Nov 11, 2022 · 52m · news
Martin Escobari: How to Invest During a Recession; Negotiation Tips; Developing Markets | 20VC #948 · 20VC with Harry Stebbings
0:00 / 0:00
▶ Watch on YouTube →
gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this extensive interview, General Atlantic Co-President Martin Escobari details his journey from a small Bolivian town to global venture capital, sharing critical insights on operator-led investing, market cycle discipline, and investment decision frameworks. He outlines how maintaining a counter-cyclical, 'fair price' strategy helps navigate economic downturns and build enduring global enterprises.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Harry holds 20.3% of the talking time here. How this is scored →
Harry as informed peer 2.8 Guest teaching 3.8 Guest disagreement 1.3 Harry pushing back 1.8
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 25:15 Rejecting the outspending premise
Martin directly counters Harry's assertion that founders are forced to accept massive capital checks to avoid being outspent, calling winner-take-all dynamics an illusion that applies to only 3 percent of businesses.
Hardest push from Harry ▶ 17:06 Pushing back on market downturns being funHarry explicitly refuses to accept Martin's premise that market downturns are fun, arguing that adverse selection currently leaves mostly low-quality companies seeking capital.
Biggest teaching moment ▶ 25:15 The 3 percent winner-take-all lessonMartin educates Harry on market dynamics, demonstrating that reckless capital deployment usually ruins market leaders and that disciplined second-movers frequently win in non-winner-take-all categories.
Harry holds his own ▶ 36:27 Challenging thesis investing biasHarry demonstrates strong VC expertise by directly challenging GA's core strategy, arguing that starting with a thesis inherently causes investors to seek out confirmation bias.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Psychological Drivers: Running From vs. Running Towards | 1 | 1 | 0 | 0 | Harry asks warm biographical questions regarding Martin's journey from Bolivia to Harvard and his early feelings of imposter syndrome. Martin reflects humbly and agreeably on his upbringing and early academic experiences. | |
| Operator Insights: The Pain of Startups and Power of Market Growth | 1 | 4 | 2 | 1 | Martin shares core operator lessons, emphasizing that startup founders are the true heroes while lightly poking fun at young snotty board members complaining about working capital. Harry playfully asks if Martin is teasing him about his age. | |
| General Atlantic's Criteria: Market Size, Moats, and Team | 4 | 5 | 1 | 2 | Harry probes on how to weigh founders versus market size and brings up counterexamples like Twilio expanding TAM. Martin details 40 years of GA data showing market size dominates and shares lessons from passing on Uber. | |
| Spotting Downturns: Guardrails and Warning Signs | 3 | 5 | 1 | 1 | Harry brings insider context regarding Gympass founder Cesar and asks how Martin predicted the market crash. Martin outlines GA's quantitative guardrails and the three key signals that mark the end of a bull market. | |
| The Restoration of Rationality and GA's Measured Strategy | 5 | 3 | 2 | 6 | Harry explicitly pushes back on Martin's framing that downturns are fun, arguing that adverse selection means only desperate companies are currently raising. Martin clarifies that he finds the restoration of rationality fun compared to reckless bubble dealmaking. | |
| Advice to Young Investors: 'Just Stay Alive' & Submarino's Redemption Story | 2 | 4 | 0 | 0 | Martin gives reassuring advice to young investors during market cycles, comparing it to pregnancy advice that it has been done before. He illustrates this with Submarino's dramatic survival story through the 2000 dot-com crash. | |
| The Threat of 'Tourist Capital' and the Illusion of Winner-Take-All | 5 | 6 | 3 | 5 | Harry challenges Martin on the dilemma founders face when competitors take massive tourist capital to outspend them. Martin forcefully dismantles this premise, explaining that only 3 percent of markets are winner-take-all and reckless spending often destroys the leader. | |
| The Philosophy of the 'Fair Price' and the Art of Negotiation | 3 | 3 | 2 | 1 | Harry compliments Martin as a master negotiator based on founder feedback. Martin rejects the master negotiator framing, explaining his mathematical approach to a fair price that guarantees target returns. | |
| Decision-Making: The Checklist Paradox and Educated Intuition | 3 | 4 | 1 | 1 | Martin shares a story about contradictory advice from GA founders regarding checklists versus intuition, citing Daniel Kahneman's research. Harry asks nuanced questions about investment committee mechanics and creating Psychological safety for junior team members. | |
| Thematic Investing, Emerging Markets, and the Humility of Success | 4 | 5 | 2 | 4 | Harry challenges thematic investing, arguing that starting with a thesis fosters confirmation bias. Martin counters by distinguishing macro themes from micro technology bets, citing E-Trade and XP investments. | |
| Raising Children and the Trap of 'Fake Trauma' | 1 | 3 | 0 | 0 | Harry asks how Martin keeps his daughters driven despite growing up wealthy. Martin gives a thoughtful monologue on avoiding manufactured fake trauma and trusting life to present its own challenges. | |
| Quickfire Round: Books, Mistakes, and the Nubank Miss | 2 | 3 | 1 | 1 | During the quickfire round, Martin shares insights on books, post-success hubris, and his biggest miss passing on Nubank. The dynamic is light, conversational, and highly agreeable. |
Statements from this episode (33)
Escobari: I was the first Bolivian student at Harvard College in 354 years
“And I was the first Bolivian in 354 years to come to Harvard College.”
Escobari: Submarino was the first Brazilian tech company to go public
“I was co-founder of the number one e-commerce company in Brazil in the nineties, the late nineties, company called Submarino.com, which became the first Brazilian company, tech Brazilian company to go public. It's the first big home run IPO in, in, in, in post…”
Escobari: Latin America accounts for 15% of General Atlantic's investments
“Latin America is now about 15% of what we do.”
Escobari: General Atlantic suffers capital losses on only 3% of invested capital
“We have 42 years of data at General Atlanta, and we've done over 400 transactions. We know we've very experienced, and across the entire world in six sectors. Over the 40 years, 10% of the transactions lead to 50% of the gains. And that's been consistent throu…”
Escobari: No startup team or business model can outgrow its market size
“The three more statistically significant things, size of the market, defensibility of the business model, The quality and the capabilities of the team. The three things. Equally significant, but the most significant size of the market. Because no matter how go…”
Escobari: General Atlantic passed on Uber's $2B round over market size limits
“So, one of my mistakes as an investor is Anton, my friend Anton Levy, co-president of the farm, invited me to look at Uber, the two billion dollar round, because of the international opportunity, and we went, and we met Travis, The entire black market industry…”
Escobari: Venture Capital and Growth Investors Lose Discipline at Market Peaks
“One of the problems of the venture capital community and the growth community is we're extremely pro cyclical. We drink our own Kool-Aid, we over invest in the peak of the bull market, and we lose all discipline.”
Escobari: Three warning signals that mark the end of a bull market
“You know, things are really, really silly, and it's beginning to be the end of the bull market when three things happen. First, everyone's making money, even the least talented people in the market. That's a clear warning signal when everyone's making money. S…”
Martin Escobari: GA Portfolio Raised $20B Primary Capital in 2021
“So in twenty-twenty-one, our portfolio raised twenty billion dollars of primary capital, 19 of which from other parties.”
Martin Escobari: 97% of General Atlantic's 200 Portfolio Companies Are Fully Funded
“Today, we have 200 companies, 97% of them, fully funded plants.”
Stebbings: High-quality tech startups will face repricing in Q3/Q4 2023
“And I think Q three, Q four next year, you'll see the repricing of good assets who've run out of extension periods.”
Escobari: Paying 20x ARR on two weeks' notice is irresponsible LP management
“It's a lot more fun than competing for deals on, you know, two weeks notice and paying 20 times a year. I find that irresponsible with the capital of our capital partners.”
Escobari: The two main ways venture capital funds get destroyed in downturns
“What we did learn, and we learned this in, in, in 2000 is the two ways you get hurt is you spend too much of your LP's money at the peak of the market. And then you have too many unfunded business plans who need to raise money when everyone's frozen.”
Escobari: General Atlantic will never deploy fund commitments faster than 3 years
“So the two things we said is we're never going to run our commitments faster than three years. And we want to make sure the vast majority of our companies have fully funded plans.”
Escobari: Competitors deployed funds in 12–18 months, 3x faster than General Atlantic
“Every one of our competitors was running their funds in 12 to 18 months. Deploying capital three times the rate we were”
Escobari: Submarino raised $200M and was weeks from IPO before 2000 crash
“We had raised two hundred million dollars. We were three weeks away from IPO in 2000. The market crashed.”
Escobari: General Atlantic Lost Great Deals to Fast, High-Paying Tourist Capital
“And we lost to them. You know, I, you know, here's a sort of wise, seasoned manager that adds lots of value, but requires three months of due diligence and pays 40% less than a guy that gives you a check in three days. Hard to compete. So it was humbling and w…”
Escobari: Many Startups Raised in Abundant Liquidity Will Cease to Exist
“The hangover of a period of excessive abundant capital globally, not just in Latin America, is that you have a large percentage of the companies Who got lost in this abundance of liquidity and today don't have viable business models and will unfortunately ceas…”
Escobari: Market Followers Often Beat Early Leaders Who Spend Recklessly
“And in most situations, it is often the follower that does even better because they learn from the mistakes of the leader who spent all that money recklessly without listening to the signals. And you're listening to the signals and you're being wise. These guy…”
Escobari: General Atlantic targets a 25% annual return over five years
“It's the price that allows me to get at least a 25% return in five years based on a P multiple exit by the time I exit. And I backtrack into what I can afford to pay today on a base case.”
General Atlantic priced investments 20-30% lower than competitors during market boom
“We looked like tough negotiators because we were pricing things, 20, 30% below the tourists.”
General Atlantic meets 10,000 companies annually and invests in 50
“At GA, we meet 10,000 companies a year. We invest in 50.”
Escobari: General Atlantic requires 3 of 4 votes on investment committee
“We have a four person investment committee. You need three, three people to vote yes out of the four. And it's the co-president, the co-president and the CEO.”
Escobari: Over half of General Atlantic's assets and staff are outside US
“More than half of our people and more than half of our assets are outside the United States”
Escobari: General Atlantic partners are paid on global, not deal, results
“We all get paid out of the same pot. So no one gets paid of their individual performance. We get paid out of global performance”
Escobari: XP market cap grew from $300M to $20B in Brazil
“The same theme in Brazil 12 years ago, a company you should meet, XP, Market cap went up from three hundred million to twenty billion, doing the exact same thing E-Trade did, except in a market where the banks were at 99% and now are at 82 and dropping.”
Escobari: General Atlantic made little money on 2013-2015 traditional PE deals
“There was a period of time where I drifted away from technology led disruption. And tried my hand at traditional private equity. I discovered it's not my cup of tea, and we didn't make a lot of money in those two transactions, and I went back to my roots.”
Escobari: 30% of LATAM investment came from committed regional capital
“This time around, at least 30% of the capital came from people who were permanently committed to the region.”
Escobari almost spent $500M on an Argentine acquisition before pulling out
“I almost spent five hundred million dollars on buying a company in Argentina, and then the day bids were due, I woke up and said, what the hell am I doing? And I'm glad we didn't buy it because the country went where it went.”
Escobari: General Atlantic passed on Nubank's Series A, B, and C rounds
“I should have backed David Vélez at Nubank. David had worked at GA. I had tried to, and he left for Sequoia, and I tried to bring him back when I got hired into GA. He called us in our Series A, Series B, Series C, then he stopped calling because he kept sayin…”