In this 20 VC feature week focused on LATAM, Angela Strange, general partner at Andreessen Horowitz, discusses the burgeoning potential of the Latin American market. Angela, with her extensive background at Google and a passion for financial services, offers insight into the region's unique challenges and opportunities, particularly in fintech. She highlights the significant underbanked population, the high profitability of LATAM banks, and the rapid shift to online payments spurred by the pandemic. The conversation touches on the importance of local knowledge, the rise of regional unicorns, and the evolving exit landscape. Angela also emphasizes the low distribution and infrastructure costs that enable new ventures to serve broader demographics profitably. The discussion also covers the influx of venture funding into LATAM, the strategic timing of expansion and fundraising, and the collaborative dynamic between local and international VCs in nurturing startups.
"This is part two of our very special feature week of LATaM here on 20 VC."
The quote introduces the context of the episode, indicating that it's a continuation of a series with a spotlight on the LATAM region.
"As for Angela, she largely focuses on investments in financial services, and Andreessen has made some very significant investments in LATaM over the last few years in the likes of Loft, Jeeves, Pomelo and Addy, to name a few."
The quote summarizes Angela's investment focus and highlights her involvement in notable LATAM investments, indicating her expertise in the region.
"I grew up in Ottawa, Canada... And then a good family friend sort of talked me into doing engineering rather than accounting because I would have potentially a broader purview of career options."
The quote explains the influence of a family friend on Angela's career choice, which ultimately led her towards venture capital rather than accounting.
"I went to get a job at a venture capital firm, worked there for a couple of years, realized that you are infinitely more valuable to startup founders if you know what it is to walk in their shoes."
The quote reflects Angela's realization of the importance of firsthand startup experience for a venture capitalist, which influenced her career path.
"I could see well, I can apply my product background to financial services versus being an accountant."
The quote illustrates Angela's transition from a potential career in accounting to a role in fintech, leveraging her product expertise.
"Latam as a whole is large. It's 650,000,000 people in 33 countries. But to your point, the two largest, Brazil and Mexico."
The quote highlights the vastness of the LATAM market and the significance of Brazil and Mexico as key players, setting the stage for discussions on market strategy and expansion.
"You need to figure out the playbook for the market that you've started in, right? And so being number five for a business like being the number five robin Hood in Brazil and then expanding to Mexico to be the number six in Mexico is not going to be a booning business model."
The quote emphasizes the importance of mastering the home market before considering expansion to ensure a strong foundation for growth.
"Building a business in two totally different geographies is arguably twice as hard. So have you figured out enough such that you can spend the resources to expand to that next country?"
This quote emphasizes the challenge of expanding a business into different geographies, highlighting the need for thorough preparation and resource availability.
"If you've got enough to work through that and get the numbers going in the right direction, then you should raise after because you're going to prove that you're a much, much more valuable business."
This quote suggests that if a company has sufficient cash runway, it should wait to raise funds until after expansion efforts show positive results, thereby increasing the company's valuation.
"Banks do mostly cater to the affluent in most countries, I'd say in Latin America, it's an even more egregious case to that."
This quote highlights the gap in financial services provided to less affluent customers, particularly in Latin America, suggesting a significant opportunity for fintech companies.
"If it was cheap for me to acquire customers, and I didn't have to say, spend 30, $20 to $30 a month keeping the lights on for a bank account... then I could serve customers that don't spend a lot on my credit card or don't keep a lot of deposits and be very profitable."
This quote explains how fintech companies can serve less affluent customers profitably by reducing acquisition and operational costs.
"Wealthfront came out with a pioneered the robo advising. It took them five or six years to get to billion dollars assets under management... But then incumbents like Schwab... launched their own similar robo service and they had many, many more assets under management in a shorter period of time because they already had the distribution."
This quote illustrates how incumbents can leverage their distribution advantage to quickly scale new innovations, using the example of robo-advising.
"It is not realistic, to your point, that we're going to be able to attract the world's best engineers. So then why don't we try and figure out how to become the world's best at partnering to give the distribution to the people that have the technology."
This quote discusses the challenge traditional banks face in hiring top tech talent and suggests partnering with technology providers as a solution.
"And that makes a ton of sense from a partnership perspective."
This quote highlights the logic behind startups partnering with banks - banks provide the financial backing while startups offer innovative solutions to improve customer experience.
"This is where the biggest shift happened. Online payments started growing like 100% month over month. All of a sudden, a large part were forced into not using cash."
This quote explains the rapid change in consumer behavior due to the pandemic, which has led to a surge in online payments as people were compelled to avoid cash transactions.
"So I'd flip it as x for y if it makes even more sense in that geography with the local flavor is a better business."
This quote argues against the copycat narrative by suggesting that startups in Latin America that adapt successful business models to local conditions can actually create stronger businesses.
"So any new international player is going to have to go through that same experience and the local team is going to have a very, very big head start."
This quote emphasizes the competitive edge local startups have over international companies due to their deep understanding of the local market and infrastructure.
"There's a lot of capital interest, there's a lot of talented entrepreneurs building great companies, and those scale and those exit and then lps that I'd say are at the very top end of the capital stack, start to get more comfortable with."
This quote explains the evolution of the investment landscape in Latin America, indicating a growing comfort among investors with the region's potential for successful exits.
"Like new bank at a billion dollars, looked pretty damn expensive. What's it worth now? Like $35 billion?"
This quote illustrates that initial high valuations can be justified in hindsight if the company successfully taps into a large market need and achieves significant growth.
We love partnering with local investors. I think it takes a village to help build a company.
This quote emphasizes the importance of collaboration in building a company, highlighting the value of local investor partnerships.
local investors are going to know how to help better with recruiting, they're going to know better the nuances of the local markets.
Angela Strange points out the specific advantages local investors have, such as better recruitment and market understanding.
We often look to partner with a local VC and then what do we bring?
This quote introduces the complementary role of an international VC when partnering with a local VC.
Yes, terrible employees often make fantastic ceos.
Angela Strange acknowledges that past employee performance does not necessarily predict entrepreneurial success.
But just the Latin American most painful one is newbank.
Angela shares her personal experience with a missed investment opportunity, highlighting the importance of market understanding.
I've now spent a lot of time getting to know the region, getting to know the founders, understanding the nuances.
This quote reflects Angela's approach to improving her investment strategy by deepening her regional knowledge.
The other question I get asked a lot is just how are you going to find the people to scale your company?
Angela addresses a common concern about talent acquisition in emerging markets.
there are lots of unicorns in Latin America.
This quote highlights the growth of successful companies in Latin America, which contributes to a developing talent ecosystem.
now people think about their careers as like, I could live and work anywhere.
Angela points out the global mindset of today's workforce, which benefits companies in emerging markets.
I am rereading the more you know, which is a like, I would recommend rereading it every five years.
Angela recommends a book that emphasizes the value of a broad knowledge base for investors.
The balance between focus and breadth.
This quote discusses the challenge of maintaining the right balance between specialized and general knowledge.
The power of conviction, especially early conviction, which takes really knowing a market.
Angela highlights the importance of strong belief in an entrepreneur and market understanding.
preferential attachment, which is the best companies and the best founders just have a great way of bringing in people, bringing in capital, bringing in resources.
The concept of preferential attachment is mentioned as a characteristic of successful companies and founders.
Massive market that's underserved.
Angela explains the rationale behind investing in Jeeves, citing the untapped potential of the market.
They have built this orchestration switching layer on top such that by definition, their platform is going to be seamless from country to country.
This quote describes the technical infrastructure that made Jeeves an attractive investment.