One of Latin America‘s venture capital industry pioneers, Argentina-based NXTP Ventures, emerged in 2012 — a decade after Latin America’s big tech success stories such as Despegar, Globant, and Mercado Libre began to take off. Coincidentally, all three of these businesses were founded in Argentina.
At the very beginning of NXTP, its founding partners – Ariel Arrieta, Francisco Coronel, Gonzalo Costa, Marta Cruz, and Martin Hazan – decided to gather some of those successful entrepreneurs to create a platform for business investment advice. The first institutional fund rolled out in 2013, and the second one in 2018. Between the two funds, NXTP has invested $50 million.
Alex Busse, NXPT’s partner, doesn’t comment about a potential third fund, but the truth is that the early-stage investor is now reaping what it sowed for years. For example, NXTP invested in Argentina’s SaaS startup Auth0 in its Seed round, when it had roughly a $15 million valuation. Earlier this year Auth0 was acquired for $6.5 billion by the U.S.-based company Okta. NXTP also backs Argentina‘s newest unicorn Mural.
For a decade, NXTP has been investing in technology in a region that has only recently attracted the attention of major international investors, such as Japan’s SoftBank group, which landed here in 2019 and has already invested $3.5 billion in 48 companies that are now valued at $6.9 billion. Silicon Valley’s Sequoia recently announced that the venture capital firm would now focus its bets on Latin America, from early-stage startups to those already flirting with an IPO; Sequoia’s first investment after the announcement was in Pomelo.
The arrival of foreign venture capital firms in Latin America sharpens the competition with the region’s largest investors, such as Kaszek, from Argentina, a contemporary of NXTP, and the Brazilians Canary, Monashees, QED Investors and Valor Capital.
LABS interviewed NXTP’s Alex Busse about the VC firm’s evolution alongside the region’s ecosystem and NXTP’s next steps:
LABS: Looking back to when NXTP started, what changed?
Alex Busse: Initially, one of the things that we learned really early on was that for a business outside of Brazil to be successful, you kind of needed to be in Spanish-speaking Latin America. Because you needed several countries, especially in the early days when the markets were very small. For you to be successful you needed to be in Mexico, in Argentina, and then Colombia.
Initially, we have helped entrepreneurs to go regional so that’s how we got to know a lot of the market, how we got to know Mexico, Colombia, and Uruguay, by helping entrepreneurs expand into those markets.
Fast-forward to today, Brazil is a very clear leader in the ecosystem. One of the big advantages that Brazil has is its ability to create large standalone single geography businesses by having over 200 million consumers and a very robust economy. And then I’d say Mexico is probably kind of not too far behind, largely dominated by the attractiveness of its very large consumer base.
Colombia is in third place, which is a combination of its operating environment, that until now has been conducive and open to technology and innovation. So those are really the three main markets that we see going forward.
Argentina, unfortunately, has fallen behind quite significantly from the early days, when a lot of those bright startups came from Argentina. Today it’s a quite tough operating environment, so we don’t see the same activities as we see in some of the other countries. There is Chile and you kind of have a tier below them – smaller countries which is a bit of a challenge to build large businesses like Central America, Ecuador, Peru, probably the smaller countries.
LABS: NXTP began investing in Seed rounds. Is the fund aiming for larger tickets now?
AB: No. The thing is, one trend we see is that some of the Seed-round tickets are becoming larger. Previously, I think Seed rounds used to be smaller. Also, it used to be very common, like two to three years ago, that companies would do a lot of pre-Seed rounds and ‘friends and family’ rounds, and then they would go to the Seed round. Now, what we are seeing in the market today is a lot of those two rounds kind of being combined into one.
That has to do with, a lot of the time, the founders of the businesses are either or second-time founders or they’re operators that come out of large venture-backed, fast-growing tech businesses that could be one of the 30 unicorns in Latin America today. So, someone who actually has experience in scaling businesses and starting businesses.
They are going straight to the Seed round rather than pre-Seed, so you see larger Seed rounds today.
But we do not plan on starting investing in late-stage businesses, we want to stick to the Seed, and obviously, we are going to do some selectively Series A, usually related to domains that we know pretty well within the SaaS and the cloud or within logistics, any type of businesses that we feel like we can add value to and that we understand the value proposition well, we might participate.
LABS: NXTP is well-known for its LatAm investments in Spanish-speaking countries, but are you focusing on Brazil now too?
AB: We are a regional fund, we have our origins in Argentina but at this point, we’re fully regional, we don’t invest a lot in Argentina unfortunately, there are not a lot of opportunities.
From our fund-one portfolio, there are a lot of businesses operating in Brazil, so we have always been in Brazil. And our second fund expanded a lot to Brazil. Part of that has to do with the opportunity set that we see in the country as undeniable. A while back we made a decision that we were going to be fully regional, and that includes Brazil. This process of fully investing in Brazil started a couple of years ago, and our portfolio is about 50% Brazil in terms of revenue.
LABS: Do you see NXTP building a SPAC?
AB: We don’t have any SPAC ambitions at the moment. We spend most of our time in early-stage venture capital, that’s what we are really good at. For now, our idea is to continue to focus on early-stage investments and usually SPACs are late-stage growth capital types of vehicles. I don’t think that is an area in the near term that we are going to focus on.
LABS: When we look at NXTP portfolio companies, there are success stories like Auth0 and MURAL, but what are your thoughts about the ones that are failing?
AB: There are founders we have invested in whose startups have failed, and if they would go and launch a new business today, we would invest in them again. And some founders might have started the business and done well, and we might not invest in them again.
My point being, startup entrepreneurship has a very high failure rate. It really depends on how you fail. One of the types of mistakes people make is how they behave in difficult situations, which gives you a lot of information about who the person is, and who is really leading the business.
Some businesses have done poorly because the founders might have not shown the right leadership we would like to see or didn’t show a lot of perseverance, or didn’t handle the teams well, or behaved in ways that we thought were unstrategic. And then there are founders whose businesses might have failed, but we felt that they did everything they could; they ran very good operations and showed very good leadership. They were very careful and mindful about the strategy, but sometimes things just don’t work out. Those are the founders that we are looking for and that we would love to invest in again.
LABS: Talking about timing, how do you view the future for LatAm venture capital, and what is your forecast for the next few years?
AB: Latin America‘s first stage for venture capital was ten years ago, and then in 2010 to 2018 you can see the trend quite well in terms of the number of dollars invested in venture capital. What happened from 2010 to the second stage in 2018? Well, a lot of founders for the first time went out, learned how to build businesses, started to create success stories, and became role models for other founders and entrepreneurs to look up to, especially in Brazil‘s talent pool.
Brazil is a little further along from the rest of the ecosystem, but what you’re starting to see is today is similar to those businesses that started in 2014, 2015, 2016 that are very large businesses; they are unicorns. The first ten employees of those businesses had a front-row seat into what it means to scale venture-backed businesses and to become a unicorn. So, these guys are either going out and starting a new business for themselves or they became angel investors, or they’re mentors for other entrepreneurs.
You start to see this effect. Whereas these businesses were successful, they attracted better talent into the tech space, and they become role models for other founders that see them and start businesses. Instead of going to Goldman Sachs or McKinsey, you might see guys starting businesses or going into a tech space today.
That level of talent starts to attract capital. And that capital makes the business grow and as the business grows, it attracts more talent into the business.
You invest in the business today and you might only find out from seven years that it really was a successful business. What is exciting about the time that we’re in today is that a lot of what was promised for a long time has started to become a reality. That is very exciting for venture capital funds that have made good investments and have been around for a while because their investors want to have their money back as well. That started to happen, they started to have their money back, so it’s an inflection point where you feel like there is going to be a stable influx of talent, capital, and opportunities in the region for the years to come. We are very excited and well-positioned as a fund to take advantage of this moment. The work over the years started to pay off.