20VC LATAM LATAM's Largest Fund, Kaszek Ventures on Scaling from $100M to $1BN, Why Capital is not a Source of Moat & Why LATAM is More Than Copycat Companies with Nicolas Szekasy, CoFounder @ Kaszek Ventures

In a deep dive into the Latin American venture capital landscape, Nico Zaccasi, co-founder and managing partner at Kazakh Ventures, joins the 20VC podcast to share his journey from CFO at Mercado Libre to venture capitalist. Zaccasi highlights the evolution of the LatAm ecosystem, from the absence of a tech scene in the late '90s to the current surge in global investor interest and entrepreneurial spirit. He stresses the importance of building sustainable businesses with solid unit economics, rather than relying on capital as a competitive moat. Zaccasi also discusses the challenges of scaling Kazakh Ventures, emphasizing the firm's focus on early-stage investment and the strategic addition of an opportunity fund to support portfolio companies' growth. The conversation touches on the significance of local knowledge in venture capital, the role of empathy in board relationships, and the potential for LatAm startups to innovate globally, as demonstrated by companies like Notco and Bitso.

• Latam Week is a feature week focused on the Latin American (Latam) ecosystem.
• Harry Stebbings expresses his excitement for the Latam ecosystem on Twitter.
• Nico Szekasy, co-founder and managing partner at Kazakh Ventures, is the guest to kick off Latam Week.

"So we haven't done a feature week here on 20 VC in a while, and when I was thinking what the... Focus for this feature week should be... It was quite obvious to me. My love and excitement for the Latam ecosystem is very well documented on Twitter. And so the answer was clear."

The quote outlines the rationale for choosing Latam Week as a feature on the 20 VC podcast, highlighting Harry Stebbings's enthusiasm for the Latin American tech ecosystem.

• Kazakh Ventures is the largest venture capital firm in Latin America.
• Nico Szekasy, before Kazakh, was CFO at Mercado Libre and led its IPO.
• Nico also has experience working as CFO at PepsiCo.

"This is LAtam Week on 20 vc, and there's no better person to kick it off today than our guest Nico Zakazi, cofound and managing partner at Kazakh Ventures, the largest venture capital firm in Latin America..."

The quote introduces Nico Szekasy as a significant figure in the Latam venture capital scene, with a notable background in finance and leadership roles at major companies.

• Mercury offers banking services tailored for startups, including FDIC insured accounts and integrations with various business tools.
• Ripling helps automate HR and IT for fast-growing companies, particularly in managing remote teams and staying compliant with state tax agencies.

"Mercury is building full stack banking for startups... Ripling helps fast growing companies automate their HR and IT systems..."

These quotes describe services provided by Mercury and Ripling, which are designed to support startups in their operational and administrative tasks.

• Angelist provides a platform for managing investments and back office needs for fund managers.
• The platform supports a wide range of investment activities and has introduced rolling funds.

"I just love using Angelist fund admin platform to manage my investments, the team and the platform at angel list. They take care of all my back office needs..."

The quote emphasizes the benefits of using Angelist's platform for investment management, highlighting its efficiency and comprehensive features.

• Nico Szekasy was part of the founding team at Mercado Libre, which was an intense experience.
• The early 2000s tech bubble burst led to a "nuclear winter" for funding, influencing Nico's approach to venture capital.
• Mercado Libre focused on building technology and product experience with a disciplined ROI mentality.
• The company acquired competitors, brought in eBay as an investor, and launched Mercado Pago.
• Nico led Mercado Libre's IPO in 2007 as CFO, with the company being profitable and still having half of its raised capital.

"Before Cassec, I was part of the founding team, Marcado Libre, and that was hyper intense experience that led me to venture."

This quote explains Nico Szekasy's background at Mercado Libre and how the challenges faced there led to his interest in venture capital.

• Nico Szekasy's experience with financial crises in Latam influenced his and Kazakh Ventures' investment philosophy.
• They prefer to invest in businesses with sustainable models and solid unit economics, rather than those relying on capital as a moat.
• The belief is that businesses should be able to survive tough times by adjusting their operations.

"It has impacted us in a very significant way. We don't back businesses that claim that they have capital as a source of mode."

The quote highlights the investment strategy of focusing on sustainable businesses that are not solely dependent on capital for survival.

• After the IPO of Mercado Libre, Nico felt ready to have a greater impact as an investor than continuing as an operator.
• He left Mercado Libre when the company was in good shape, with strong financials and culture, to learn the ropes as an investor.

"I was quite convinced that I would have more impact reinventing myself as an investor versus continuing as an operator."

This quote reflects Nico Szekasy's decision to transition from an operational role to venture capital to maximize his impact in the tech ecosystem.

• When Kazakh Ventures was founded, the Latam tech ecosystem was significantly different from today.
• Nico Szekasy provides historical context, noting that before 1998-99, there was no real tech ecosystem in Latam.

"So if you allow me, I would go all the way back to the founding of Melly days and say that until 98, 99, there was nothing that could be called a tech ecosystem."

The quote provides insight into the nascent stage of the Latam tech ecosystem during the founding of Mercado Libre, setting the stage for its evolution to the present day.

• Latin American (LA Tam) startup scene had a brief window of opportunity in 1999, which closed with the dot-com bubble burst.
• For several years, no VC firms operated in LA Tam, and international VCs showed no interest.
• Funding for startups like Melee (Mercado Libre) came from bank-established vehicles like Goldman and JPMorgan.
• In the mid-2000s, funds like Tiger Global started investing in surviving companies in later-stage rounds.
• The ecosystem in 2021 is much stronger than in 2011, with a significant increase in local and global investor interest.
• Notable is the change in entrepreneurial culture: a shift from aspiring to join investment banks or consulting firms to becoming founders or joining startups.

"When we raised money at Melee, there was not even one VC firm that was operating out of La Tam." "This year we raised a billion." "90% want to become a founder or join a startup."

These quotes highlight the transformation of the Latin American startup ecosystem over two decades, including the shift in career aspirations towards entrepreneurship.

• Raising the first fund of $100 million in an undeveloped ecosystem was based on trust in the founders' past success as operators and entrepreneurs.
• Initial investors were sophisticated friends and family, followed by Silicon Valley funds and a few institutional investors at the end.
• The first fund was achieved without much difficulty, relying on the founders' reputations and networks.

"So it was not so hard. It was fully built on a leap of faith on our past as operators, entrepreneurs, and our potential to transition into investors."

This quote explains that the successful fundraising for the first fund was due to the founders' credibility and the investors' faith in their potential.

• Cassec focuses on early-stage investments with the potential to become "fund makers."
• The Opportunity Fund was created to continue investing in successful portfolio companies beyond initial fund reserves.
• The most challenging aspect of scaling is maintaining the quality of support services for portfolio companies, particularly in growth and recruitment.

"And every investment, the bar is that it will become a fund maker." "It is hard to scale, sometimes these teams, to make sure that they are fully available."

These quotes discuss the investment philosophy and operational challenges faced by Cassec in scaling their support for portfolio companies.

• The influx of capital in LA Tam is positive but creates challenges, such as crowded markets and competition based on short-term metrics.
• Cassec focuses on teams that build fundamental value and can grow significantly, even if the entry price is higher than initially expected.
• The firm avoids investing in spaces where capital is the only competitive advantage.

"What is concerning is that some spaces get very crowded and there are way too many companies going after the same opportunity."

This quote reflects concerns about the negative effects of too much competition and capital in certain market segments.

• The statement that LA Tam startups are merely copycats of U.S. companies is deemed unfair.
• Copycats require significant execution and adaptation, often diverging and improving upon the original concept.
• LA Tam is now producing global innovation leaders with original strategies, proprietary technology, and market leadership potential.

"This ecosystem has evolved in such a great way that the region is now generating global innovation leaders."

This quote defends the innovation and originality in the LA Tam startup ecosystem, countering the copycat criticism.

• Concerns about the lack of sustainable routes to exit in public markets for LA Tam startups are reminiscent of questions from 2011.
• The success of companies like Newbank challenges the notion that LA Tam companies do not have access to public markets.

"The US markets, how do you respond to access to public markets when questioned by lps?"

This quote brings up the issue of exit strategies for LA Tam startups, particularly regarding public markets. The implication is that there has been progress since 2011, with companies like Newbank leading the way.

• Raising the first fund was a leap of faith with skepticism about follow-on capital and liquidity paths.
• Portfolio companies have successfully raised billions post-initial investment, indicating a healthy interest in follow-on capital.
• Liquidity paths are emerging, albeit with M&A activity lagging behind the US, but showing promise with regional scale-ups and incumbents needing digital strategies.
• IPOs have increased, with successful US listings and a burgeoning Brazilian market offering additional liquidity channels.
• The ecosystem is evolving with many portfolio companies aiming for IPOs in the next 24 months.

"Every one of our portfolios, the companies have raised billions and billions of dollars after we have invested. So there's plenty of interest."

This quote highlights the success of follow-on funding for portfolio companies, demonstrating investor confidence and a thriving ecosystem.

"We pioneered with melee 2007. There was really nothing there and we thought there were going to be plenty of ipos following us."

The speaker references their early involvement in IPOs, setting a precedent for future listings which have since become more frequent.

• Investing locally and building long-term relationships are critical, even with the prevalence of Zoom.
• Extensive due diligence, including numerous reference checks, helps in understanding founders before investing.
• Trust is built through consistent actions, availability, honest feedback, and respecting the founder's decision-making autonomy.
• The goal is for founders to seek the investor's perspective first in crisis situations, reflecting trust and the investor's advisory role.

"We talk to something like 200 companies for everyone that we invest in."

This quote emphasizes the thoroughness of the selection process and the importance of understanding each founder and company before investment.

"The founders call you first because they want to hear your perspective on a matter, and they trust that you will give them the best advice that you have."

The quote underlines the importance of being the trusted advisor to founders, especially in times of crisis or opportunity.

• Personality plays a role in staying calm during crises, focusing on solutions rather than stress.
• Board members should provide stability and support to the team, especially when they are under pressure.
• It's important to behave calmly in crisis situations to effectively assist the team.

"What they need is someone that is going to be there to try to calm things down and to help everybody get out of the mess."

The quote illustrates the board member's role in providing a calming influence and practical support during crises.

• Empathy, availability, and humility are key traits of effective board members.
• Board members should support and influence rather than control, respecting the operational autonomy of the team.
• It's important to be vocal about concerns but also to recognize the limits of one's role and expertise.

"You're there to help. You need to understand that your support cast. You're in the passenger seat."

This quote highlights the supportive nature of the board member's role, emphasizing guidance over direct control.

• Recognizing areas of expertise and limitations is crucial for investors.
• In cases where investors have less to contribute, it's appropriate to defer to those with more relevant expertise.
• Continuous self-education is necessary, but understanding one's limitations is also important for effective board dynamics.

"Sometimes you will never get there because there are some skills that you don't have. In those cases, stay on the sideline."

The quote acknowledges the reality that investors may not always have the necessary expertise in every discussion and should allow those who do to lead.

• Misses are inevitable, especially as the market deepens.
• Importance of staying engaged with promising teams, even if initially unconvinced by their approach.
• The speaker's biggest miss was not staying close to an evolving company, emphasizing the need for continuous engagement.
• References are important but not definitive in evaluating founders, as entrepreneurial roles differ significantly from managerial roles in larger corporations.

"Whenever a team is amazing, but there's something that you don't like, so make sure that you follow up and you stay close."

This quote advises investors to maintain involvement with high-caliber teams, even if initial impressions are mixed, to not miss out on their evolution and potential.

"We try to put everything together within the tea leaves and see what we come up with and our own conclusions."

The speaker suggests that while references contribute valuable insights, investors must also rely on their judgment and synthesis of information.

• Kazakh is primarily an early-stage investor and aims to maintain a fund size conducive to effective investment and outsized returns.
• Fundraising frequency may increase, but the overall approach to fund size will likely remain consistent.
• The opportunity fund strategy is complementary and may grow as the portfolio increases, currently at 100 investments.

"So we are fully convinced that we are first and foremost an early stage investor. And for that, there's a certain size of fund that has a limit to ensure that you stay very effective and you continue to produce outsized returns."

This quote highlights Kazakh's commitment to early-stage investing and the belief that maintaining a certain fund size is crucial for effectiveness and high returns.

• Nico Szekasy enjoys reading and aspires to read 52 books a year, though it's challenging.
• During his high school and college days, he favored Latin American fiction authors.
• Currently, he prefers nonfiction, particularly history, economics, politics, and psychology.
• "Guns, Germs, and Steel" is a notable book that provided him with a broad understanding of history and interdisciplinary interactions.
• Yuval Noah Harari's books are also among his recent favorites.

"I basically remember how much I enjoyed reading his very complex short stories that were written with so much beauty and precision."

Nico reflects on his enjoyment of Jorge Luis Borges' writing, illustrating his appreciation for complex and beautifully written literature.

• Nico's strength lies in discerning what is important in complex situations, including tangible and intangible aspects.
• His weakness is being an introvert, which makes public exposure stressful, a requirement he finds challenging in his job.

"One key strength is probably an ability to see what is important even in the most complex or even anarchic situations that we see so often in startups."

This quote underscores Nico's ability to identify key elements in startup environments, which is a valuable skill in venture capital.

• Nico has a strong memory for sports events, recalling details from the 1982 and 1986 World Cups.
• Italy won in 1982 with a score of 3-1 against Germany, and Argentina won in 1986 with Maradona leading the team.

"Italy ended up winning, beating Germany in the final three to one."

Nico provides a specific historical sports fact, showcasing his memory for sporting events.

• Nico advises others on the importance of disconnecting from work for health and productivity.
• Despite knowing the benefits, he struggles to follow this advice himself.

"I would say to others something like it is very important for your physical and mental health, but even for the quality of your work that you fully disconnect from work every now and then."

The quote reveals Nico's awareness of the importance of work-life balance, yet also his difficulty in applying it to his own life.

• The key to venture capital success is focusing on founders.
• Nico wishes to see more local funds leading early-stage investments in their respective countries.
• He advocates for a less Silicon Valley-centric approach to venture capital.

"Founders, founders. It's all about founders."

This quote emphasizes Nico's belief that the core of venture capital success lies in the quality and capabilities of the founders.

• Kazakh recently invested in Bitso, a leading crypto platform in Latam, after years of disciplined tracking.
• They also doubled down on their investment through their opportunity fund.
• Notco is another exciting investment, initially from a series A round when the company was smaller, and now supported through the opportunity fund.

"We're very excited because Bitso is the leading crypto platform in Latam. They have an incredible team, exponential growth, amazing company."

Nico expresses enthusiasm for Bitso's position in the market and growth potential, justifying the investment decision.

• Nico observes a gradual shift in the venture capital industry, with local funds taking more lead roles in early-stage investments globally.
• He advocates for a more distributed and localized approach to venture capital.

"I think this is slowly happening, but in an industry that has been so Silicon Valley centered for decades, I would love to see more and more local funds around the world leading more of their early stage investments in their countries."

This quote indicates Nico's desire for a more geographically diverse venture capital landscape, moving away from the traditional Silicon Valley dominance.