# 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 20VC · Sep 23, 2022 · 50 min · 11,110 words Speakers: Harry Stebbings, Julio Vasconcellos Source: https://www.996.fm/episodes/20vc--ep-25bd8382/ ## Cold open **Harry Stebbings** [0:00]: Welcome back to 20 VC with me, Harry Stebbings. And last week, we had an amazing episode with Seba, CEO at dLocal, the $8,000,000,000 company from Uruguay that you might not have heard of. And today, we're back in LatAm as our guest today does an amazing annual report, the LatAm digital trends report released on Wednesday this week, and so you can check it out now on the website 20vc.com. And so with that, I'm very, very excited to welcome Julio Vasconcellos, founder and managing partner at Atlantico, one of the leading early stage funds in Latin America. And prior to the world venture, Julio got his break in the world of startups as Facebook's first country lead for Brazil. Julio then went on to cofound Peixe Urbano, a company he scaled to over 1,200 employees and a $100,000,000 in revenue. Post the sale of Peixe Urbano, Julio became an EIR at Benchmark Capital, where he met the wonderful Scott Belsky. Scott and Julio went on to cofound Prefer, a benchmark backed company transforming the future of work. And if that wasn't enough, Julio also has a stellar angel track record with prior investments in the likes of Ipsy and Quinto Andar. And this schedule was a team effort by some of the best in the business. Check this out. Mickey Malka, Scott Belsky, Hugo Barra, Andy Rachleff, Enrique at Brex, all helped with some amazing questions, and I so appreciated that. But before we dive into the show today, ## Sponsor read **Harry Stebbings** [1:13]: I wanna talk about an incredible tool that I use every single day, Notion. 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First, mobile optimized websites. All websites are optimized for mobile. Content automatically adjusts. So it just is really beautiful on any device. Second, email campaigns. Squarespace makes it super easy to grow and engage your audience with Squarespace email campaigns. Say what? No other provider needed? Amazing news. Finally, SEO tools. Squarespace takes the guesswork out of SEO, so you'll get found in search by more people more often. And if that wasn't good enough, go to squarespace.com/20vc for a free trial. And when you're ready to launch, use the offer code two zero v c to save 10% off your first purchase of a website or a domain. But that is enough for me. So now I'm so excited to hand over to the wonderful Julio Vasconcellos, cofounder and managing partner at Atlantico. Two one zero. You have now arrived at your destination. ## Conversation **Harry Stebbings** [3:52]: Julio, this is such a joy to do. When you sent me the names of people that I should speak to before the show, I mean, we had Hugo Barra, what a hero. Mickey Malka, I mean, the most wise man in venture. Scott Belsky, product OG. And Andy Rachleff, one of my heroes. So thank you so much for joining me first today. **Julio Vasconcellos** [4:08]: Thanks for having me, Harry. I mean, I'm a huge fan of the show, so I think it's gonna be a lot of fun to be on. **Harry Stebbings** [4:12]: Oh, it's gonna be great. We have so many great topics. The schedule is quite long, so I'm excited for the discussion. Tell me, though, how did you make your way into the world of venture and how did you come to found Atlantico most recently? **Julio Vasconcellos** [4:24]: So the cliff notes on me is that I've spent the last fifteen years or so mostly as a founder and operator, half that time in Silicon Valley, San Francisco Bay Area, and half the time down here in Brazil. When I was an operator, I think similar to a lot of folks out there, I started investing, right? It was first as an angel investing. This is over ten years ago. Ultimately, over time, started to fall in love with investing. And ultimately, I wrapped up my last company a few years ago, I decided to just dive head first into investing and build that fund that I always dreamt of having when I was an operator and entrepreneur. And that's what Atlantico is today. I'm originally from Brazil, so it seemed to me to be quite obvious to go all in on Latin America. I think it's probably one of the most exciting regions in the world. I felt like I obviously had a personal edge being here and having started a company down here. And I think today with Atlantico, we've built what's one of the leading early stage funds in the region. And I think we're still in the early days of building what we think is going be the dominant venture firm for Latin America. **Harry Stebbings** [5:20]: I have so many things I want to unpack from that, but, like, we have brilliant and beautiful chronology to your career. And so I'm gonna stick to structure because it's actually, I think, gonna be the best way to do it. So if we unpack first, running Facebook LatAm. As we said, Facebook LatAm, you were really the first person running it. How did that experience impact your mindset? And there are one or two big takeaways for you from that experience. **Julio Vasconcellos** [5:42]: I joined Facebook at the end of two thousand and nine, actually early twenty ten. That's when they shipped me down to Brazil to really focus on driving growth in Brazil. And as a reminder, Facebook had something around a million users at that time in Brazil. And our biggest competitor, which was Google's social network, Orkut, had over 35,000,000 users. So I was shipped down by the growth team and said, look, go and figure this out and kill Orkut and make things happen. So I was everyone from the intern to the CEO to the secretary to the janitor of Facebook Latin America. When I think about the main learnings I had of working at Facebook, I would say that the first one is about just the power of product market fit. When you're in 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. And if you don't have it, to take the flip side of it, it doesn't really matter what you're gonna do because you're never gonna be able to achieve great. So I think that's probably point number one is how dominant and important that kind of product market fit can be. I think that the other thing I learned, which I still carry to this day as an investor, is just the overwhelming importance of a founder's vision. Mark Zuckerberg, probably chief amongst many tech founders out there, is just an amazing, compelling founder with just a huge vision that helped serve to unite everyone and really sort of drive and motivate this amazing team that Facebook had created in the early days. And I think that that's probably the single most important thing a founder can have. And one of those things that anyone that's not a founder can never have is really have that authority to create and shape and communicate that vision in a way that drives the team. **Harry Stebbings** [7:15]: I am actually gonna fuck the schedule up here because those are too important for me to dig in on. You said there about kind of the power of product market fit and actually how almost it can hide a lot of sins. I always get back and forth on really what comes first, a great, great market with mediocre founders or amazing founders and maybe mediocre or challenging markets. How do you view the centrality of markets when investing today given what you said about product market fit really solving a lot of challenges and sins? **Julio Vasconcellos** [7:43]: In my view, market comes first. And I think if you have the right model and the right product in that market, I think that's more important than ultimately the team. That's not to say that the team doesn't matter. I think in a lot of cases, do have a lot of competitors and actually the team's ability to navigate and try and eventually find that product market fit is actually probably the biggest driver to building that model. But once you've found it, I think everything else falls into place and your ability to hire people that are better than you, build an amazing management team, and scale things up is really critical. In my experience, when you do have that unique experience, your ability to close the best clients, raise the best funds, bring on the best team, everything else kind of just falls into place once you have that kind of growth curve and that kind of traction. **Harry Stebbings** [8:25]: I do want to move into Peixe Urbano, which I hope I said very elegantly and correctly. But I want to start there. A question from a mutual friend Hugo Barra. He said at the start what was the kind of Groupon clone Gold Rush. And what was that like? And what's your favorite memory from that time? **Julio Vasconcellos** [8:41]: Yeah, just to give you a sense of the breakneck speed that we were going with Peixe Urbano. I probably worked one hundred hour weeks for two years straight. So it was both exhilarating to have that kind of growth and that kind of traction, but also exhausting, right? You're just sprinting a marathon and it tires you out. You have a lot of adrenaline to keep you going, but it definitely tires you out. And to give you a sense, we started myself and my co founder Alex working out of his living room and his apartment in Rio De Janeiro in Brazil. And, you know, fast forward two years later, we were over 1,200 employees, president in six different countries across Latin America. The company was doing over $100,000,000 a year in, you know, net revenues. Very large company in every sense of the word in a very short amount of time. One of the things that probably is most memorable for me was probably one of the first offers that we put live on the site. This is probably the first or second month of the website, but we just started selling so many coupons of that particular offer. I remember we would press refresh on our keyboards on the browser and the number would go up by three, it would go up by five, it would go up by ten. But these weren't cheap offers that we actually thought that there was a big bug. And I remember Alex kind of went in and thought, hey, we've been hacked, something is happening. But in reality, it was true. Know, kind of reminded me a lot of, I think that early Amazon story of the bell ringing every time you made a sale, ultimately they had to turn off the bell. I think we were in a similar situation where we ultimately had to stop pressing refresh and just believe we had landed on this model, which was the Groupon model from abroad that had this amazing product market fit and it could kind of just grow as fast as you would be able to pour fuel on it. **Harry Stebbings** [10:08]: Can I ask, when you're growing that **Julio Vasconcellos** [10:09]: fast, what are the first things to break? When you're growing that fast, you're bound to make a lot of mistakes. And I think it's important to grow fast and make mistakes because it's the only way that you can move so fast. But it's also important to just be cognizant that you're making those mistakes and you're going to have to clean things up. I think there's some types of mistakes that you really can't make, right? That you really can't compromise on. Can't compromise on culture, can't compromise on the people you hire and the way that you treat them and the way that they behave. But I think there's a lot of problems that you end up solving by just throwing more bodies at them. Those typically are the first kinds of problems or the first kinds of things that you break. Processes that probably should have been optimized and you probably should have solved through software. But while you're building those software solutions, you probably ended up hiring 20 or 30 people to kind of keep pressing keys on a keyboard and solving them. And ultimately, when you have anything that's so people heavy and so mission critical, it's bound to break, right? The site's going to go offline and it's your responsibility as the CEO and the founder to ultimately go back, clean that up, have a more permanent solution that can deliver the same kind of effectiveness at a much higher level of quality. **Harry Stebbings** [11:13]: You also expanded into multiple different products. We mentioned kind of the Groupon clone, which is very unfair labeling in the early days, but it expanded well beyond that. How do you think about and advise founders on when is the right time to expand product lines and add second and third and fourth products? **Julio Vasconcellos** [11:28]: So when we launched Peixe Urbano, back to the question of the topic of vision, our vision was to build the ultimate local services company in Latin America. And we started with the Groupon model for daily deals, and then subsequently we launched a food delivery business, a restaurant reservation business, a local content business, kind of really executing on that overall vision of what we wanted to build. I think that what we got wrong is that we probably did that too early. What I would tell founders is that you have to pick one market and probably one market and one customer, and you really have to nail it and you really have to win that market before you move on to the next one. I think trying to fight a multi front war and trying to win multiple markets at once, especially in a hypercompetitive market like the one we had, is a recipe for disaster. So what we always tell our founders is look, focus on one geography, one product, one customer, win that, and then go on and move on to the next one. Don't try to do everything in parallel. Think focus is probably one of the most important and often underrated skills in a founder and importance in a startup. What does winning a market mean? What does that actually mean in reality? It means achieving a level of excellence and market share and barrier to entry that a new competitor can't easily come in and undermine you and sort of steal market share. Oftentimes it's about building those competitive moats, making sure that they're strong enough that no one can easily come in and sort of dethrone you. And a lot of times it's just getting to sort of the market share or getting the network effects to start kicking in in a way that sort of the acceleration curve is very clear that as you grow that that moat or that competitive advantage is only going to get greater and no one else is going to be able to come in there and reliably challenge you in a way that you should be worried about. **Harry Stebbings** [13:04]: We mentioned the incredible hyper growth there and scaling to a 100,000,000 in revenue, 1,200 people. Then challenging times came. Enrique actually at Brex asked this and he asked you, when you look back at that journey, what are one or two elements that maybe you made mistakes on that caused that sharp decline in company performance? **Julio Vasconcellos** [13:22]: It's great that you spoke to Enrique. He's a good friend. I think I met him when he was probably 16 or 17, starting his And first company in it's a great question because I think that we made a lot of mistakes. 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. All those things ultimately started to consume cash and probably more importantly, to consume management attention and management focus. We eventually had to pay that bill, right? That eventually arrived when the market as a whole, and I think sort of this is a global phenomenon, showed that that daily deal model wasn't as great and wasn't as sustainable, honestly, as the entire world had thought. And when that market started to fall from under us, we had a lot more fronts to fight on. We had a lot more fires to put out. And a lot of that was just because we had expanded and we had so much surface area that we were operating in that it was much harder to balance all those things and get the company back to profitability. **Harry Stebbings** [14:16]: But Mickey asked a great question, which was, if you had the time again and you were starting a company today in Brazil, what would you do differently? And who would you partner with? And who would you not partner with? **Julio Vasconcellos** [14:26]: I think we had really amazing partners at Peixe Urbano. Right? We raised our first round from Benchmark Capital. I went on to start another company and raise money from Benchmark Capital again. So I've definitely done that before. I think even our growth investors at General Atlantic and TRO, what was most important there is that not only were they helpful supporting us when we were hyper growth 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, right? And they're supportive to make sure that we did well. How did they help out when times were bad? Just to give you one example, we had several fundraising and M and A conversations that were happening throughout our history. And at times, we were just short staffed to be able to handle all these requests and all these things that we needed. I remember very clearly that GA sent in a couple of analysts that they basically lent us to come work with us for a couple of months and help us organize our finance team and a lot of our reporting. I remember also with T. Rowe Price at the time, it was Henry Allenbogen that was running the private investment team there. He helped get us in front of some pretty critical partners globally, both from a M and A standpoint, from a fundraising standpoint. Think really kind of opened up his Rolodex and helped us open some of these doors when we most needed them. When the investment wasn't an important investment for them anymore, it was a fairly small one when you consider the size of their fund, and it was one that was on the rocks. And even then, he was using his reputation and I think really going to bat for us as far as being supportive of the company. **Harry Stebbings** [15:56]: You mentioned Benchmark there, Such an iconic institutional firm. Obviously, you became an EiR there, which is where you met Scott. But how did that experience with Benchmark impact how you think as an investor? **Julio Vasconcellos** [16:06]: I'd say that there were probably two things that I took away from watching the best of the best kind of doing their thing at Benchmark. And I think the first one that was really striking to me was just the incredible level of focus they had. Right? 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 and being sort of the supportive partner that these founders want, that focus and the ability to say no to many other things that might come up. They don't raise the opportunity funds and the growth funds, they don't do SPACs. They're kind of just focused on what they do best and they're the best at it in the world. And I think we at Atlantico have tried to steal a little bit of that playbook and try to be entirely focused on early stage and being the best at it. One of my mentors once said that greed is the number one enemy of returns. Being greedy and kind of expanding your fund or expanding your strategy into multiple different things that maybe you're not the best at probably is short term profitable, but sort of long term, I think really chips away at what you're doing. I think that benchmark focus on the long term and that focus on being the best in the long term is something that really stuck with me. **Harry Stebbings** [17:08]: Can I just dive in there? In terms of like focus and knowing where your knitting is, I have Bill Gurley on the show a year or so ago, and he mentioned that public markets activity now. And my question to you is one of, I totally get you in terms of the importance of focus, but you also have to move with markets. How do you think about that balance of know your knitting, but also seeds are now what series a's were, series a's and what series b's were, and actually there's fluidity to the ecosystem we inhabit, and you have to move with it. How do you think about that dichotomy? **Julio Vasconcellos** [17:39]: Part of focus is knowing what you're good at, and knowing what you're good at doesn't necessarily mean abiding by labels that the market has put out there. Right? So just because something is called a seed today, but it used to be called a Series A in the past, You have to be very clear to yourself and to your investors and to your founders. What's the stage of life of a company that you're most effective in? Benchmark has always been an early stage investor. I think early stage in the past meant Series A's and early stage today means seeds. I think that's how they've evolved. They've been very true to the underlying nature of what they do and what they're good at. As the market has shifted around, they've shifted around with that market but still continue to double down on what their edge is. You met **Harry Stebbings** [18:20]: Scott Belsky while at Benchmark and you guys started Prefer together. I do wanna touch on this experience. I again spoke to Hugo, he said, ask this one. What were your biggest lessons from the Prefer journey and not getting to product market fit there? What did you take away from that two to three year journey? **Julio Vasconcellos** [18:36]: 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 Pay Share Banno, how important product market fit had been there and how lucky I was to be in those places because finding true and amazing product market fit is so hard and it's quite rare. And I think I underestimated the difficulty of doing that in such a complex market as the one that we attacked. And I thought that I'm going to get together with Scott, get together with these other great co founders, and we're going to iterate and try a bunch of things and eventually get there. But we never did. We hit our head against the wall for three years and tried a bunch of things until eventually we ran out of steam. I think one thing that Scott always told me to do, and I think that if I could do it over again, I probably would have listened more to him, is just how much time we spent on each iteration of the product. I think I always had the mindset of try things out. If they don't work out, iterate, kind of throw away the product, just kind of this very rapid iteration, test and repeat mindset, which I think had served companies like Facebook well, had served me well at Peixe Urbano. I think Scott is much more of a craftsman, right? Much more of a product builder. And we ended up somewhere in that spectrum of move fast and break things and build sort of the most beautiful, polished and crafted products. That was probably a little bit too much on the rough side. We probably just didn't give enough time to some of the versions of some of the things that we tested, much counter to I think what Scott probably would have done. And I think that's probably what I would have done most differently if I were to do Prefer again. **Harry Stebbings** [20:01]: What are you favoring founders today in terms of their product strategy? MVP, iterate, customer feedback, test, ship, test, ship, or do you prefer the craftsmanship, the beauty of product design, really stressing the details? **Julio Vasconcellos** [20:15]: I still have my own personal bias to like the scrappy founder that iterates and try things and sort of very numbers based. But I think today, especially after the experience with Prefer, I've gained a much, much higher appreciation for the craftsmanship, I think that, you know, Scott Belsky always advocated for. And maybe I was 10% craft and 90% scrappiness and iteration. And now I'm probably sixtyforty, you know, I'm a much more still on the scrappy side, still on the iterative side, but I still see the value of great design, great experiences, greatly crafted products, being able to craft that early nut that is product market fit. **Harry Stebbings** [20:48]: I want to ask post Prefer, you then obviously start Atlantico and you'd been investing for the last decade or so. And during a lot of what we discussed, you've been investing as an angel as well. When you think about the transition from angel to institutional investor, how did your mindset shift when making that transition? **Julio Vasconcellos** [21:05]: When you're investing your own money, you have the luxury of investing in things just because you like them. Maybe it's off strategy, maybe it's not your focus, but you like the founder or you like the idea. And what changes when you're investing other people's money is that when you go out there and you raise a fund, you promise a particular strategy in a particular area of focus. Now it's your responsibility to deliver on what you sold, right? So you can't go off and say, I'm going to raise an early stage fund and start making growth investments or sort of seed stage investments. You really have to be able to deliver on what you sold. I think that's important to LPs, the consistency in what you sell and what you deliver. So sticking to that strategy that you outlined. Think the other thing also is that as an angel, have a lot more leeway to be a friend to the founders. And you can be a little bit more of a cheerleader. You can have a little bit more fun with them as people. But But I think that once you're investing other people's money, you're really there to maximize returns. You're not there to be a founder's friend, but you're there to help that founder win. And sometimes helping that founder win may be uncomfortable, right? It might involve giving sort of harsh but constructive feedback. And I think you need to be able to be a little bit more cutthroat to some extent in the way that you partner up with founders and help them be successful in a way that's not always pleasant for everyone, but it's the way that maximizes the return for your investors and ultimately maximizes the return and the outcome for that founder. What are the most common ways that you find you have to be cutthroat? Sometimes it's just about giving feedback that the company is going down the wrong path. It's just about putting up a mirror in front of that founder and making it clear that they maybe don't have product market fit, that maybe what they think is working really isn't working, and kind of bringing reality down. And I think that founders are optimistic by nature, and they think things are going well, and they're gonna end up well, and sometimes you just have to say, look, this isn't working. You have to try something else, and maybe you have to make cuts, maybe you have to pivot, maybe you have to fire your co founder. And making those decisions are tough. And sometimes when you're stuck in the day to day, you may not be able to zoom out and see the big picture in the same way that maybe an investor might. And it's my role as an investor to be able to help the founder see the big picture and make those tough decisions. **Harry Stebbings** [23:09]: For me, it's twofold. One is, like, inputs and outputs. So many people focus on MRR. It's not about MRR. It's about seed expansion, number of new projects. Like, your MRR is your output. Your inputs are what drives it. Focus on the inputs. Do you know what I mean? And then the storytelling and the branding, just find to stay woeful, which is something that I'm obviously very passionate on. Can I ask you one? What do you do when you lose confidence in a founder? When you don't believe that Julio is actually right for this company anymore? **Julio Vasconcellos** [23:37]: It's a great question. You definitely do at times have more confidence in the founder's ability, and then that that confidence goes goes low. But what happens when that confidence goes to zero? What is your responsibility as an investor is to have that honest conversation with the founder and tell them, look, I think that maybe you're not the best person for this company, or maybe you're not the best person to kind of get to product market fit or sort of turn us around. You may not be the best CEO. You may not be the best executive. Hopefully through an objective and frank conversation, the founder agrees with you and thinks that the best path for the company might be changing the executive team or changing the leadership team. And if ultimately he or she doesn't agree with you, you may just need to part ways. Whether or not you're able to replace the founder and bring someone else in is a separate topic. But if the founder doesn't want to hear you and you're not aggregating any value and you're getting along well, it might make more sense for them to bring on some other investor onto the board and to bring on some other investor as an advisor. But I think the importance is for you to be transparent, for you to be frank about that conversation, and try to find something that's going to be the best for the company and ultimately all the shareholders. Julio, **Harry Stebbings** [24:40]: do you think boards add much value? **Julio Vasconcellos** [24:41]: In my experience, having a moment where you bring in different investors and different advisors together to check-in and talk about strategy and talk about direction, that conversation is valuable. Whether that has to happen at a board meeting and whether it has to happen sort of in the formal construct of a board of directors, I don't think so. I think a lot of the most valuable conversations I've had and strategy planning conversations I've had weren't in board meetings. I don't think that they are necessary elements of having those important strategic discussions and conversations that guide a firm. And that's a little bit of also why I think that being formally on a board or listening only to your board members isn't necessarily as important as I think a lot of investors make it out to be. As a founder, a lot of the people that helped me the most weren't on the board. You mentioned Mickey Malcolm. Mickey Malcolm started as an angel investor in Peixe Urbano. He's probably one of my greatest mentors. He eventually joined our board, but he probably added as much value before he was a board member as after he was a board member. I'm a believer that getting the right people to discuss the company's future together is important, but I don't think that needs to happen within the construct of a board. What makes Mickey so good? Mickey has the empathy of being a founder that has seen a lot of success, and he's also seen a lot of failure. So I think he really understands the life in the trenches. And I think that empathy for what it's like to run a business is critical and is probably one of the things that is most underrated and is probably least present out there when you talk to investors. And a lot of times what you need is psychological, right? You need to get the founder to have the right mindset to be thinking about how to break out of a particular rut or break through a particular challenge in their business. And that's much more of a mental game than a tactical game. And having been there and be able to empathize and kind of connect with a founder psychologically is critical. People like Mickey that have been there are really able to do that. **Harry Stebbings** [26:28]: How was the first fundraise for Atlantico? It was earlier than it definitely is today from an ecosystem perspective. How was that first fundraise? **Julio Vasconcellos** [26:35]: It was slower than I expected. When you're trying to get a first time fund off the ground, things just move slow. Think people want to understand your strategy, want to understand what your edge is. And that requires, I think, more conversations than you would normally need to have once you already have a fund with an established track record. That said, I think we were very lucky that I personally had a very strong track record as an investor prior to Atlantico, and I had a pretty extensive operating background that I had met a lot of people, and I think a lot of people that were willing to make a bet on me as a person, and me as an investor. So we were able to get the fund off the ground, but it definitely took longer than I expected when I first sought out to go raise the money. How many conversations did you have? How long did it take? Definitely hundreds of conversations. It took me a good maybe six months when I said, look, let's start raising this fund and did the first close. So, yeah, it was very time intensive. It required meeting a lot of people. It required, you know, hearing a lot of no's before we eventually got the fund off the ground. **Harry Stebbings** [27:30]: Is there anything you would do differently with the benefit of hindsight? And how do you advise managers today raising a first time fund? **Julio Vasconcellos** [27:37]: The main thing I would advise a new manager is just that there's no shortcuts. Like I said, it took me hundreds of meetings, and I think that's just the way it is. I don't think there's a shortcut to raising a fund magically. It requires hearing a lot of no's and trying to find honestly what the right product market fit is for your fund, right? Who are the people that want to back you and who want to back this strategy? And once you find them, just look for more people like them. I think start out with people that know you and that trust you and are willing to make a bet on you as a person. And then try to have other people that think in a similar way than they do and kind of go and expand in that way rather than I think try to follow any formulaic way for for getting a fund off the ground. **Harry Stebbings** [28:13]: With every committed LP, I always say, hey, ask for three subsequent ones. Build a flywheel in your LP acquisition funnel. Like, if they've already committed, they're incentivized to help you get it off the ground. Julio, I'm so grateful for your support. Who would you recommend that I speak to? Oh, you should speak to x, y, and zed. Fantastic. Would you make the introduction? Yes. Of course. I do wanna ask. I spoke to Andy Rachleff before this, obviously, of Benchmark and now Wealthfront. And he said in terms of your LP letter, the first strategic positioning of your LP letter was rather jarring for your LPs. Why was it jarring? How did they respond? And how did Andy respond? **Julio Vasconcellos** [28:48]: Andy's been a long time mentor of mine. And I think that what he's referring to was one of the early letters that I think I wrote something along the lines that, you know, our goal is to win. Right? Our goal is really not to miss the next huge hit, and it's not to minimize losses. And I think some investors, especially some more traditional investors, kind of reacted a little negatively to that idea of not trying to minimize losses. And I remember having this conversation with Andy and him just saying how it just never ceases to amaze him, the number of people in venture that play not to lose, and how you really can't win by playing not to lose. I think that really stuck to me. And I think it's something that I had a little bit of my gut instinct, right? That you have to play to win. You don't have to play not to lose. How did Andy react to that? I mean, actually then, at that point, decided to kinda double down on his investment and kinda putting a pretty big check, at least for us, into our new fund. So it was great to have his vote of confidence behind that strategy. **Harry Stebbings** [29:39]: So this is my point. If we think that outcomes are so much bigger than we could ever have expected in our biggest companies, it could be your MercadoLibres. It could be your d locals. It could be you you name it. But that's so much bigger than we ever expected. You should have a very diversified strategy. You should have as many lines as possible because the outcomes are so much bigger. And actually, just being in those companies is all that matters if you have a small enough fund. How do you think about that it only matters to win versus the concentrated picking craftsmanship approach? **Julio Vasconcellos** [30:09]: So everything is a balance. So I'm definitely not advocating for you to have three positions that you go all in on and kind of really think that those are the ones. But I do think at the early stage, it's just so hard to pick the winners. I think it's so hard to say this company is going to be the next Mercado and Libre. But I do think that you can narrow down that universe and say, look, I'm going to build a portfolio of 20 companies, which is, you know, in early stage ventures, a more concentrated portfolio. Although I don't know which one of these 20 is going to be the next MercadoLibre. I know that one of them is going to be the next MercadoLibre. And I don't think you need to go and build out a portfolio of 100 companies to do that because you do at that point start diluting your returns. I think you start diluting your time, start diluting your attention. So what's the right balance? And I think for each fund and I think each manager and each geography, honestly, that balance is a little bit different. **Harry Stebbings** [30:56]: How do you think about reserves management? If you actually run the numbers, I believe strongly that actually it's better to have more lines of diversification than heavily reserve. How do you approach reserves management and concentration of capital? **Julio Vasconcellos** [31:08]: Our goal is to be the number one venture capital fund in Latin America. And we've defined that by saying we're going be the fund that's going to return the highest multiple on capital for our limited partners. And for you to be able to return the highest multiple on capital, something very similar I think to what Benchmark aims for, you need to concentrate a lot more capital on that first check. And you need to operate with thinner reserves than what is typical. So to give you an example, an early stage fund today probably reserves about half the fund, right, for follow ons. Probably a typical number you hear. In our case, we reserve 25% of the fund, right? So we're much, much thinner. We try to have more bets. We try to concentrate more on those bets once we have that level of confidence. **Harry Stebbings** [31:44]: When you think about being contrarian in venture, I spoke to mate, obviously, at Loft, and he said about you being a contrarian thinker. And everyone kind of bandies it around kind of bullshit often, but he said he really is. How do you think about yourself as a contrarian? And does it make sense to be a contrarian inventor anymore? **Julio Vasconcellos** [32:02]: I would describe myself much more as an independent thinker. So we aren't necessarily seeking the next hot deal just because the market is chasing it. And I think that sometimes that approach leads us to non consensus investments, right? And from the outside, it may seem like it's a contrarian investment, but that's really a result of our process, not the goal of our process. But just to also get the hook that you left there. I am particularly happy when our process leads us to a non consensus view, because I do believe and maybe some people think this is outdated, would disagree with them. I do think that the best returns still are those non consensus and right investments, the Howard Marks two by two matrix. And I think I've heard a lot of times that, look, in venture, you might need to look for consensus investment because someone has to go in there and they have to follow you on. They have to mark up your deal. That's a very short term strategy if you want to have a lot of great paper markups and hot deals. But if you're investing for the long term, you're trying to build a company that's going to be massive in ten years. I think you really need to be able to be kind of a bottom up thinker. And I think you have to go into companies sometimes that no one else wants to go in that ultimately prove the world that they were right and you by extension, were right and end up being the really massive returns that we're going be able to see. **Harry Stebbings** [33:10]: Julio, what was your biggest hit from an investing standpoint? Could be with Atlantico or as an angel. And how did it impact your mindset? **Julio Vasconcellos** [33:17]: My biggest hit, either an angel investment in Ipsy up in The US or in Quinto Andar in Brazil. Both of those were probably around 100x returns, maybe even more than 100x returns, but they're massive returns. When you make those investments and eventually that money hits your bank account, I think it really solidifies the importance of the power law in venture, right? And these asymmetric returns that exist only in venture capital and only in the early stage. What it's done to me as an investor is to think about how do I get into these massive, massive category defining companies that are probably coming around in Latin America once every couple of years. I need to be able to get into those because that one hit, return is probably going to be more valuable than the sum of all the other investments that I'm going to make in that fund. And that's all that matters really to be successful in the early stage. On the flip side, what's the biggest miss? And what did you take away from that? I'd say the biggest miss I had was not investing at the seed round of Snapchat. Just to give you some context, at the time, used to invest with a bunch of friends from both Stanford and Facebook. And one of my friends had Evan as a student in his class and had sort of gotten a glimpse of Snapchat. And because some of our crew still worked at Facebook at the time, we had to run it by Facebook Conflicts Committee. And I remember Facebook Conflicts Committee said, oh, and you guys can't invest this because it could potentially be competitive. And there were a couple of ways we could have done outside that, or some of us could have done it individually, but we kind of just backed off from it. We said, Oh, this whole disappearing messages thing doesn't make any sense. Sure, the numbers are kind of just off the charts, but let's forget about it. It's probably just a fad. And I think we didn't insist on it, and we didn't insist on going in the deal once we had the sort of that that no from the conflicts committee. And then, that probably would have been the the best investment I would have ever made. **Harry Stebbings** [35:04]: Yes. **Julio Vasconcellos** [35:04]: I'm **Harry Stebbings** [35:05]: sure it would have done. It goes back to that kind of undeniability of product market fit. I do wanna talk about LATAM there because you said about kind of being in the winners and especially in the region is kind of really all that matters. If we think about LATAM as an ecosystem, I think a lot compare it to The US. And when we compare it to The US and the COVID boom and tech adoption that we saw in The US, how does it compare as an ecosystem, LATAM versus The US? **Julio Vasconcellos** [35:27]: Let's talk about the ecosystem and compare it, but then let's also talk about the COVID boom, as you mentioned. We every year publish this Latin American digital transformation report, which is a little bit of this Mary Meeker's Internet trends for Latin America. And one of the things that we publish every year in that report is something we call the Atlantico Digital Transformation Index, where we try to compare the level of tech penetration that exists in different markets around the world, obviously, including Latin America. And what we see, and this is coming out in this year's report, is that when you look at that tech penetration index in a more developed country like The United States, that's around 52%. Even if you look at China, that number is 20%. You look at India, it's 15%. But when you look at what the tech penetration level is at Latin America, it's 1.5%. Even Brazil, which is more advanced, is at 3%. And I'm not here to say that Latin America's 1.5% is going to be the 50% that we see in The US. But I do think that it's very likely that it'll eventually catch up to where India and China are today. We're talking about sort of a 10x increase in value there. And any of these kind of catch up opportunities, we're talking about value creation that's measured in the trillions of dollars. So we talk about massive amounts of money, obviously, that are not going to be created overnight. But over the next decade, that's ultimately why I decided to focus my career on Latin America. And that's the macro long term picture. **Harry Stebbings** [36:45]: I totally get you. In terms of the COVID boom, how is it different? **Julio Vasconcellos** [36:48]: So what's happened in the COVID boom when you look at The US is that you had this massive acceleration of digital adoption for everything from e commerce, grocery delivery, your usage of your Peloton, what have you. And now that we're in a post pandemic world, we're seeing a lot of these numbers just revert back to the long term historical trends. It's very clear when you look at it in the data in The US. What's happened in Latin America is that you had a similar boom during the COVID period, but you didn't have the reversion to the long term average. So if you look at just give you one example here, if you look at e commerce penetration in Brazil, to take one specific case, 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, and they saw how much better it was than waiting in line at their bank branch or waiting in line at their doctor's office, that they weren't going to go back to the old world. That was a little bit different than I think what happened in more developed countries like The US. So really the pandemic pushed us ahead three years into the future. And we didn't fall back down after that step function increase that has persisted and that growth has continued in Latin America. **Harry Stebbings** [37:54]: There's so many things to be excited about with LATAM. One thing that worries me is, like, I've done early stage investing in LATAM, and I'm scared about the removal of growth funding. Within traditional macro kind of environments, when we see recessions, you see international investors retrench to core markets. And when we look at LATAM today, you have amazing early stage funds, whether it's Atlantico, Canary, Monarchies, Kazakh, but there's not billions and billions of dollars set aside for growth like The US has or like some parts of Asia and India have. Am I right to be as worried as I am? And do you share my concern on the reduction of growth capital? **Julio Vasconcellos** [38:27]: I don't share your concern. And let me tell you why. Where you've seen a lot of the retrenching of growth capital has been with the crossover funds. A lot of crossover funds were investing very actively in Latin America over these last couple of years. And they've retrenched and they started to put more and more in their focus on their public positions. But that's not a Latin America specific factor. That's something that we see around the world. You still have here the dedicated growth capital of great global funds that have local offices, local teams, have been here for the long term, are not leaving. Those are names like General Atlantic, Riverwood. You have some of the sovereigns like GHC and Temasek that have been here for a long time and they're not leaving. And honestly, the kinds of capital that those great blue chip investors bring is plenty for the size of the market we have today. Sure, that might be different once the market is much bigger in ten years, but it definitely allows the great companies and the breakout companies to be funded all the way through to the public markets. **Harry Stebbings** [39:19]: Why do you think all the other LATAM managers are so worried about it then? And I agree that you crossover as the ones who've largely left and larger US multistage who are being very aggressive, regardless of whether it's LATAM or not LATAM only, it's still a reduction in capital. **Julio Vasconcellos** [39:34]: It's definitely a reduction in capital. What that's going to translate into is a greater mortality rate and a greater loss ratio in the next couple of years. I think that where we're going to be in the next couple of years is the normal. I think that where we were the last couple of years was atypical. You shouldn't have companies that are going sideways, being able to raise money forever. So a lot of companies that honestly should have probably died in the last couple of years are going to die now. That's healthy and that's normal. The reduction of capital is going to bring us to something that looks much more like, I think, the long term averages of loss ratios and follow ons that we had in the last couple of years. **Harry Stebbings** [40:08]: One of my biggest mistakes over the last years was I didn't take cash off the table. I could have done and I didn't. I believed in that always hold on to your witness. But my point being, did you take money off the table? And how do you think about secondaries and providing DPI? **Julio Vasconcellos** [40:21]: As an angel investor, I often took money off the table. That was probably 10% or 20% of the total position value. I was never sort of selling the entire position. So definitely kind of guaranteeing some returns and guaranteeing some of that money is in the bank. And I think for the biggest investments I made, definitely we sold when there was an opportunity. And I think that we look look back and we're happy about those decisions. As an investor, frankly, I would think about it in a similar way. If a company is a big enough position where selling 10% of it, maybe even 20% of the position, be able to return your fund, might be able to distribute to limited partners, that might be a good trade off to guarantee some of the returns in the short term, but still leaving plenty of exposure for the upside cases, because you want to make sure that you're going to be compensated for that huge risk that you're taking at the early stage. I would probably never sell an entire position before a final exit, but I would seriously consider taking maybe 10% off of a position off the table and guaranteeing some returns for for limited partners. **Harry Stebbings** [41:14]: My final question to you, Voido, quick fire, is, you know, you've seen this boom and bust cycle before as an operator and now obviously seeing it as an investor. When you think back to the Peixe Urbano days and advising founders today, how do you advise founders in this current boom and bust cycle on operating today in these current conditions in LatAm? **Julio Vasconcellos** [41:33]: I'd say rule number one, be in the game and stay in the game. What that means is sometimes being a little bit more cautious. Maybe you should cut a little bit more than you think you need. I think a lot of founders, they on the side of just cutting a little bit of the fat. I think it's healthy to cut through the fat and into the muscle, because you can always undo that later if you were wrong. Maybe you cut a little bit too you might have to rehire people, or you might have to reinvest in things that you've reduced investment in. But if you cut too little and you end up being wrong and you run out of money, you can't undo that, right? And you're out of the game. So I would, number one, over index on being more aggressive and having more runway and being more conservative in times of uncertainty like we have today. The other thing I learned, you can always do less with more and your team and yourself, you're always going to think, look, if I cut 20% of my workforce, I reduce this investment, we're never gonna be able to deliver this. And I guarantee that you're gonna be surprised at how much smaller and more motivated teams can do, even when compared to bigger teams. I think you're gonna have better and even more output with less people. It's counterintuitive, but it's true. And I think it also hopefully gives some comfort to founders that are struggling with making tough decisions to cut investment, cut teams, because they'll be able to make it through. You can make it through with less. **Harry Stebbings** [42:45]: I do want to move into my favorite studio, which is a quick fire. So I say a short statement, you give me your immediate thoughts. Does that sound okay? **Julio Vasconcellos** [42:51]: Yeah, perfect. **Harry Stebbings** [42:52]: So what's your favorite book and why? **Julio Vasconcellos** [42:54]: The New New Thing by Michael Lewis. That story of Netscape and Jim Clark, it was what got me into tech and got me into investing, was really about reading that Jim Clark adventure. **Harry Stebbings** [43:04]: Who is the most underrated angel in the ecosystem and why then? **Julio Vasconcellos** [43:08]: I would say Sarah Smith from the Sarah Smith Fund in Silicon Valley. Sarah is a good friend. We overlapped at Facebook. She was an amazing sales and people leader, both at Facebook and then at Quora afterwards. And she's been sort of a huge inspiration to anyone that wants to build high performance teams and build great culture. Now she has her own fund. Tell me, what have you changed your mind on recently? Oh man, this is going sound like I'm backtracking, right? But I was talking about being non consensus. And I think that in Latin America or in markets that are a little bit more risky and less familiar, sometimes you have to, in the spectrum of non consensus to consensus, you might need to sacrifice a little bit of doing something that's non consensus in order to honestly just invest in founders that are backable. Thinking that means here, founders that speak good English. And a lot of times they're more polished because I think international investors, they overvalue those attributes Being able to be fundable and be able to raise the next round is actually a pretty critical thing in new markets like Latin America. **Harry Stebbings** [44:02]: What do you know now that you wish you'd known when you started Atlantico? **Julio Vasconcellos** [44:05]: LP management. I think I was definitely surprised at how much more time I spend with LPs than I expected. And I think a lot of those are these really amazing conversations where I can learn a lot from. And some of them are more just kind of straightforward reporting discussions. And had I known that I probably would have optimized more to have in my LP base folks that are there for interesting debates where I can learn from rather than more the types of LPs that are just looking to update numbers since you're gonna end up spending the same amount of time with both of them. Who is the LP **Harry Stebbings** [44:33]: you don't have that you would love to have? **Julio Vasconcellos** [44:35]: I've had some amazing conversations with the folks at the Penn Endowment. I'm a Penn alum, so obviously I have a huge bias and one of my main mentors, Andy Rachleff, is chairman of the endowment there. And I've been able to learn a ton from Peter Amen and David and everyone there on the team. And I would love to have them as LPs one day and be able to kind of give back also to my alma mater. **Harry Stebbings** [44:54]: Well, I mean, they're listening to this, they now have no choice. So that would be the one. What would you most like to change about the world of Startup Studio? **Julio Vasconcellos** [45:00]: I definitely think that the game that entrepreneurs and investors play around fundraising and valuations and that whole dance and to pretend, think a lot of it wastes a lot of time. And I think that we could all just kind of be more objective and more practical about who do you want to work with and kind of come to a good deal and kind of get down to business and get down to building. It would just be a lot more efficient and a lot more pleasurable. **Harry Stebbings** [45:23]: Final one, what's the most recent publicly announced investment? And why did you say yes and get so excited? **Julio Vasconcellos** [45:28]: The last investment we announced was Fudo, which is a leading restaurant management software and point of sale solution in Latin America. It's kind of a square meets toast for Latin America. They have over 10,000 clients, restaurants across the region. They've been profitable and bootstrapped since the beginning. And our friends at Andreessen Horowitz were investing in them and kind of brought us into the round along with My Capital to all lead this new round of the company. And it was an amazing leadership team that had deep experience software, specifically software in the restaurant industry, and had just brought in an amazing CEO from Mercado Pago that obviously understood POS and fintech. And it really is a very inspirational leader. It's a curious thing because a lot of these verticals, when you look at them in Latin America, they may seem small at first because Latin America is simply just a smaller market. But what's different and what I think a lot of investors underestimate is just how big some of the adjacent opportunities can be. In a competitive market like The US, all the adjacencies are always very occupied and there's a lot of competition. But in Latin America, a lot of the adjacencies are greenfields. 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. **Harry Stebbings** [46:39]: Julio, thank you so much for doing this with me. I've so enjoyed chatting, and I can't appreciate enough your patience with me going off schedule. **Julio Vasconcellos** [46:46]: Harry, this was awesome. Had a lot of fun. Thanks for having me on. **Harry Stebbings** [46:51]: Such a fantastic discussion with Julio there. And again, you'd like to see Julio's digital trends report focused on Latam and the Latam ecosystem you can find that on 20vc.com it really is a must read. But before we leave you today ## Sponsor read **Harry Stebbings** [47:03]: I want to talk about an incredible tool that I use every single day, Notion. Now I am the worst for having 50 tabs open and constantly hopping between an endless array of tools. Do you feel me? Are you with me? 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