Happy birthday 500 Latin America! Ten years ago, Managing Partner Santiago Zavala joined 500 Global to help set up our Mexico City office. Things have come a long way since. “It was very hard to get people from the U.S. to invest into the startups because they didn’t know the industry,” he says, recalling the early days.
No more. Last year, Latin America experienced record levels of venture funding, which remained strong in Q1 2022 compared to Q1 2021. Over the past decade, 500 Latin America has made more than 250 early stage investments across Spanish-speaking countries, including Argentina, Chile, Colombia, and Peru. Two are now unicorns: Mexico-based Clip and Konfio.
Despite the economic downturn, Santiago believes the best is yet to come. Tune into Rise of the Next to listen.
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TRANSCRIPT
Shereen Abdulla
Santiago, 10 years in Latin America — congratulations! How does it feel to hit that milestone?
Santiago Zavala
You know, it’s very surreal in many ways. I think that we’re just getting started. It’s been so fast, it’s crazy to think that we’ve been doing this for 10 years. As an ecosystem, and as 500, these 10 years have been like stage one of figuring out what has to be done in the ecosystem, and now it’s clear what do we have to do. So now it’s exciting to actually go and build that. It’s been a lot of exploration and learning.
Shereen Abdulla
That’s super! Santiago, why don’t we start by asking you, actually, to tell us listeners a little bit about yourself and what got you into the VC scene?
Santiago Zavala
Absolutely. At heart, I’m a creative. I was very lucky that very young in my life, I got this introduction to coding and I learned to create and share what I created through the internet. So I started to create my first static HTML pages in 2000/1999. I was 13/14 and it was super fun and I started to just spend a lot of time with technology, and that was all 2000 to 2006. It was a very, I would say, lonely experience where I was just trying to build a community of other people around me. I did a couple of different experiments and entrepreneurship-related activities, and in 2006/2007, I traveled to the Bay Area. And I went to this amazing hackathon where there were all these people creating things, so we decided to bring that same hackathon to Mexico. And through all of that, we started to see a lot of entrepreneurs trying to go to the Bay Area to try to reach out for angels or funds to invest into them.
Shereen Abdulla
From Mexico?
Santiago Zavala
So we saw a lot of people from Mexico, but we saw people from all over Latin America. There were different programs like Start-Up Chile that were starting and trying to connect entrepreneurs from Chile and other places to the Bay Area. As a community, it was very hard to get people from the US to invest into the startups because they didn’t know the industry. They just didn’t know how to do a small due diligence. So we started just joking that we should just do it ourselves. And that was when David Weekly, César, another good friend, Lisa, and me we decided to start a fund called Mexican.VC. We had never worked at a fund, we had never raised capital, we just knew our community needed this.
Santiago Zavala
So we reached out to 500 and they became our first investors in that fund. We ended up getting three other angel investors to participate and we launched in 2011. So we ended up investing in seven companies, one of them is a very successful FinTech company. But it was a really nice experience for us to go and work with these companies, understand the purpose of investing, and that generated the relationship originally with 500. And then, in 2012, we started to think about the next step and that’s when 500 invited us to think about doing it together, and we joined 500 to do our first Spanish-speaking Latin American Fund, which that was exactly now almost 10 years ago.
Shereen Abdulla
Now, speaking of 500, 500 really was a pioneer in Mexico, having launched the first non-Mexican and non-governmental accelerator back in 2012, which is now called Somos Lucha, if I’ve pronounced that correctly at all?
Santiago Zavala
Yeah, Somos Lucha. So that’s been the magic of 500, I think, from the very beginning — has been seeing that potential that maybe other people maybe don’t see. And you know, being super honest, I don’t even know if we saw it in ourselves. That moment where 500 bet on us on that first vehicle even before — again, we had no experience, we didn’t really know how to do this — I think what they saw was our passion and our clear understanding of the need. Because we were part of the community, we were jumpstarting this very grassroots community that was very quickly growing and we just knew that there was talent, and there was opportunity, and there was no capital. So I think, for us, it was a very easy puzzle to say, “Hey, let’s bring this capital, let’s bring some connections, let’s bring some best practices,” and things have to happen. And it’s crazy now, looking 10 years later, seeing some of these companies — there was one from that first portfolio. From some of the first companies that we invested in the first vehicle with 500 in 2012, now seeing some unicorns reaching a thousand employees, having huge impact on the region.
Shereen Abdulla
Can you name some of these companies?
Santiago Zavala
Yeah, absolutely! So, when we look at the first fund that we did in 2013, we were very lucky and fortunate to work with some companies that now are very recognized. Konfio was part of Batch 4 and now they’ve raised money from a lot of different funds, including Kaszek and SoftBank, and they became a unicorn, I believe, a year and a half ago. It’s a company that holds small and medium enterprise credits, and now they have a whole suite of resources for small enterprises in Mexico to be more successful. And through these times, they’ve done 320,000 loans — it’s a very surprising number.
We also were part of one of the first round of Clip, which is also now a unicorn. They’re doing payments here in Mexico and it’s a very successful company, also reaching 1,000 employees. And then there are other companies like 99 Minutos. There’s a great podcast also on—
Shereen Abdulla
— on Rise of the Next!
Santiago Zavala
— on Rise of the Next, yeah, with Alexis. But 99 Minutos has become one key piece of the infrastructure of e-commerce in the region. So, I mean, it’s been an amazing journey.
Shereen Abdulla
Now, Santiago, what were some of the challenges you faced back in 2012, when launching all of this?
Santiago Zavala
I mean, as every ecosystem, I guess, there’s a lot of what’s happening around you that generates your idea of what’s possible and what’s impossible. And when we go back to 2012/2011, there were no startups in Mexico around those. There were maybe two companies that you could maybe say that they were startups, but they were more like media companies. So there have been no companies that raised Series A, much less bigger growth rounds, and no IPOs, no anything, no exits. So when we’re going on trying to do these conversations with potential investors to join what we’re doing and support these companies and be part of these, honestly, we didn’t have any kind of reaction. It was not that people didn’t want to do it, they just didn’t even know how to digest this opportunity.
So I would say that the doors wouldn’t even open to have a conversation or a meeting. There was a lot of time between 2010 and, maybe, 2015 — I guess not just us, but some of the other early funds in the region. We were going to family offices, and angel investors, or potential investors, and people who were just discovering these opportunities and just educating about the opportunities. So there was a lot about — hey, look at these other companies in this other region doing something like this one, here. And slowly, some capital started to flow. First, I think we saw a lot of people who were going through an MBA in Stanford and learning about venture capital in the Bay Area and then coming back to Mexico and saying, “Hey, actually, this thing that they’re saying was actually something we saw in our classes and there’s actually all these examples and these success stories and everything.”
And I think having not only the brand of 500, but really the whole DNA of 500 bringing people constantly here — we’re bringing mentors, we’re doing demo days, we’re slowly making sure that people felt that this was a long-lasting effort that had a lot of structure. I think that started to really generate that inertia. And then there was this stage between 2015, maybe 2018, when we started to see the first Series A, see the first Series B. Everything started to accelerate a little bit. There was this feeling of, “Something’s going to happen.” Some companies were growing. You started to see some companies getting to 50, to 100 employees, to 200 employees, and some of them stumbling a little bit, some of them making some mistakes, or all these ups and downs of entrepreneurship. And then, BOOM, 2019 was inflection point — we had Softbank announce their Latin American fund with $5 billion. Very quickly, we started to see unicorns appear in different countries. Mexico went from zero to six in 2020. It’s been really amazing to see how all these efforts actually built up to constantly just surprise us of what was next.
Shereen Abdulla
Would you say that this evolution was just in Mexico, or can it be generalized for LatAm as a whole?
Santiago Zavala
I think, definitely, LatAm as a whole. We saw in the ecosystem — we saw Rappi in Colombia become a unicorn very quickly. They expanded to Brazil, they expanded to Mexico. Then we saw Cornership from Chile making a really strong impact in the whole region. We’ve seen companies from Argentina like Mercado Libre before all of this, and then we continued to see companies from other places, even some cases going global, like the case of dLocal. So there’s been all these things happening for the whole region that have been — in a way, every country has got their flavor and their DNA, and maybe specific challenges or strengths. But at the same time, it does feel like a whole region that is just trying to build an entrepreneurship ecosystem for everyone and democratizing opportunities, which is really inspiring.
Shereen Abdulla
And what do you think is unique about the region?
Santiago Zavala
I think the energy of the people, and you can see — you can see it in everything. You can go and experiment with food in many places and you will find the spices, and the flavors, and the colors. Every country has their own little thing and there’s a lot of competition around which country has that dish or special flavor. You see it in arts, and movies, and music, and now I’m really very excited to see how we bring that to startups and how we bring that to how we use technology to solve some of the unique problems of the region. When you think about WhatsApp, it has become a unique force in Latin America for connecting and digitalizing people and transforming a lot of businesses. I’m excited to see when you see all that energy from everyone in LatAm who has all this creative energy. It’s colorful, it’s flavorful, and it’s going to be amazing to see that in the digital world. So we’re seeing that every time that we see new companies grow, they bring that.
Shereen Abdulla
Sounds like a vibe. Now, Santiago, you mentioned a few notable successes that came out of 500 LatAm’s portfolio — I’m wondering, do you have some great founder stories that you could share?
Santiago Zavala
Very nice story for me has been working with Andres Sarrazola. So after we did Super Happy Dev House, which was a hackathon, we started to help organize Startup Weekend, which was starting in the US, and we brought it to Mexico City. I became a facilitator of that and started traveling all across the region. We went to all these different places that I have never been and every place that I went to I found this local ecosystem that was trying to do the same that we’re doing with the hackathon — just get people together, share, and everything.
So I had the opportunity, in 2012, to go to Medellín and do a Startup Weekend there. There was this one very young person who was at the event, and he had his glasses and they were broken. I remember him so clearly, he did a great job during the weekend. He was full of energy and he was just trying to learn how to do a startup, which was obviously the intent of the event. After the event, he kept sending me messages about, “Hey, I freelance for — I do these websites. Do you want to invest in this thing?” And I was like, “Well, it’s not a company.” Then he grew a little bit and he started an agency where he was doing software for other companies and he asked, “Hey, you want to invest in this?” and was asking for advice. Now that was in 2012; 2016, four years later, he applies with a software to our program. We ended up investing in 2017 and became partners with Ayenda. At the time, it was a very simple software for hotels to just manage reservations. He created so quickly during the program and they ended up finding this model where they can partner with the hotels and really bring a whole operating system to digitalize their offering to connect them to direct channels and really raise the quality of experience for the guests. They’ve been through a whole process of raising a Seed round, a Series A, and we’ve continued to work very closely with Aydenda, and now we’re super proud of everything that they’ve done. I believe they have 400-500 hotels right now in their chain, they’re the biggest hotel chain in Colombia. I think they’re almost about to beat even the one in Peru. They have hotels in Mexico. It’s interesting because just as we are celebrating 10 years of doing what we do in the region, I’m also celebrating 10 years of experience of knowing Andres and having seen him go from having learned to do some stuff from YouTube and trying to do his own websites, to suddenly leading an industry on how to change. It’s very impressive.
Shereen Abdulla
Latin America experienced record funding last year, and funding appears to remain strong in Q1 this year, compared to Q1 last year, according to the Association for Private Capital Investment in Latin America. Now, the region is experiencing high levels of inflation — Santiago, what’s the outlook for funding this year, especially for early-stage?
Santiago Zavala
I mean, it’s a super good question. When we started, there was very little funding and through all these years, we’ve seen how this slowly has grown every year. Last year was crazy, [it] just was amazing growth, and a lot of people — of course, we see an adjustment right now in the venture capital industry, globally, caused by many factors and that is going to have a lot of impact on how we look at companies and how aggressively we want to grow, versus really building a business that is sustainable. There’s all these different conversations, but even with that, I believe that even with the growth of last year, if you look at the percentage of users on the internet coming from Latin America, if you see the percentage of the population of the world that is Latin American, we continue to be sub-invested to the global venture capital landscape. So, even though the industry is definitely changing and we might see a slowdown, the reality is just that the opportunity is so huge in the industry, in the region, the entrepreneurs are there and they are building the companies, so I’m sure that will continue to find people who want to be part of these stories and participate in the industry.
I think, especially in the early-stage, we’ll continue to see a lot of funding and that’s the energy that continues to push the whole, different stages as companies get to milestones and they get really good stories. It’s definitely going to be a challenging moment for everyone, because we have to really bring the best that we can and build great companies. But I’m very bullish that we’ll continue to see growth in funding. Especially in the early stage, I think people have finally understood there’s this unstoppable energy from entrepreneurs that, paired with technology, can bring better solutions to a market, and that’s not going to change, no matter the inflation or no matter what happens with the global venture capital industry. So, I’m very bullish.
Shereen Abdulla
And how are you helping founders during this downturn?
Santiago Zavala
The last couple of years have been very, very weird because it really reminds me [of] this opening [of a] book that says, “It was the best of times, it was the worst of times.” Because with the pandemic, we went through a whole cycle of going through, with every company, and trying to understand how are your finances [are] looking, how can we weather this storm, how do we adapt to this reality, and now we’re doing that cycle again. And luckily, a lot of the companies in the portfolio, they’ve had, I would say, healthy business models. [With] this DNA of funding not being easy to get, it’s been relatively easy to extend runways and try to be less ambitious on growth and try to have paths to profitability. But I think, specifically, the way that we’re helping is being there and trying to have the conversations, trying to bring more — a 360 view to their business. We’re looking at a portfolio of 250 companies that we’ve invested, some of them have failed, but let’s say 190 companies. So, we have a lot of data and sensors around how different industries are feeling that we can just bring that perspective. Sometimes that helps be more pessimistic; hopefully, at some points, it also helps me be more optimistic and have more confidence that we are seeing those clients be more digital because of inflation and just any kind of crisis. It brings more sensitivity to prices. Obviously, technology brings efficiency, so we should be able to compete with prices and really bring better solutions to the customer. So that’s what we’re really trying to bring.
Shereen Abdulla
And are there any trends that excite you, going forward?
Santiago Zavala
Absolutely! Every couple of years, we see a couple of industries that start to shift and change, and start to get really excited about. Right now, I would say that, for me, it’s digital health. We started during the pandemic when some investments like Terapify, and Pura Mente, and Yana that have mental health as a value proposition for the mass market. We started to see people really opening up to get these solutions through apps and remote consultations. And then, we’ve been slowly building a portfolio, and now there’s some very interesting companies in the portfolio like Clivi doing diabetics tracking. We have Plenna, which is specifically for women with a mix online and offline offering. We’re seeing Tani and many other companies that we’re investing in.
What I think is happening is that consumers now are used to getting value through applications and getting transparency of what’s happening. You can imagine people getting used to getting an Uber or getting food through Rappi and suddenly they go to the digital, to the health system, and it’s all offline. You have to call someone, and you have no idea when something’s going to happen, and everything is hard. And you know, you soon bring a new experience to an app and the customers are like, “Yeah!” And if we can help with this to build more capacity to the system, I think it’s going to have a huge impact for the region. I’m really excited about digital health.
We’re seeing downstream capital also start to be open to these kinds of investments. A couple of years ago, we would bring them and they would say, “No, that’s too complicated of a process, you need to sell to hospitals and the governments.” It’s very exciting, and I think, we’re going to be doing a lot with that.
The one that it’s been a little bit harder to tackle, but I’m still early — we’re early investors, we have to always be there before everyone else — but, definitely, we think that the agtech industry is definitely also going to be transformed in the next years in the world, and obviously in Latin America. So that’s another one that we’re closely watching, but that’s a little bit before it happened. I feel it’s just about to start happening.
Shereen Abdulla
At the brink of things.
Santiago Zavala
Exactly!
Shereen Abdulla
And, Santiago, what’s next for 500 LatAm?
Santiago Zavala
Immediately, right now — in this specific moment of time — we are still deploying our third fund. We have at least 50 new investments, so that’s a little bit over a year of us just deploying capital, and we’re 100% on that. So, we’re looking for companies for Batch 17 right now and we’ll do three more batches of the program. So that’s going to be — that’s going to take us all the way to 2023. After that, between every fund, we get an opportunity to think how do we continue to adapt to the region. It’s going to be very interesting to see, as we see these shifts in the industry — how do we really rebuild ourselves to the next iteration of what the ecosystem needs? And it’s — that’s a very exciting moment for us to be because, as I mentioned, I feel like the last 10/11/12 years of being in venture have been a lot of exploration and I feel we have a really clear idea of what the companies need, specifically in this stage. And now, getting a little bit more data, this shift of the industry, it’s going to be very exciting to be able to spend that time and really design something for what’s needed in this next future. For the current fund that we’re deploying, we added the follow-on capacity. So we used to only do first investments, now we do first investment but we can do in some companies follow-ons, which is very exciting for us and it’s been a very interesting way to continue to be more relevant with the companies for longer. I can definitely see that as a path that we want to continue expanding. If we can do that, specifically cater for the industry, for the region, and specifically knowing how the shift of the industry ends up going, I think it’s going to be really exciting.
Shereen Abdulla
We’re going have to see what the next 10 years hold. Santiago, thank you very much for your time. It was wonderful to have you on the show and I really appreciate you coming on.
Santiago Zavala
No, no, no, thank you. This was super fun.
Shereen Abdulla
My pleasure.
