lot.
Well, I value my relationship with you.
It's 18 and counting probably in a couplemonths, so I appreciate you being my friend and
jumping on podcast.
Appreciate it, David.
Thanks, Rafael.
Thanks for listening to my conversation.
If you enjoyed this episode, please share witha friend.
(28:16):
This helps us grow also provides the very bestfeedback when we review the episode's
analytics.
Thank you for your support.
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