20VC Nubank CEO David Velez on Scaling Nubank to a $25BN Company, Why What Makes a Great Founder Does Not Make a Great CEO & The Responsibility Framework and How Leaders Can Use It To Drive Efficiency

In this episode of 20 VC, host Harry Stebbings interviews David Velez, founder and CEO of Newbank, a rapidly expanding digital bank in LATAM. Velez discusses his journey from Sequoia partner to entrepreneur, emphasizing his desire to create a transformative financial service in a region with significant customer pain points. He shares insights on scaling Newbank, balancing growth with quality, and the challenges of international expansion in diverse markets. Velez also touches on the importance of timing when introducing new products and the value of a robust company culture influenced by his time at Sequoia. He predicts a future of consolidation in the neo-banking landscape and envisions Newbank becoming one of the world's largest companies, with potential to expand beyond financial services.

• Newbank is one of the fastest-growing digital banks globally, with operations in Brazil, Mexico, Argentina, and Colombia.
• David Velez, the founder and CEO of Newbank, has raised over $1.5 billion for the company.
• Investors include Sequoia, Ribbit, Thrive, Founders Fund, DST, Tiger, and others.
• David Velez was previously a partner at Sequoia and co-founder of General Atlantic's South American investment program.
• Acknowledgment of Doug Leone at Sequoia and Jeff Lewis at Bedrock for providing question suggestions for the podcast.

"And today I'm so thrilled to welcome David Velez, founder and CEO at Newbank. For those that do not know, Newbank is one of the fastest-growing digital banks in the world, with operations in Brazil, Mexico, Argentina, and Colombia."

The quote introduces David Velez and Newbank, emphasizing the company's rapid growth and international reach.

• David Velez always aspired to be an entrepreneur, influenced by his family of small business owners in Colombia.
• He gained experience in financial services in New York, private equity, and growth equity in Brazil.
• Velez attended business school with the intention of starting his own business but was recruited by Sequoia during his first week.

"I'm originally from Colombia. I come from a family of entrepreneurs on both sides... I grew up always thinking that at some point I wanted to go on my own, that I wanted to start my own path."

This quote details David Velez's entrepreneurial roots and lifelong ambition to start his own business.

• David Velez worked at Sequoia, focusing on Latin American investments, while considering his own entrepreneurial venture.
• His experience at Sequoia exposed him to some of the world's best entrepreneurs, influencing his decision to start Newbank.
• After two years at Sequoia, Velez chose not to return to California for global investments and instead pursued his passion for entrepreneurship.

"And so ultimately, that's how we ended up there and eventually building the business from there."

The quote summarizes Velez's journey from working at Sequoia to founding Newbank.

• David Velez found it easy to take the plunge into starting Newbank, driven by a clear desire to be an entrepreneur.
• He felt unqualified to give advice as an investor without having built a company himself.
• His decision to start a business was fueled by a desire for adventure and to embrace the associated risks.

"I knew very clearly that I wanted to start a business at some point... I just didn't feel qualified to be giving advice."

The quote reflects Velez's self-awareness and determination to transition from an investor to an entrepreneur.

• Sequoia's unique culture, characterized by a flat hierarchy and partnership, was highly motivational for Velez.
• He experienced autonomy and responsibility early on, which was different from traditional financial services cultures.
• The culture at Sequoia, focused on performance and meritocracy, greatly influenced the culture Velez established at Newbank.
• Velez created a culture deck for Newbank to embody the company's values, many of which mirror those he admired at Sequoia.

"It was very much influential and I was very lucky to have been able to see that."

This quote highlights the significant impact Sequoia's culture had on Velez's approach to building Newbank's culture.

• Rapid scaling of Newbank led to technical issues, customer service mistakes, and challenges maintaining a customer-focused culture.
• Velez acknowledges that with growth, there will be inevitable problems that need to be addressed.

"There's kind of the obvious parts of that answer, which is tech will break, there will be crashes, there will be fires, there'll be firefighting..."

The quote points to the expected difficulties in tech and customer service that come with the rapid expansion of a company like Newbank.

• Growth is essential for startups, but it must be balanced with quality to sustain that growth.
• Quality and growth can reinforce each other rather than being a trade-off.
• Short-term sacrifices may be necessary, but long-term architecture of the company can allow for both quality and growth.
• Investing in quality can lead to growth, and growth can provide resources to invest back into quality.

"You want to grow, there is no scent like growth is life. As a startup, you have to grow. But if it comes at the expense of a lot of quality, then you're losing what is giving you that growth."

This quote emphasizes the importance of growth for startups and the danger of sacrificing quality for growth. Growth should not undermine the very factors that enable it.

"A lot of the times quality gives you growth and growth actually gives you quality. They're not necessarily a trade off, it's not necessarily a zero sum game."

The speaker suggests that quality and growth are interconnected and can mutually reinforce each other, rather than being in opposition.

• Latin America consists of diverse countries with unique regulatory and cultural landscapes.
• Companies often fail in regional expansion due to premature scaling efforts.
• Success requires a strong core business and winning in the initial market before expanding.
• Strategic timing for internationalization is crucial, considering both short-term and long-term horizons.

"Latin America is a collection of very different countries, each country with its own specificities of regulation and culture and local."

This quote highlights the complexity of the Latin American market and the need for tailored approaches to each country within the region.

"You have to do it once you have a very strong core when you actually have won the first country."

David Velez stresses the importance of establishing a strong and successful business in one country before considering international expansion.

• Entrepreneurs should carefully select board members and investors for their diverse experiences and value addition.
• It's crucial to listen to board members' advice but also to critically analyze their arguments and experiences.
• The alignment of incentives and absence of ego can facilitate the best decisions for the company.

"You always have to... really listen to people's opinion, because that's precisely what you brought them."

David Velez underscores the importance of valuing the opinions of board members, given their role in providing guidance and expertise.

"Sometimes they will actually come and talk out of true experience, and you really have to listen."

This quote suggests that when board members offer advice from genuine experience, it holds significant value and should be carefully considered by entrepreneurs.

• Success in cross-selling additional products relies on not expanding too quickly and building a strong brand with the initial product.
• Establishing trust and a high Net Promoter Score (NPS) with the first product can lead to excitement and willingness to try additional products.
• The timing of launching new products is critical to successful cross-selling.

"If you build a phenomenal brand that people loved with that first product, if the experience works, if you build trust, if you have high NPS... people will be very much willing to get your product number two and product number three."

This quote illustrates that customer trust and satisfaction with the first product set the stage for successful expansion into additional products.

"By the time year number five we launched product number two, there was so much excitement from our customer base and they trusted us on match that they were very much willing to accept it."

David Velez describes the customer anticipation and trust that facilitated successful product expansion after a period of focusing solely on the initial product.

• As a company grows, the infrastructure and organizational structure evolve to support faster product launches.
• The initial focus on a single product can lead to a more complex transition to a multi-product, multi-geographical company.
• Subsequent product launches can benefit from the established systems, brand, and customer base.

"Once you go from one to two, then two to three, three to four, you end up architecting your systems on a platform way in which the cost to launch the following product becomes easier and simpler."

David Velez explains how the company's infrastructure adapts to enable quicker and more efficient product launches as the product line expands.

• CAC is influenced by the quality of the product, the market served, and the intensity of customer pain points.
• Markets with less acute customer pain points, like the US and Europe, may have higher CACs due to better functioning banking systems.
• In markets with significant customer pain, such as Brazil, a well-designed product can lead to low or even zero CAC due to high customer demand.

"CAC will be a function of the product that you build and the market you are serving."

This quote indicates that customer acquisition costs are not static and depend on the interplay between the product's value proposition and the market's characteristics.

"When you go to Brazil and you see customers paying 450% APRs and paying a ton of different fees and waiting four"

David Velez highlights the extreme customer pain points in the Brazilian market, which can lead to lower customer acquisition costs for fintechs that address these issues effectively.

• In markets with significant pain points in banking, offering a superior product can lead to very low customer acquisition costs.
• Nubank focused on building the best product and customer experience rather than spending on marketing.
• Savings from not charging fees and not spending on marketing were invested in customer service and product experience.
• This approach led to a word-of-mouth viral effect driving Nubank's growth.

"And so if you approach that pain with a product that is 100 x better, that ultimately translates into very, very low, close to zero customer acquisition cost."

This quote highlights the strategy of addressing market pain points with a significantly better product to achieve low customer acquisition costs.

"And we pay great salaries in customer service to make sure that we're giving great customer service and we'll invest in the experience versus investing in the market."

This quote emphasizes the company's investment in customer service and user experience over traditional marketing strategies.

• Initial user demand outpaced Nubank's capital, leading to the creation of a waiting list.
• The waiting list and social media marketing increased product demand and exclusivity.
• Constrained demand facilitated capital raising from investors to serve more customers.
• Financial services, especially lending, face liquidity as a major bottleneck.
• Nubank blended technology company DNA with traditional banking expertise in liquidity and capital management.
• Strong controls and a skilled team are essential to manage capital and liquidity effectively.

"I remember seeing the avalanche of customers and we didn't have the capital to serve all the customers that actually wanted our product, which is always interesting to see how some of these constraints really create creativity."

This quote reflects the challenges and creative solutions prompted by high customer demand and limited capital.

"You need really, really strong controls, what we call here defense around. Do we have the capital, the liquidity, to withstand very, very significant shocks and very significant adverse circumstances."

This quote stresses the importance of having robust controls and strategies to manage capital and liquidity in the face of potential financial shocks.

• The neo-banking sector has seen a surge in new entrants, reminiscent of the Groupon clone trend in Brazil.
• Barriers to entry are low, but operational efficiency and scale are required for long-term profitability.
• David Velez expects significant consolidation in the neo-banking space.
• Future trends may include integration of financial services with other consumer ecosystems, such as e-commerce and ride-hailing.

"Everybody's building their bank. The right sharing apps are building their banks, the retailers are building their banks, the offline retailers are building, everybody's building banks."

This quote captures the current trend of various companies entering the banking sector, creating a crowded market.

"I would expect a significant consolidations of that over the next few years."

This quote predicts a consolidation in the neo-banking market due to the unsustainable number of players.

• The transition from founder to CEO is challenging, with different skill sets required for each role.
• Founders need strong convictions and the ability to take risks, while CEOs must be great listeners and managers.
• Scaling oneself and adapting leadership style is a continuous journey for a founder becoming a CEO.
• Delegation is crucial for CEOs, requiring trust in the team and the ability to let go of control.

"The analogy sometimes I use is I found OD that the founder and CEO titles are generally solely linked to each other."

This quote uses an analogy to describe the distinct and sometimes conflicting roles of a founder and a CEO.

"As a great CEO, I think the company can afford for you to bet everything you got on one, put all your chips on one table."

This quote contrasts the risk-taking nature of a founder with the more balanced approach required of a CEO.

• Effective delegation begins with hiring great talent and trusting them to perform their roles.
• Founders often struggle with delegation due to emotional investment in their company.
• Leaders must allow team members to make mistakes and provide consistent support.
• Assessing whether someone is the right fit for a role is an ongoing process as the organization grows.

"You have to have phenomenal talent that you can delegate for. You have to trust the person."

This quote emphasizes the importance of hiring talented individuals and trusting them in order to delegate effectively.

"Let the person fail, be there close to that person and coach them and allow for some mistakes, but just step back and let this person that you hire do their role."

This quote advises leaders to allow room for failure and growth, highlighting the balance between support and autonomy in delegation.

• David Velez experienced more impostor syndrome as a CEO than as a founder.
• The expectation that a CEO should have all the answers contributed to his impostor syndrome.
• Recognizing that a CEO's role includes recruiting talent and building a team can alleviate the pressure of needing to have all the answers.
• Changing expectations about the CEO's role is key to overcoming impostor syndrome.

"Definitely, I think I had more imposter syndrome about CEO than about founder. Precisely. Sometimes I think because there is an expectation that the CEO has all the answers."

This quote illustrates David Velez's personal struggle with impostor syndrome in his role as a CEO, highlighting the unrealistic expectations placed on leaders.

• David Velez does not rely on a single go-to person for advice across different problems.
• He maintains a large network of experts in various fields for guidance.
• This approach helps him to get specialized advice for different situations.

"Not fully, not like that. Not one single. I try to have a large network of people that are experts in different things that I can either internally or externally, that I can go to for advice on a number of different topics, but I wouldn't say I have one single person that can serve as that."

David Velez explains his strategy for seeking advice, which is to consult a diverse network of experts rather than relying on one individual.

• David Velez's favorite book is "Hundred Years of Solitude" by Gabriel Garcia Marquez, as it represents his Colombian heritage and he enjoys fiction over business books.
• He admires Chuck Feeney, founder of Duty Free Shoppers, for his philanthropic efforts and living a life of giving while remaining anonymous.
• Feeney's impact on global issues and education is a source of inspiration for David Velez.

"Hundred years of solitude by Gabriel Garcia Marquez. I don't love business books. I love fiction, and it's a great story, and it's very representative of Colombia, where I'm from. So I love it."

David Velez shares his literary preference and the personal connection he feels to Marquez's work, which reflects his own cultural background.

• Convincing top talent to move to Latin America involves highlighting the significant social impact they can make.
• Working in Latin America offers the opportunity to make a substantial difference in the lives of the majority of the population.

"It's hard, and there are big challenges, and us and Europe is too easy. You're going to work very, very hard to make the life of the 1%, 5% better. If you move to Latin America, you're going to work very, very hard to make the life of 99% of the people 70% better."

This quote emphasizes the potential for making a meaningful impact in Latin America compared to developed regions, which is a compelling argument for recruiting talent.

• David Velez uses the "responsibility process" framework to deal with failure.
• The process involves moving from denial or blame to taking responsibility and learning from the experience.
• Acknowledging failure and taking responsibility is crucial for personal and professional growth.

"There is a framework that we talk to you a lot about. It's called the responsibility process, where the first instinct is always denial or blame, but very quickly, you go move the faces and you end up in responsibility."

David Velez describes his approach to handling failure, emphasizing the importance of moving past initial reactions of denial or blame to reach a state of responsibility.

• David Velez wants his children to adopt a sense of desperation, curiosity, and empathy.
• He believes these traits are important for motivation, a fulfilling life, and contributing to society, especially in regions with social issues.

"I don't know what the best way to say it, but I'll go back to Doug Leonis' wise words, which is a bit of a sense of desperation, like a hunger."

David Velez articulates his desire for his children to have a strong drive and motivation, referencing Doug Leonis' influence on his thinking.

• David Velez believes there is no limit to how big Newbank can become.
• Financial services in emerging markets present a vast opportunity for growth.
• Newbank's long-term orientation and talented team are key factors in its potential for expansion.
• The company aims to solve consumer problems, starting with financial services but potentially expanding into other sectors.

"I honestly think there is no limit. It can be one of the largest companies in the world. I'm very confident with that."

This quote captures David Velez's confidence in Newbank's potential for growth and his belief in the limitless possibilities for the company's future.

• David Velez values all his board members and cannot choose a favorite.
• He acknowledges the unique contributions and mentorship each board member has provided.

"Probably all my board members are listening to. Now listen. I really can't tell. Doug has been phenomenal. Nigel has been a mentor since the very beginning and I looked up to him a lot and learning the couple of one story, Nicolas from Cascade Ventures back to her city has been with us since the very beginning, has been a great mentor. Mickey, Malka, they've all have been great in different ways. I cannot pick favorite."

David Velez expresses his appreciation for the diverse support he receives from his board members, emphasizing their individual impacts on his and Newbank's journey.