Last month, SoftBank formally announced a deepened commitment to LatAm with the addition of two new managing partners: Rodrigo Baer and Marco Camhaji, who are both veterans of venture capital and who’ve “been there, done that” in terms of advising or operating LatAm startups over many years. But, instead of SoftBank’s focus on more mature startups and bigger, growth-stage investments – including its first $5 billion fund launched in March 2019, which included its mega-bet on Colombia’s Rappi – Baer and Camhaji will be squarely focused on seed to Series A and B investments from Sao Paulo, Brazil.
The same week, on September 14, SoftBank announced it will invest at least $3 billion to kickstart a second fund to invest in LatAm technology companies. The early-stage fund that Baer and Camhaji will co-manage is $300 million.
Prior to joining SoftBank, Camhaji was a business development principal at Amazon, establishing strategic partnerships with fintech companies in Latin America. He also served as an operator in the role of CEO for Adianta, a B2B invoice financing company in Brazil that was acquired by Liber Capital. As a founder and partner at Yellow Ventures, he made seed investments in tech startups, and he also served as CFO and operating partner at Redpoint eventures, one of the main early-stage venture funds in the region.
Baer is one of the pioneers of the venture-capital industry in Brazil, having led investments in and advising the founders of more than 20 startups since 2010. He’s been a big contributor to the ecosystem through his YouTube channel, “Pergunte ao VC”, and its founder-education program, “VC for Founders.” Before his time as a partner at Redpoint eventures, where he originally met Camhaji, Baer was the co-founder of Warehouse Investments, served as an engagement manager at McKinsey & Company, and worked at Aurora Funds, a healthcare services-focused VC fund in the U.S
Last week, we had the opportunity to sit down with Rodrigo Baer to do a deep dive on his next adventure:
LABS: To start, tell us more about what attracted you to SoftBank, and the story behind you and Marco coming together to be the two founding partners of the new early-stage fund. We know you worked together for some time at Redpoint eventures. How did this all come together?
Rodrigo Baer (RB): Well, at the beginning of the year, I decided to leave Redpoint eventures and go out and create something new after talking to a bunch of people in the market. Marco was basically in the same moment, and then we decided to do it together.
We went out to raise an early-stage, seed-to-Series-A fund because that’s the space we are both most interested in. Our mutual goal was to build something that would bring more value to our portfolio founders, including more senior partner time to support them, a relatively concentrated portfolio, and providing them with tactical support and strategic guidance. Similar to what OpenView does – we wanted to have a few experts on specific topics who are on the payroll, and then the companies can use them as they need.
While we were raising, SoftBank approached us and said, “Why don’t you do this with us? By the way, about the three people that you wanted to support the portfolio companies; we now have 17 of those, under Alex Szapiro (who now serves as an operating partner and head of Brazil for SoftBank’s Latin America Fund as of March) and we’re building out a rock-star team to support the entire portfolio.” That’s what’s sold us on joining SoftBank: the possibility to really provide more impact for the founders and to help make these companies more successful.
LABS: That core concept that we’ve heard some VCs call “founder services” is interesting. Is your vision to have enough business experts onboard to be available as outsourced resources on-demand when various startups’ in the portfolio need them most?
RB: Yes. But the idea is not to do the work for the startups. It’s to help them figure out how to do it faster. It’s more of an advisory group of consultants than actually doing all the work. Our belief is that the companies still need to build their own salesforce, marketing and operations. There are funds willing to do it for their startups. We are not. Our two goals are to shorten the learning cycle and to make sure they build their companies with the fewest mistakes possible and faster.
LABS: Your new fund is $300 million, and what do you anticipate being the average size or types of funding rounds in the months ahead, once you begin investing it?
RB: Yes. It’s $300 million of invested capital, so it’s a fairly large early-stage fund. We will be focused mostly on seed to Series A rounds. We’ll do Series B investments in companies that we missed either because we didn’t exist yet, or because we made mistakes in assessing them. We’ll likely invest in about 60 companies when it’s all said and done – in about half of those, take board seats.
We have not closed any investments yet, but we already carefully evaluated three seed and two Series As deals, so we’re actively working on closing our first.
LABS: From a SoftBank perspective, it seems the Latin American funds now span from the early stage to the late stage. Is that part of SoftBank’s strategy – to continue investing in the same winning horses for the startups’ lifecycles, and to keep it all in-house – so to speak?
RB: The idea is that we operate as two independent funds. At the end of the day, I can’t do all the funding rounds in any one company because we would destroy their cap table. The idea is to avoid leading all three – from Series A through Series C. If so, then we could easily end up with 40% of the cap table. We don’t want to do that, because it’s not healthy for the company, which in turn, is not healthy for the investment.
LABS: Let’s talk more about the investment thesis for the new fund. What particular sectors are you looking at, and what are the types of big challenges you’re considering investing in this year and next?
RB: We are focused on big and growing sectors, and an important part of the thesis for us is focusing on the big problems in Latin America. How can we, for example, solve logistics, education, health, our lack of productivity, our bureaucracy, the absence of data, the high-interest rates? There is no shortage of problems in Latin America. How do we solve those problems? Applying technology to it, that’s one way.
We are also on the lookout for Brazilian and Latin American companies that are competitive globally. We’re seeing a massive acceleration on these companies like Pipefy, like Pismo, which are really creating differentiated products that don’t have to be constrained to only Latin America. They can be global competitors. That’s where we want to flex the SoftBank muscle to help those founders scale globally and be successful around the world.
LABS: In terms of sectors that have boomed since early 2020, this includes the fintechs which have been the most-invested-in sector in Latin America for six years running. It also includes e-commerce, delivery and logistics, streaming entertainment, and online gaming. Out of those, I’m assuming some are of particular interest to you and are there also some other emerging opportunities within those?
RB: I think the embedded fintechs are now getting to the growth stage. I think there’s still a massive opportunity for people to do API-based banking and embed new services using the software. Those companies with a few exceptions have already passed the very early stage. Pismo is a great infrastructure play, and it has been very successful because of that. Other than that, there are many opportunities to roll out more financing products to address new problems that need to get solved.
There’s also a category we call fintech plumbing and we call it plumbing because it’s the pipes. That’s going to change and how the business models are going to get reworked once we move away from credit cards into a more complex structure? Brazil is the most advanced here today, but how do we actually get something equivalent in Mexico? The piping is terrible. In Argentina, it’s just as horrendous so there is a lot of work to be done on enabling better transactions across the board.
LABS: How about some of the other areas you had mentioned earlier in terms of the healthcare and education sectors that need to be reinvented. Do you see any opportunities within those massive sectors as well?
RB: There are plenty. In healthcare, the big one is who’s going to reinvent the health plan? The number of people with health plans in Brazil has actually been decreasing. We have 180 million people who rely on a public healthcare program, which was originally designed to support less than half of that many – say, for only 60 to 80 million Brazilians. These excess people need to be covered and treated through the private sector, but how do we make that affordable and control costs? Healthcare inflation has been running at 19% year-over-year for the past however many years, whereas general inflation is in the single digits.
It’s getting out of control because it’s not affordable anymore. We need to add more intelligence into the systems, improve efficiency and eliminate waste. Otherwise, it’s going to be unaffordable for a large part of the population, and very quickly. To me, the time is now to rethink the whole sector. As part of that, the rise of telemedicine is a big component of creating more efficiency. How do we move people out of hospitals to reduce costs and do more of a local, small clinic model is a big concern.
And another one is how do we centralize data? We still don’t have a centralized medical records system in Brazil. All of our data is scattered, and that’s the same for the rest of Latin America. We have plenty of data, but it is all spread out across legacy systems that don’t communicate with each other. No doctor has a consolidated view of patient medical records. There are plenty of problems to be solved.
On the education side, one of the biggest challenges is how do we solve the developer shortage? This one that keeps bugging me because there is a massive upskilling need. We need to figure out how to move people from the old economy to the new.
Today, we have 16 million people unemployed in Brazil alone. I’m not talking about the other Latin American countries, at the same time, we still have plenty of job openings where they can’t find qualified people to work. Our local companies are being poached of our top talent by global companies. How do we get those 16 million people to be trained properly so they can participate in the new economy by taking on new roles from all those positions that are open?
LABS: Moving beyond sectors to specific geographies in LatAm, are you now seeing other geographies emerge as a big investment opportunity, for instance, Central America or other up-and-coming countries beyond those in the top four countries getting the lion’s share of venture capital: Argentina, Brazil, Colombia and Mexico?
RB: We’re always looking. The problem with those other countries is that they are subscale from a venture perspective so there are no early-stage funds locally. That’s really hard when you don’t have enough scale to create a community that can foster up enough companies to justify more active monitoring of those markets. There needs to be enough scale in a local market before global investors will start to look at that country and actively.
To me, that’s the biggest catch. We see some activity in Chile but still, the local funds are not at that scale ($60M+). Even Colombia doesn’t really have many local funds – especially funds that are above the scale line. Mexico does. Mexico also benefits from being very close to the U.S. Basically, every single good Mexican founder has a friend in a top U.S. fund, which brings way more attention from the U.S. funds and a lot more external funding to Mexico than the rest of the region.
LABS: ESG, or corporate responsibility in terms of sustainability, inclusion, and just doing good in the world seems to be a strong trend. What are your thoughts in terms of investing in startups in their early stage that are focused on ESG?
RB: Solving the larger problems in Latin America is going to have a positive impact. However, it’s important not to try to optimize the business and not create too many rules early on. In coding, if you try to, optimize, and code everything to perfection too early, you’re probably coding for the wrong thing.
LABS: What advice would you give to startup founders? I know you don’t have any in your portfolio at the moment, but what would you advise startups to focus on now in terms of the economy still being a bit shaky?
RB: I would tell them to focus on building the business. It’s very easy for founders to focus too much on fundraising and maximizing valuation. That’s all great but you must build an underlying business to justify that valuation. Most importantly, if you’re taking too much capital early on, you’re probably creating a company with a lot of waste. When the economy takes a turn for the worse, you might be in a very tough position because you’ve created an organization that is not lean enough to survive and adapt.
LABS: Looking back, say, to the early 2020s up until 2012-ish, would your former self be surprised that there could be as much as $10 billion in total investments that will be committed to LatAm startups by the end of 2021 in just a single year?
RB: I would have been surprised. I couldn’t say I wasn’t hoping for it, but what we see today is tied to the maturity of the ecosystem. This level of investment today makes sense because the first-generation of startups that were funded in ’11, ’12, ’13, ’14 have reached full maturity, and those checks are much bigger. Of course, invested capital is going to increase just by the sheer number and ticket size on the later-stage companies.
Yet to say that I would have expected such a huge volume: the simple answer is no. We were always concerned that we could become capital-constrained, but we always believed that if we built the right companies, eventually capital would find its way. It has been a pleasant surprise how much of it has found its way to Latin America.
LABS: We recently interviewed LAVCA’s Carlos Ramos de la Vega. He said that he thought the global interest that we’re now seeing in Latin America has been long overdue. Do you agree with that?
RB: Yes, I think the size of the problems that we have here in Latin America; they’re just much more real in a sense. Of course, you still have big problems in other regions of the world, but you don’t see such a tech community developing solutions for them today as we do here in LatAm. I think it’s the mix of enough scale in the ecosystem – where you have interesting technology being developed – and massive problems where that technology can be applied.
Also, there has been something new brewing for a while. People finally realized that you really could build great tech companies from Latin America and expand them globally. It is the companies such as Gympass or Nubank that were designed to be global companies from the get-go. I think it’s a very interesting moment.
LABS: Some of the investors in Silicon Valley have started to use a more scientific approach instead of using their gut. They rank key factors and add them into a decision-analysis framework in order to make better investment decisions. Do you use anything like that, or are you doing it more from your experience as a VC in terms of how you evaluate the companies?
RB: We have things that we look at and parameters to which we grade on. We try to avoid being too scientific about it because it isn’t. At the end of the day, this is a people business and it’s very hard to say, if it is a five, a six or a seven in a given scale. I think the moment you put a number to it, it creates a false degree of comfort. Maybe the question or criteria were not framed right.
Maybe yes, it’s founders with a vision, but there are other things about how they translate that vision into a culture and communicate that vision to their team. That’s real. It’s difficult to accurately assess all the hyper-detailed factors and different dynamics around how people behave and how people think and lead and interact – putting a number around it won’t solve for that. I understand the desire to build a greater level of comfort, but that doesn’t really translate into better decision making, in my opinion.
LABS: If you’re going with your gut and instincts as a veteran investor, what is it that you look for in a startup and a founding team? What are the signs that make you feel confident that this is the one to invest in?
RB: I think there are a couple of things: first, a founder who can articulate the vision, what he or she wants to build, and whether they understand the pain of their customers when they’re trying to solve more than the solution. If they’re aware enough of the pain, they talk to their clients and they’re willing to listen to feedback. Eventually, they figure something out that works and that solves that pain. How clearly can they articulate that pain and the hypothesis on how to solve it is one.
The second one is how they build their team: are they building it with interns who may be super-intelligent, but will take years to ramp up, or are they building with people who already know how to perform the task at hand? Are they the best people for each different practice, and are they excited to join? Does the team believe in the vision? Are they aware of the same pain that they’re trying to solve, and do they work well together? How are they as chief headhunters and as leaders? That’s a very important aspect and what I typically look for.
LABS: Do you think that the current STEM talent shortage, especially a lack of engineers trained in AI and software development in Brazil or other parts of Latin America, is a challenge in terms of your focus on startups founded in LatAm?
RB: This is definitely a problem, right. There was an opportunity up until recently where people were doing cost arbitrage and paying their coders, engineers, and data scientists significantly less than their counterparts in California. That’s changing. We are seeing a massive crunch.
All the startups are really complaining about it right now. Not so much about not being able to hire Brazilians, but about fact that they are getting hired by U.S. companies paying them in U.S. dollars. That will have multiple effects. One is increased capital consumption.
The second thing is that we’ll need to start going after their talent pools. We can’t just be poached; we will need to poach elsewhere. I think creating more of that exchange between talent from different countries is going to be super helpful to accelerate the development of our startups. The sheer number of developers needed is a problem, and it’s a problem that needs to be solved quickly.