For part I, The first 30 months click here.
Gustavo, one of my best friends and probably the most intelligent person I know, asked me a while ago: - Charlie, why do you want to work in an industry that sees the outcome in more than 5 years? It is such a long-term of your life.
I responded naively, “Long-term? In 5 years we will have exits and we will be set.”
Exactly - he answered- all the fund managers that Bloomberg interviews look like grandpas.
He was right, 60 months after, we are finally having tangible results. A couple of exits and a unicorn.
To be completely honest, it also took 60 months working in the US to have a sense of familiarity. All the lessons, but above all, the confidence that comes from knowledge, allowed me to make unpopular decisions that aligned our company to what I wanted, staying away from what it should be.
Of course, Venture Capital is a regulated industry, but the style, the strategy, the execution, and the team composition can and should be your own. There are several “defined” processes, but priorities and how to execute them are defined by the founders.
Move fast and break things
As a rookie first time fund manager, I tried to customize whatever was standard or expected, we were trying to replicate successful formulas from larger funds. I believe you shouldn’t innovate in everything, but if you are creating a new company you need to offer something different, at its core, the company should be innovative. I am a strong believer that success or failure is closely tied to demand and execution, creating a new company by copying formulas most probably wasn’t the fastest way to succeed, investors aren’t exactly demanding access to venture capital for first time managers.
No, not every person and institution will and can be your investor and not all the successful startups can be part of your portfolio. Not every service provider will be able to work at your pace and no, you cannot compete in everything with the established Silicon Valley titans.
To be able to create something from nothing we abandoned linear thinking, I got back to why I was doing this (read: The first 30 months) and embrace the Silicon Valley motto “move fast and break things”.
Our guide was common sense while we dismissed what the establishment expected. Those things that might sound weird to some are the ones that has given us superpowers. The most important thing that I learned from working in the US, (if you have only worked here, probably you don’t know better) is that service providers are cookie cutter, they are process oriented and if you want a competitive price, you are the one that need to adapt to their process; if you want a tailored made service, be prepared to pay a lot of money per hour. In Latin America and in some places in Europe, small requests, questions, or even brief phone calls are not reflected in the bill, here, that is not the case, every minute will be billed.
In the 3rd world the highly specialized services are just for a few, must of the services were created for the masses and the workforce and service providers are used to constantly learn and adapt to the ever-changing conditions of a fast growing, developing market. Also, if you have a very specialized product or service, it will be hard to reach critical mass and have a great pay day. I met a couple of gardeners here in the US that are millionaires; the plumber rides a nice truck, but in a smaller market that kind of money is only available for the upper level of the social pyramid.
With SM4RT, a cybersecurity company, now KIO Networks, based in Mexico City, we explored expanding south of the border to Central and South America, in Chile our offering was too specialized, the companies expected not only security but network operations as a bundle. In Panama, network operations plus Wi-Fi and printers service was the package.
In contrast, a single company in the US had $100M in revenue from one of our services, (penetration testing) while in Mexico only 68 non-government companies were big enough to hire our services.
In the medical field in the US, you have cardiologists specialized in baby surgery, in Mexico we might have a few, but heart surgeons will also perform surgery on babies, while in some paradisiac island of the Caribbean, a general surgeon will perform all the procedures.
The same thing happens with the work force, after their first job they know what they want and how their job should be done. Salespeople are great selling one type of product, and they don’t create collaterals, that is a marketing job. The tax guys don’t understand how to treat foreigners, the full stack engineers get stuck without proper training. All this training and sophistication make them very efficient but very ineffective for a company like ours. We were looking for “athletes”, wicked smart people that gets things done. Fast learners with numerical abilities; able to create a deck, write a summary, speak in public, create a financial model, and raise money.
Bottomline, we are an asset management company whose goal is to create atypical returns for our investors through impact investing in Fintech and Future of work. Of course, these “athletes” aren’t low hanging fruits waiting to be hired.
Less than 30% of the interviewed candidates (I interviewed 32 for one of our positions), had the correct answer to how many thousands are in a million. We were looking for people willing to learn a trade with disciplines as dissimilar as sales, finance, software development or art, people open to learn how to be a startup CEO from watching how CEOs perform.
The pandemic accelerated our process to change for a fully remote team, 100% bilingual with 1 or 2 years of experience, with enough neo-plasticity to be fast learners of the AI8 way, of course remote and international to maximize our budget and add flexibility to manage smaller investment vehicles.
COVID-19, as well, gave us the perfect excuse to go fully digital. We gained 7,000 followers through interviews, blogs, and videos. The pandemic also required better investment processes, and better and more precise documents and reports. We switched to quarterly meetings for our investors. Now we prepare a video, a newsletter, a report summary and give a live presentation through zoom. We believe that we achieved a fully digital and all remote company status when we raised $5M in two weeks from investors that we only met through Zoom.
This first fundraising process and investment period ended 60 months after I started, closing what I call my first cycle as an investor. I just open a new cycle with a new fund. Long-term Gustavo said.
30 months later my middle age crisis was resolved, yes, I’m 43 years old, five years ago I started up again, this new venture also served as a discovery journey and as a huge introspection exercise. After these 60 months when in school my son is asked what your father’s job is, he can answer, he is a venture capitalist.
Thank you for being part of my journey, specially to the CHV investors, who believed 60 months ago.
Un abrazo
Carlos (wolf) Ochoa