20VC Why Greed is the #1 Enemy of Venture Returns, Why Not Enough VCs Play to Win and Lessons from Scaling to $100M and 1,200 Employees and Then Cratering with Julio Vasconcellos, Founder @ Atlantico

Summary Notes


In this episode of 20vc, host Harry Stebbings interviews Julio Vasconcelos, co-founder and managing partner at Atlantico, a prominent early-stage fund in Latin America. Vasconcelos shares insights from his extensive background, including his tenure as Facebook's first country lead in Brazil and his entrepreneurial journey with Peixe Urbano, which he grew to over 1200 employees and $100 million in revenue. He discusses the importance of product-market fit, the significance of a founder's vision, and the challenges of rapid scaling. Vasconcelos also touches on the pitfalls of premature expansion and the necessity of focus for startups. He emphasizes the potential of Latin America's tech market, highlighting its low tech penetration compared to other regions and the persistent growth post-COVID, unlike the reversion seen in more developed markets like the US. Additionally, Vasconcelos offers advice for founders navigating boom and bust cycles, advocating for staying in the game through cautious strategies and the surprising efficiency of smaller teams. The episode also includes discussions on venture investment strategies, the role of boards, and the importance of being non-consensus in investments.

Summary Notes

Introduction to Julio Vasconcellos and Atlantico

  • Julio Vasconcellos is the founder and managing partner at Atlantico, a leading early-stage fund in Latin America.
  • Julio began his career as Facebook's first country lead for Brazil.
  • He co-founded Peixebano, scaling it to over 1200 employees and $100 million in revenue.
  • Julio also worked as an EIR at Benchmark Capital, co-founding Prefer, a company transforming the future of work.
  • He has a notable angel investment track record with investments in ipsy and QuintoAndar.
  • Julio's insights are based on his extensive experience as a founder, operator, and investor in the Latin American market.

"Julio Vasconcellos, founder and manager partner at Atlantico, one of the leading early stage funds in Latin America."

This quote introduces Julio Vasconcellos and establishes his credibility as a successful entrepreneur and investor in Latin America.

Julio's Venture into Investing

  • Julio transitioned from founding and operating startups to angel investing over ten years ago.
  • His passion for investing led to the creation of Atlantico, a fund designed to support operators and entrepreneurs.
  • Atlantico is focused on investing in Latin American startups, leveraging Julio's regional expertise.
  • Julio aims to build Atlantico into the dominant venture firm for Latin America.

"I decided to just dive headfirst into investing and build that fund that I always dreamt of having when I was an operator and entrepreneur."

Julio explains his shift from entrepreneurship to full-time investing, highlighting his ambition to create a supportive fund for other entrepreneurs.

Importance of Product-Market Fit

  • Julio emphasizes the critical role of product-market fit in a startup's success.
  • Product-market fit can overcome many challenges and is essential for achieving greatness.
  • Julio's experience at Facebook demonstrated the power of a strong product-market fit, which can drive rapid growth and solve problems.

"When you're on a rocket ship like Facebook and everything you do can kind of only go right, it's really a testament to how product market fit really solves all problems."

Julio reflects on his time at Facebook, illustrating how product-market fit was fundamental to the company's success.

Founder's Vision

  • A founder's vision is paramount in motivating and uniting a team.
  • Julio cites Mark Zuckerberg as an example of a founder with a compelling vision that drove Facebook's early team.
  • The authority and ability of a founder to shape and communicate their vision is a unique and critical asset.

"The overwhelming importance of a founder's vision."

Julio highlights the significance of a founder's vision in the success of a startup.

Market Centrality in Investing

  • Julio believes that the right market and product are more important than the team in the early stages of a startup.
  • Once product-market fit is found, other elements like team building and management fall into place.
  • Julio prioritizes market potential when investing, but acknowledges the importance of a capable team in navigating competition and scaling the business.

"In my view, market comes first."

Julio discusses his investment philosophy, emphasizing the importance of market potential over other factors.

Growth and Scaling Challenges

  • Rapid growth can lead to mistakes, which are inevitable but should be acknowledged and rectified.
  • Compromises on culture and hiring practices can have long-term negative impacts.
  • Often, startups solve problems by adding more personnel instead of optimizing processes, which can lead to breakdowns that must be addressed with more sustainable solutions.

"When you're growing that fast? You're bound to make a lot of mistakes."

Julio shares the challenges of scaling a business rapidly, stressing the importance of learning from mistakes and maintaining company culture.

Product Line Expansion

  • Julio's vision for Peixebano was to create the ultimate local services company in Latin America.
  • He advises founders to focus on winning one market with one product and customer before expanding to additional markets or products.
  • Winning a market means achieving excellence, significant market share, and barriers to entry that deter new competitors.

"Focus on one geography, one product, one customer. Win that, and then go on and move on to the next one."

Julio offers advice to founders on expanding their product lines, advocating for a focused approach to ensure market dominance before diversification.## Competitive Advantage and Market Share

  • Building a strong competitive advantage is essential to prevent being dethroned by competitors.
  • Achieving significant market share and network effects are critical for a company's growth and sustainability.
  • As the company grows, its competitive advantage should become more robust, making it difficult for challengers to enter the market.

"strong enough that no one can easily come in and sort of dethrone you."

This quote highlights the importance of establishing a firm competitive advantage to secure a dominant market position.

Mistakes Leading to Decline in Company Performance

  • Expanding into too many product lines and geographies can be detrimental.
  • Rapid expansion consumes cash and management attention, leading to potential issues.
  • The decline in the daily deal model globally exposed the company's overextension and lack of sustainability.

"I think some of the biggest mistakes we made were around focus, was probably expanding into too many product lines, was probably expanding into too many geographies too fast."

Julio Vasconcellos reflects on past mistakes, emphasizing that a lack of focus and overexpansion led to a decline in company performance.

Partnering with Investors

  • Choosing the right partners and investors can be crucial for a company's success.
  • Supportive investors are valuable not just in times of growth but also during challenging periods.
  • Strong relationships with investors can open doors and provide much-needed assistance.

"what was most important there is that not only were they helpful and supporting us when we were in hypergrowth and we were doing excellent but actually, when the company was going through a lot of rough patches and was really in a lot of trouble, that's actually when they really leaned in and helped us out."

Julio Vasconcellos discusses the importance of having investors who are supportive in both good times and bad, highlighting their role in the company's survival during tough periods.

Focus as an Investor

  • Maintaining focus on a specific area of expertise is critical for venture capital firms.
  • Diversifying into too many areas can be profitable short-term but may harm long-term success.
  • Benchmark Capital's focus on early-stage venture investing is a model for maintaining a strategic focus.

"They really stick to their knitting. They know that they're the best at the craft of early-stage venture and investing in these great breakout companies."

Julio Vasconcellos speaks about Benchmark Capital's focused approach to investing, which he admires and emulates in his own venture firm.

Adapting to Market Changes

  • Staying focused does not mean being inflexible; adapting to market shifts is necessary.
  • Understanding the core strengths and maintaining them while the market evolves is crucial.
  • Benchmark Capital's adaptation from Series A to seed investments exemplifies this balance.

"As the market has shifted around, they've shifted around with that market, but still continue to double down on what their edge is."

Julio Vasconcellos explains how Benchmark Capital has maintained its focus on early-stage investing while adapting to what the market defines as early stage.

Lessons from Prefer's Journey

  • Finding product-market fit is challenging and crucial for a startup's success.
  • Co-founders should balance rapid iteration with taking the time to develop a well-crafted product.
  • Reflecting on the Prefer experience, Julio Vasconcellos acknowledges the value of craftsmanship in product development.

"I'd say that the first thing is just how much I had underappreciated the fact that my two prior experiences at Facebook and then with Patrebano, how important product market fit had been there and how lucky I was to be in those places."

Julio Vasconcellos discusses the difficulty of achieving product-market fit and how his past success may have led to underestimating this challenge with Prefer.

Transition from Angel to Institutional Investor

  • Investing other people's money requires adhering to a promised strategy and focus.
  • Angel investors have more flexibility, but institutional investors must prioritize returns and sometimes provide tough feedback to founders.
  • The transition involves a shift from a more casual, friendly role to a more professional, results-driven approach.

"You really have to be able to deliver on what you sold."

Julio Vasconcellos talks about the responsibility of delivering on promises made to limited partners (LPs) when transitioning from angel investing to managing an institutional fund.## Value of Informal Conversations in Strategy Planning

  • The most valuable strategic discussions often occur outside of formal board meetings.
  • Board membership is not the sole determinant of an individual's contribution to a company's strategy.
  • Mentors and advisors who are not board members can provide significant value to founders.

"I think a lot of the most valuable conversations I've had and strategy planning conversations I've had weren't in board meetings."

This quote emphasizes the importance of strategic conversations happening outside of the structured environment of board meetings, suggesting that flexibility in discussion format can be beneficial.

"As a founder, a lot of the people that helped me the most weren't on the board."

This quote highlights the significance of guidance from individuals who may not hold formal positions within a company's board but still contribute meaningfully to its direction.

Importance of Empathy in Mentorship

  • Empathy is a crucial trait for mentors, particularly those who have experienced both success and failure.
  • The psychological support provided by empathetic mentors can help founders navigate challenges.
  • Tactical advice is less important than the mental support in overcoming business obstacles.

"Mickey has the empathy of being a founder that has seen a lot of success, and he's also seen a lot of failure."

The quote underscores the value of empathy derived from personal experience, which enables mentors like Mickey to connect with founders on a deeper level.

"And that's much more of a mental game than a tactical game."

This quote suggests that the psychological aspects of running a business often outweigh the tactical ones, highlighting the importance of mental resilience.

Challenges of Raising a First-Time Fund

  • Raising a first-time fund is time-consuming and requires extensive dialogue with potential investors.
  • Having a strong personal track record and network can be advantageous in fundraising efforts.
  • Initial fundraising is about finding the right product-market fit for the fund and identifying supportive investors.

"It was slower than I expected."

This quote reflects the common experience of first-time fundraising being more time-consuming and challenging than anticipated.

"It took me a good maybe six months... it was very time intensive."

The quote conveys the significant amount of time and effort required to successfully raise a first-time fund.

Strategies for Raising a First-Time Fund

  • Persistence and extensive networking are key to fundraising; there are no shortcuts.
  • Building relationships with investors who know and trust you can lead to additional connections.
  • Leveraging committed investors to create a network effect can accelerate the fundraising process.

"The main thing I would advise a new manager is just that there's no shortcuts."

This quote advises new fund managers that diligence and perseverance are essential in fundraising.

"With every committed LP, I always say, hey, ask for three subsequent ones."

This strategy suggests using committed limited partners (LPs) to create a referral system that can expand the investor base.

Strategic Positioning in Communication with LPs

  • Communicating a bold strategy to LPs can be polarizing but may also attract strong support.
  • Emphasizing the aim to 'win' rather than 'not lose' can differentiate a fund's approach.
  • Strong reactions from LPs, whether positive or negative, can be indicative of a fund's distinct strategy.

"Our goals is really not to miss the next huge hit, and it's not to minimize losses."

This quote reveals a strategic focus on achieving significant successes rather than avoiding failures, which may be controversial among traditional investors.

"You really can't win by playing not to lose."

This quote conveys the philosophy that a conservative approach focused on avoiding losses is not conducive to achieving outstanding venture capital returns.

Investment Strategy: Diversification vs. Concentration

  • A balance between diversification and concentration is necessary in portfolio construction.
  • Early-stage investing involves uncertainty, but a more concentrated portfolio can still capture significant winners.
  • The appropriate level of diversification varies based on the fund, manager, and geography.

"I'm going to build a portfolio of 20 companies... I know that one of them is going to be the next Mercado Libre."

This quote suggests that a carefully selected, concentrated portfolio can yield a major success without needing excessive diversification.

"So everything is a balance."

The quote highlights the need for a strategic balance in portfolio management, acknowledging the complexity of investment decisions.

Reserves Management and Capital Concentration

  • The goal of becoming the top venture capital fund requires a more concentrated capital allocation strategy.
  • Operating with thinner reserves allows for more initial bets and concentrated follow-on investments.
  • Atlantico's approach involves reserving less for follow-ons compared to typical early-stage funds.

"Our goal is to be the number one venture capital fund in Latin America."

This quote outlines the ambitious goal of Atlantico, which informs its strategy for capital allocation and reserves management.

"We reserve 25% of the fund, right? So we're much, much thinner."

The quote specifies Atlantico's reserve strategy, which is leaner than the industry norm, allowing for a more aggressive initial investment approach.

Being an Independent Thinker in Venture Capital

  • Independent thinking, rather than contrarianism for its own sake, guides investment decisions.
  • Non-consensus investments can lead to the best returns, aligning with Howard Marks' philosophy.
  • Long-term success in venture capital requires belief in the companies invested in, regardless of current consensus.

"I would describe myself much more as an independent thinker."

This quote differentiates between being contrarian and having an independent thought process that may lead to non-consensus investments.

"The best returns still are those non consensus and right investments."

The quote reflects the belief that the most significant returns come from investments that are both non-consensus and correct, rather than simply following market trends.

Personal Investment Successes and Their Impact

  • Massive returns from successful investments reinforce the importance of the power law in venture capital.
  • The goal is to invest in category-defining companies that can deliver outsized returns.
  • Successes influence investment strategy, emphasizing the search for potential market leaders.

"Both of those were probably around 100 x returns, maybe even more than 100 x returns, but they're massive returns."

This quote illustrates the magnitude of successful investments and their impact on a venture capitalist's perspective on the power law.

"That one hit, that one return is probably going to be more valuable than the sum of all the other investments."

The quote highlights the disproportionate impact a single highly successful investment can have on a fund's overall performance.

Learning from Investment Misses

  • Missing out on high-potential investments can be instructive, emphasizing the importance of product-market fit.
  • The experience of passing on a successful investment due to perceived conflicts or skepticism can lead to reassessment of decision-making processes.

"I'd say the biggest miss I had was not investing at the seed round of Snapchat."

This quote shares a personal anecdote of a missed investment opportunity, providing insight into the learning experiences of venture capitalists.

"It's probably just a fad."

The quote reflects the skepticism that led to missing out on Snapchat, demonstrating how misjudgment can result in lost opportunities.

LAtam Ecosystem and COVID Boom Comparison

  • The Latin American tech ecosystem has significant growth potential compared to more mature markets.
  • The Atlantico Digital Transformation Index measures tech penetration, showing LAtam's lower levels but high growth potential.
  • The COVID-19 pandemic accelerated digital adoption, but trends in LAtam may differ from those in the US.

"When you look at what the tech penetration level is at Latin America, it's one and a half percent."

This quote provides a metric for understanding the current state of tech adoption in Latin America, indicating room for substantial growth.

"We're talking about value creation that's measured in the trillions of dollars."

The quote projects the immense potential for value creation in the Latin American tech ecosystem over the coming decade.## E-commerce Growth in Brazil

  • COVID-19 accelerated e-commerce adoption in Brazil, putting it years ahead of the projected growth curve.
  • Brazilians experienced the convenience of e-commerce and telemedicine, preferring it over traditional methods.
  • The pandemic-induced growth in digital services has persisted without reverting to pre-pandemic levels.

"We're right now almost three years ahead of where we would have been in that historic growth curve because a lot of Brazilians were trying things out like e-commerce or telemedicine for the first time."

The quote explains that Brazil's adoption rate of e-commerce and telemedicine has significantly outpaced historical growth projections due to the pandemic, indicating a permanent shift in consumer behavior.

Concerns About Growth Funding in LATAM

  • There is a fear of reduced growth funding in Latin America due to global economic downturns.
  • LATAM lacks the extensive growth-stage funding that is available in the US, Asia, and India.
  • Recessions often lead to international investors focusing on their core markets, potentially reducing investment in LATAM.

"Am I right to be as worried as I am?"

The speaker is expressing concern about the potential scarcity of growth-stage funding in Latin America, which could hinder the development of startups in the region.

Response to Growth Funding Concerns

  • The speaker does not share the concern about reduced growth funding in LATAM.
  • Crossover funds have retreated globally, not just in Latin America.
  • Dedicated growth capital from established global funds with local presence remains in LATAM.
  • Current capital from blue-chip investors is considered sufficient for the market's size.

"You still have here the dedicated growth capital of great global funds that have local offices."

This quote reassures that despite the global pullback of crossover funds, dedicated growth capital from established funds with local offices in LATAM remains, providing stability for the market.

Impact of Capital Reduction on Startups

  • Capital reduction will likely increase startup mortality and loss ratios in the coming years.
  • The previous years' funding environment was atypical, with unsustainable funding for underperforming companies.
  • A return to normalcy in funding will lead to a healthier and more realistic market environment.

"A lot of companies that honestly should have probably died in the last couple of years are going to die now."

The speaker is indicating that a reduction in capital will lead to a necessary market correction, where companies that were previously propped up by an atypical funding environment may fail, aligning with more traditional market dynamics.

Strategies for Taking Money Off the Table

  • As an angel investor, the speaker has taken partial exits to secure returns.
  • Selling a small percentage of a position can be a prudent way to realize gains while maintaining upside potential.
  • Complete exits are generally avoided before a final company sale.

"As an angel investor, I often took money off the table."

This quote reflects the speaker's strategy as an investor to secure partial returns through secondary sales, balancing risk and reward.

Advising Founders in Boom and Bust Cycles

  • Founders should prioritize survival and prepare for downturns by conservatively managing resources.
  • It is advised to cut deeper than may seem necessary to ensure longevity.
  • Smaller, motivated teams can often outperform larger ones, even with reduced resources.

"I think it's healthy to cut through the fat and into the muscle because you can always undo that later."

The speaker suggests that founders should be aggressive in cost-cutting to extend their runway, as it is better to be overly cautious than to risk running out of funds.

Investment Philosophy and Recent Changes

  • In riskier markets like Latin America, investing in polished founders who can attract international investment may be necessary.
  • The speaker has adjusted their investment approach to balance non-consensus bets with the practical need for founders to raise subsequent rounds.

"Sometimes you have to... sacrifice a little bit of doing something that's non-consensus in order to honestly just invest in founders that are backable."

The speaker acknowledges a shift in their investment philosophy, recognizing the importance of backing founders who are more likely to secure future funding in less familiar markets.

LP Management and Learning Experiences

  • Managing a fund involves significant time spent with limited partners (LPs).
  • The speaker values engaging discussions with LPs and prefers LPs who offer more than just capital.
  • Future LP selection may focus on those who provide intellectual value and debate.

"I think I was definitely surprised at how much more time I spend with lps than I expected."

This quote reflects the speaker's realization that fund management requires substantial engagement with LPs, influencing their approach to building LP relationships.

Aspirations for LP Partnerships

  • The speaker expresses a desire to have the Penn endowment as an LP, valuing the learning opportunities from their team.
  • The relationship with the Penn endowment would also serve as a way to give back to the speaker's alma mater.

"I would love to have them as lps one day and be able to kind of give back also to my alma mater."

The speaker shares their aspiration to involve the Penn endowment as an LP, highlighting the personal connection and potential for mutual growth.

Startup Fundraising and Valuation Dynamics

  • The speaker criticizes the inefficient and often pretentious dynamics of startup fundraising and valuation negotiations.
  • A more practical and straightforward approach would benefit both entrepreneurs and investors.

"I definitely think that the game that entrepreneurs and investors play around fundraising and valuations and that whole dance and the pretend... wastes a lot of time."

This quote criticizes the current state of startup fundraising, advocating for a more efficient and transparent process.

Recent Investment in Foodo

  • The speaker's most recent investment is in Foodo, a restaurant management and POS software in Latin America.
  • The investment was made alongside notable firms like Andreessen Horowitz.
  • Foodo's potential lies not only in its core market but also in the untapped adjacent opportunities in LATAM.

"The summation of all these adjacencies with your core market can actually lead to an outcome that's much bigger than even the US comparables that you might see."

The quote emphasizes the unique investment opportunities in LATAM, where adjacent markets present significant growth potential for companies like Foodo.

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