The Exchanges

Q That's tough. Um, well, that's a bit of shit. Um, the hard thing is I do feel for founders because it's like if they don't accept the term sheet for a large amount of money, their competitors will, and then they'll just outspend them on every channel. And so the capital kind of forces you into it without a choice, no?

A There's only one situation where being outspend by a competitor is dangerous. I'm oversimplifying, but it's to make a point. It's in a winner-take-all market. If you are in a winner-take-all market, you're trying to be the search engine of Brazil. You're trying to be the Alibaba marketplace of China. And it's very clear the network effects are such large that the winner captures everything. Then your logic is absolutely correct in that you, you want to suck in all the capital And make sure you are the winner, even if you end up being diluted to a five percent stake as a founder, the winner is so valuable, number two is not valuable, so you go all in for the winner. Only three percent of business models are winner-technical. Most business models are winner-technical most. And that's fine. 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 guys get exhausted and you win. Google was not the first search engine. Facebook was not the first social media.

AI assessment note: “There's only one situation where being outspend by a competitor is dangerous.”

Q about the exodus of capital that we've just seen over the last six months. All of the US funds who were there so actively in 2020 and 21 have largely retrenched. You see it generally when markets contract in terms of macro. I think this is bad for Brazilian entrepreneurs and I'm worried for them. Do you share my concern about the exodus of capital away from LATAM and Brazil?

A It's less bad than 2000 and we came out okay in 2000. And the reason it's less bad because in 2000 the tourist capital provided 98% of all funds that were invested in the region in 1998 to 2000. And it was the same names, different generation, but same people, same story. Just, it rhymes. It doesn't repeat, but it rhymes. This time around, at least 30% of the capital came from people who were permanently committed to the region. And those guys are going to make the restructuring and consolidation and the path of refutability a lot less painful than it was for us at Submarino. We had to break even with no new capital. That's hard. Now there's going to be someone to step in and make sure that you can break even with some capital.

AI assessment note: “It's less bad than 2000 and we came out okay in 2000.”

Q much, I'm sorry, this is a terrible question. You can, you know, beat me for it later. How much of a role then does the founder play? Cause I, I lost money recently. Amazing founder. Terrible market, and actually the centrality of market has become a lot more poignant to me as I invest more and more. How do you think about the balance between market founder and business model?

A We have 42 years of data at General Atlanta, and we've done over 400 transactions. We know we've, 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 throughout time. And we lose money on three percent of the, of the cap. And, and that has stayed also consistent. When we were looking at the common characteristics, and we have all this data now, there's seven things that matter in terms of your, your probability of being in that 10%, that lucky 10%. 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 good a team and a model is, you will never outgrow your market. We are lucky as investors. We don't need to choose situations. We only get two of the three. We can be picky enough to only invest in things that have the three things. So my advice to you is don't compromise on these three. Cause you don't need to.

AI assessment note: “most significant size of the market. Because no matter how good a team”

Q That's tough. Um, well, that's a bit of shit. Um, the hard thing is I do feel for founders because it's like if they don't accept the term sheet for a large amount of money, their competitors will, and then they'll just outspend them on every channel. And so the capital kind of forces you into it without a choice, no?

A There's only one situation where being outspend by a competitor is dangerous. I'm oversimplifying, but it's to make a point. It's in a winner-take-all market. If you are in a winner-take-all market, you're trying to be the search engine of Brazil. You're trying to be the Alibaba marketplace of China. And it's very clear the network effects are such large that the winner captures everything. Then your logic is absolutely correct in that you, you want to suck in all the capital And make sure you are the winner, even if you end up being diluted to a five percent stake as a founder, the winner is so valuable, number two is not valuable, so you go all in for the winner. Only three percent of business models are winner-technical. Most business models are winner-technical most. And that's fine. 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 guys get exhausted and you win. Google was not the first search engine. Facebook was not the first social media.

AI assessment note: “There's only one situation where being outspend by a competitor is dangerous.”

Q I've never seen a downturn before, Martin, um, and, uh, well, thank you for that sympathy, um, and there are many others who have not seen one before, and my question to you is, I spoke to Cesar at Gympath in particular, and he told me that you predicted the downturn and kept disciplined. What made you think the downturn was coming, and in what ways did you keep disciplined?

A 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. And it happens time and time and time again. Why it happens? Because the technology is exciting. Because people begin to make lots of money as more and more people join into a trend. Uh, because some of the best companies only raise money when, and come up for air when the valuations are very high. So the incentives, and we all suffer from FOMO, uh, the incentives are, are, are, are, are, are all wrong. We've seen it enough times at GA that we build guardrails to protect ourselves from the, the siren songs of this fake bull market, uh, and, uh, and not do silly things like a lot of our competitors did. And we can talk about those guardrails, but 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. Secondly, traditional forms of valuation are disregarded. We make up new metrics. So it's not, it's, it's, it's not, it's not EBITDA. It's not profit. It's not cash flow. It's, ARR adjusted for growth. And it's not 10 times, it's 20 times. And then the third one, in the pea…

AI assessment note: “When those three things happen, you know it's last dance.”

Q How do you create an environment of safety where younger people in particular feel that they can say, Martin, I actually don't agree with you on that. I, I see it differently. But can challenge you in a positive way, but it's how do you create that environment where people can speak up and feel safe to?

A You listen when they do speak up. That's all it takes. And you create the forums where they can speak up. So our investment committee is open to everyone in the firm globally, and you can hear everything. And if you're a partner, you can even go into the executive session and look at the voting and see why people voted against your deal or in favor of your deal. Extreme transparency. And if someone speaks up and you listen, everyone knows it's acceptable to speak. In my region, for example, when we're looking at a deal at the initial level, we start with the youngest person at the team to give their opinion. Because the tendency is, you know, if I start with my opinion, it's over, right? Everyone, the risk is the hierarchy is preserved and everyone wants to please the hierarchy. But if it starts with the youngest person, occasionally you get a brilliant insider. And as a young person, I'll tell you another thing. When, when I started in the investment profession, one of the mistakes people make is they just crunch the data so that someone else can make the decision. I always tell the young people, it's like, I gave you the homework and the data, but I want you to start with the conclusion. And then you show me the data, but come to me with the conclusion. As I was growing up as an investor, not only would I get to the conclusion when I was preparing the data, I began to try to …

AI assessment note: “You listen when they do speak up. That's all it takes. And you create the forums”

Q So what's your favorite book and why, Martin?

A Two books. Man in Search of Meaning and Viktor Frankl. I've read three times in my life. It's, it's, it's great. It should be read many times in our life. Uh, good to great Jim Collins book paired company analysis is the ability that to truly drive an insight about a business. You can't just look at the success story. You need to look at the alternative story, the alternative reality to know if that's just lucky or it's due to something that action. So that, that, that idea, which is alive in genetics, when you study twins that are separated at birth had never been done in business. And he did it so beautifully. That I actually copied. I wrote a book just, Good to Great for Brazil. It was written by Martín Escobarri. It sold 29 copies. Mom bought 10 of them. So there's, uh, there's 19 people that have, have read my book. Uh, but it was exactly the same idea. Paired company analysis, and I love those two books.

AI assessment note: “Two books. Man in Search of Meaning and Viktor Frankl... good to great”

Q like Twilio, often in B to B, this happens like Twilio, um, everyone predicted this would be a two to three billion dollar company at best. And in the pandemic, when, you know, prices were high, it was a 40, fifty billion dollar company. You know, we always underestimate the size of our winners because they lead to market growth. How do you think about that as an ancillary point?

A That's a great point. So, one of my mistakes as an investor is, uh, Anton, my friend, uh, 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, and at the time Uber was just Uber, the premium Uber, was less than two billion dollars. So we were like, we can't pay two billion dollars for a business that's going after a town that's only two billion dollars. It just doesn't work. So we passed. Of course, Uber redefined what it does. Launching UberX and UberEats and all the, all these, all the extensions that, that Uber did, and we missed it. So one of the hardest things of an investor is to look at these three variables and their other variables, but to run simulations in your mind of alternative universes where those things change dynamically. So the team is augmented to fill in a gap. The time is expanded to change in a different way. The experience curve is so strong that the mode is built through experience, not through structure. So it's just, It's a dynamic puzzle that requires a leap of faith. Sometimes certain situations are easier for such expansions to happen, and you lean on those. Sometimes it's not as easy, and you say, listen, this is too unlikely. And great managers are very good at redefining their markets. So you're a…

AI assessment note: “one of the hardest things of an investor is... to run simulations in your mind”

Q I mean? I remember when people were saying, it's the end of cycles, and now you're like, really? Really? You lied to me. Um, Martin, me and you are sitting down. I'm a young member of your team, and I'm nervous. How do you advise me as the wise elder, young elder, of course, um, advising, you know, the young investor on this new market and how I should operate?

A I remember when my wife was pregnant with our first kid, we got, we have two girls, and it's so nerve-wracking for a young woman to have her first baby and see her body change in ways that are completely new and unpredictable, and our doctor said, it's been done before. And that, when you put it in that context, there's been billions of births been done before in humanity. You're like, yeah, okay. So, so living through the cycle you're living through, Harry, has been done many, many times before. The most important objective you should have as a company, as an entrepreneur, as a founder, as an investor in this period of adjustment is to not die as a company. Have a fighting chance. At the new day. Because the Wheel of Fortune always turns. It's not, it's never sunny always, and it's never runny, rainy always. It always turns. And you just have to be alive for the next sunny time. And if you do, you're gonna do great. So Submarino, which I told you the, the, the, the, the, the, uh, the short story, the long story is we ran out of money. We had raised two hundred million dollars. We were three weeks away from IPO in 2000. The market crashed. We had opened Sumarino in five countries. I had personally opened four of those countries. We ran out of money. We had to shut down the four countries, focus just on Brazil, put ourselves for sale. Strategic buyer offered twenty-five million …

AI assessment note: “The most important objective you should have... in this period of adjustment is to not die”

Q So, so let's just run on price, um, but well done and elegance there. Um, when you think about kind of pricing, What have been like some of your biggest lessons on pricing? Because I always think when it gets to growth, five hundred million plus, this is when price really, really matters. From your experience, how do you reflect on your own price sensitivity and the importance of price?

A Price matters, especially in the later stages. Everyone who says price doesn't matter hasn't been around long enough to experience that it does matter eventually. In negotiating price with an entrepreneur, it is often that the investor has a lot more information than the entrepreneur. And it is often that the investor is a lot more experienced negotiating in terms of an entrepreneur. One of the things I've done since the beginning of time is I believe in paying the fair price. And I start with the fair price and I don't really move very much from the fair price. And if it works, it works. If it doesn't work, doesn't work. And the fair price. 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. And sometimes we do scenarios because it's, you know, the weighted average base case. And that's the price I'm willing to pay. And it's hard sometimes to negotiate and sometimes it's not hard. But I think that's the point at which A partnership starts, and the partnership with the investor and entrepreneur should start in a fair position.

AI assessment note: “It's the price that allows me to get at least a 25% return”

Q Can one person lead a deal? Do you need the team behind you? How does the consensus versus conviction work for you?

A So we have a four person investment committee. You need three, three people to, uh, vote yes out of the four. And it's the co-president, the co-president and the CEO. Deal teams are staffed trying to get the best of the local, uh, expertise with the global expertise. We're the most global of all investment organizations I've come across. Because more than half of our people and more than half of our assets are outside the United States, but we partner in every deal. The sector experts typically in the US or Europe partner with the global teams. So we get the local and the, um, and the global sector expertise. 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, but more importantly, we have a culture of extreme transparency. We go to the investment committee not to sell the deal, but with the three things that are keeping up at night. It's like, guys, you saw the memo, and the memos are standardized, and the checklists are standardized, but like, these are the two, three things I struggle with. Let's make this decision together, and it's typically two partners on a deal plus the four of us in the committee, and we discuss things three, four times at committee, and it's hard.

AI assessment note: “we have a four person investment committee. You need three, three people to, uh, vote yes”

Q We mentioned XP being a billion dollar gain there. What's the biggest investing miss you've had and did it change your mindset?

A 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, into GA. He called us in our Series A, Series B, Series C, then he stopped calling because he kept saying no. And, um, in the emerging markets, there isn't a single credit institution that has survived the credit crisis, meaning survived more than 10 years, without deposits. And Nubank in its original inception had no deposits. So I made a dogmatic Decision that this has never happened in the emerging markets ever, and I failed to anticipate that someone as smart as David would figure out a way to build deposits by disrupting the money market market, which wasn't in the original plan, was hard to do, required regulatory changes that were hard to anticipate. He did it. It's a twenty billion dollar company. I could above a two hundred million dollar wish.

AI assessment note: “I should have backed David Vélez at Nubank.”

Q Did you feel a little bit out of place when you first arrived? VCs often talk about imposter syndrome. Did you feel a little bit like it didn't belong?

A So Harvard has 1600 people as freshmen, and when I arrived, and interestingly, in Bolivia you had to do military, so I, and it's very short because most people get disqualified on medical grounds because they can't afford to have everyone do military, but I did spend a week in the military, so they shaved my head. So here I was, and I don't have a small head. It was shaven. And I dressed rather modestly, and I was thrown into Harvard College, and I had the feeling I was the dumbest of the 1600. The absolute dumbest. And it took me two weeks to find someone that I thought was probably at my level, and I relaxed at that moment, and I said, oh, I'm not alone. It takes a while for you to build self-confidence, but it was an overwhelming experience.

AI assessment note: “I had the feeling I was the dumbest of the 1600. The absolute dumbest.”

Q So, so let's just run on price, um, but well done and elegance there. Um, when you think about kind of pricing, What have been like some of your biggest lessons on pricing? Because I always think when it gets to growth, five hundred million plus, this is when price really, really matters. From your experience, how do you reflect on your own price sensitivity and the importance of price?

A Price matters, especially in the later stages. Everyone who says price doesn't matter hasn't been around long enough to experience that it does matter eventually. In negotiating price with an entrepreneur, it is often that the investor has a lot more information than the entrepreneur. And it is often that the investor is a lot more experienced negotiating in terms of an entrepreneur. One of the things I've done since the beginning of time is I believe in paying the fair price. And I start with the fair price and I don't really move very much from the fair price. And if it works, it works. If it doesn't work, doesn't work. And the fair price. 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. And sometimes we do scenarios because it's, you know, the weighted average base case. And that's the price I'm willing to pay. And it's hard sometimes to negotiate and sometimes it's not hard. But I think that's the point at which A partnership starts, and the partnership with the investor and entrepreneur should start in a fair position.

AI assessment note: “I start with the fair price and I don't really move very much”

Q But what are one of the two of the biggest lessons that you have from that incredible journey with Submarino, going through what was such a fascinating nineties period?

A There's two sets of lessons. One is around what it's like to operate in a bubble. And then there's other sets of lessons around what it's like to be an operator. So let's do the operator one, because there are relatively few people in the investment profession who have been operators. I think it's a fabulous school to spend time as an operator before you become an investor. And the two things I learned as an operator, First of all is how hard life with startup is. And you hear people talk about it. You hear Steve Jobs talk about it. You hear Bill Gates talk about it. When you feel it, you understand. And the big conclusion of understanding that pain and suffering and toil is you recognize that the heroes of the entrepreneurial journey are the managers, are not the investors. We are the supply lines. We provide occasionally a good idea. We support, but the people on the front lines are the true heroes of the story. We owe them our success as an investor, and what they do is hard. And nothing would upset me more That coming to a board meeting as an entrepreneur bloodied in the hands of the things I had to do, and the twenty-three-year-old snotty guy complained about us meeting our working capital targets for the quarter, not understanding the complexity of all the things we were trying to do.

AI assessment note: “The two things I learned as an operator, First of all is how hard life”

Q really challenging thing that we have to do, we have to prevent biases from Infiltrating our decision-making process. And what I mean by that is when you lose money in a certain space, you just inherently think that space is shit. It's a bad market. It's got bad business models. Often for me, that's healthcare. How do you prevent biases from past investment successes or failures impacting your future decisions?

A Listen, understanding your biases, not just based on history, but based on psychology. Is one of the greatest challenges of our profession. No matter how pure your heart is, you have biases. And if you don't admit to them, you're lying to yourself. So I admit to my biases. And when we discuss the transaction with the team, it's like, I know I have this bias. I have this opinion, but I'd like to explain to the team that my opinion would be wrong because I know I have this bias. And then we challenge the opinion. Then we come to the conclusion. So voicing out that you have this bias helps you address and mitigate the bias. Uh, but it's, it's hard. We are all victims of our upbringings and our experiences and our successes and our failures.

AI assessment note: “voicing out that you have this bias helps you address and mitigate the bias”

Q I mean? I remember when people were saying, it's the end of cycles, and now you're like, really? Really? You lied to me. Um, Martin, me and you are sitting down. I'm a young member of your team, and I'm nervous. How do you advise me as the wise elder, young elder, of course, um, advising, you know, the young investor on this new market and how I should operate?

A I remember when my wife was pregnant with our first kid, we got, we have two girls, and it's so nerve-wracking for a young woman to have her first baby and see her body change in ways that are completely new and unpredictable, and our doctor said, it's been done before. And that, when you put it in that context, there's been billions of births been done before in humanity. You're like, yeah, okay. So, so living through the cycle you're living through, Harry, has been done many, many times before. The most important objective you should have as a company, as an entrepreneur, as a founder, as an investor in this period of adjustment is to not die as a company. Have a fighting chance. At the new day. Because the Wheel of Fortune always turns. It's not, it's never sunny always, and it's never runny, rainy always. It always turns. And you just have to be alive for the next sunny time. And if you do, you're gonna do great. So Submarino, which I told you the, the, the, the, the, the, uh, the short story, the long story is we ran out of money. We had raised two hundred million dollars. We were three weeks away from IPO in 2000. The market crashed. We had opened Sumarino in five countries. I had personally opened four of those countries. We ran out of money. We had to shut down the four countries, focus just on Brazil, put ourselves for sale. Strategic buyer offered twenty-five million …

AI assessment note: “The most important objective you should have as a company... is to not die”

Q like Twilio, often in B to B, this happens like Twilio, um, everyone predicted this would be a two to three billion dollar company at best. And in the pandemic, when, you know, prices were high, it was a 40, fifty billion dollar company. You know, we always underestimate the size of our winners because they lead to market growth. How do you think about that as an ancillary point?

A That's a great point. So, one of my mistakes as an investor is, uh, Anton, my friend, uh, 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, and at the time Uber was just Uber, the premium Uber, was less than two billion dollars. So we were like, we can't pay two billion dollars for a business that's going after a town that's only two billion dollars. It just doesn't work. So we passed. Of course, Uber redefined what it does. Launching UberX and UberEats and all the, all these, all the extensions that, that Uber did, and we missed it. So one of the hardest things of an investor is to look at these three variables and their other variables, but to run simulations in your mind of alternative universes where those things change dynamically. So the team is augmented to fill in a gap. The time is expanded to change in a different way. The experience curve is so strong that the mode is built through experience, not through structure. So it's just, It's a dynamic puzzle that requires a leap of faith. Sometimes certain situations are easier for such expansions to happen, and you lean on those. Sometimes it's not as easy, and you say, listen, this is too unlikely. And great managers are very good at redefining their markets. So you're a…

AI assessment note: “great managers are very good at redefining their markets”

Q But what are one of the two of the biggest lessons that you have from that incredible journey with Submarino, going through what was such a fascinating nineties period?

A There's two sets of lessons. One is around what it's like to operate in a bubble. And then there's other sets of lessons around what it's like to be an operator. So let's do the operator one, because there are relatively few people in the investment profession who have been operators. I think it's a fabulous school to spend time as an operator before you become an investor. And the two things I learned as an operator, First of all is how hard life with startup is. And you hear people talk about it. You hear Steve Jobs talk about it. You hear Bill Gates talk about it. When you feel it, you understand. And the big conclusion of understanding that pain and suffering and toil is you recognize that the heroes of the entrepreneurial journey are the managers, are not the investors. We are the supply lines. We provide occasionally a good idea. We support, but the people on the front lines are the true heroes of the story. We owe them our success as an investor, and what they do is hard. And nothing would upset me more That coming to a board meeting as an entrepreneur bloodied in the hands of the things I had to do, and the twenty-three-year-old snotty guy complained about us meeting our working capital targets for the quarter, not understanding the complexity of all the things we were trying to do.

AI assessment note: “the two things I learned as an operator, First of all is how hard”

Q really challenging thing that we have to do, we have to prevent biases from Infiltrating our decision-making process. And what I mean by that is when you lose money in a certain space, you just inherently think that space is shit. It's a bad market. It's got bad business models. Often for me, that's healthcare. How do you prevent biases from past investment successes or failures impacting your future decisions?

A Listen, understanding your biases, not just based on history, but based on psychology. Is one of the greatest challenges of our profession. No matter how pure your heart is, you have biases. And if you don't admit to them, you're lying to yourself. So I admit to my biases. And when we discuss the transaction with the team, it's like, I know I have this bias. I have this opinion, but I'd like to explain to the team that my opinion would be wrong because I know I have this bias. And then we challenge the opinion. Then we come to the conclusion. So voicing out that you have this bias helps you address and mitigate the bias. Uh, but it's, it's hard. We are all victims of our upbringings and our experiences and our successes and our failures.

AI assessment note: “voicing out that you have this bias helps you address and mitigate the bias.”

Q I've never seen a downturn before, Martin, um, and, uh, well, thank you for that sympathy, um, and there are many others who have not seen one before, and my question to you is, I spoke to Cesar at Gympath in particular, and he told me that you predicted the downturn and kept disciplined. What made you think the downturn was coming, and in what ways did you keep disciplined?

A 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. And it happens time and time and time again. Why it happens? Because the technology is exciting. Because people begin to make lots of money as more and more people join into a trend. Uh, because some of the best companies only raise money when, and come up for air when the valuations are very high. So the incentives, and we all suffer from FOMO, uh, the incentives are, are, are, are, are, are all wrong. We've seen it enough times at GA that we build guardrails to protect ourselves from the, the siren songs of this fake bull market, uh, and, uh, and not do silly things like a lot of our competitors did. And we can talk about those guardrails, but 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. Secondly, traditional forms of valuation are disregarded. We make up new metrics. So it's not, it's, it's, it's not, it's not EBITDA. It's not profit. It's not cash flow. It's, ARR adjusted for growth. And it's not 10 times, it's 20 times. And then the third one, in the pea…

AI assessment note: “When those three things happen, you know it's last dance. So what did we do?”

Q much, I'm sorry, this is a terrible question. You can, you know, beat me for it later. How much of a role then does the founder play? Cause I, I lost money recently. Amazing founder. Terrible market, and actually the centrality of market has become a lot more poignant to me as I invest more and more. How do you think about the balance between market founder and business model?

A We have 42 years of data at General Atlanta, and we've done over 400 transactions. We know we've, 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 throughout time. And we lose money on three percent of the, of the cap. And, and that has stayed also consistent. When we were looking at the common characteristics, and we have all this data now, there's seven things that matter in terms of your, your probability of being in that 10%, that lucky 10%. 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 good a team and a model is, you will never outgrow your market. We are lucky as investors. We don't need to choose situations. We only get two of the three. We can be picky enough to only invest in things that have the three things. So my advice to you is don't compromise on these three. Cause you don't need to.

AI assessment note: “most significant size of the market. Because no matter how good a team”

Q So the reason I don't like thesis driven investing is because I fear that it's exactly what you just said, which I mean respectfully, but it's like you have an opinion and then you find data that supports your opinion and leads you to confirmation bias. Do you not worry about that? If you start with the conviction and the opinion, I agree with the statement you made.

A But we love thematic investment. But I'll tell you how thematic investing works. We look at a trend, and I'll give you an example of a trend. The banks ought to be disintermediated in this distribution of retail financial products. Because they're doing a horrible job in the United States in the nineties. That was the theme. And then we went to market and said, who's going to benefit from this idea? Who's got the best mousetrap to eat this business away from the banks? And we landed in E-Trade, and E-Trade multiplies market by the 27 times, and the banks, what, 80% share in the United States went to 10% share in ADEC. 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. So that thematic investing does work. Now, being more granular, saying the way you're going to disrupt the cyber industry is by doing this type of technology, and I think we should find a company that does this type of technology? No. Decide that cyber is going to become more important because systems are more interconnected and bank actors are getting more sophisticated. Go out and meet the people who are on the front lines who are really doing that. And then you invest. So it's, it's, it's, you need a macro theme…

AI assessment note: “you need a macro theme, not a micro theme.”

Q That is very, very kind of you. I, I also love the artwork behind you. It's much cooler than what I've got in my background, but I want to start with a little bit on you. So now, co-president of GA, where did it start, and how did you make your way into the world of venture?

A I, I come from a tiny town, population 10,000 in the middle of the Bolivian jungle, and I was born in an oil camp to two doctors, parents, who were communists. So the first lucky break in this journey that got me from there to here is against their best thinking, they decided to send me to the American school and I learned English. And that was amazing. Uh, when it came to college, I couldn't afford university. So I was limited to only people that offer scholarships and that happened to be the good universities in the United States. And so I got into Harvard and Harvard was life-changing to me. And I came as a young freshman and I was the first Bolivian in 354 years to come to Harvard College.

AI assessment note: “I come from a tiny town, population 10,000 in the middle of the Bolivian jungle”

Q my god, we're getting eaten alive by Tiger and SoftBank in every deal. Can I ask, what did your internal discussions look like when SoftBank and Tiger We're running rampage on growth and actually winning good deals often, but beating a lot of, I'm sure they didn't beat GA, but, you know, beating a lot of great growth players because of speed and price. What did those discussions look like?

A In growth and in emerging markets, which are new markets, right? Growth markets are new markets and emerging markets are new markets. You often get tourists. Tourist capital shows up when it's sunny. And they're very excited. They're very loud. But as soon as it gets a little rainy, they always leave. So we knew this was a temporary phenomenon, uh, but we didn't know how long it's going to be. 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, it, it, it was humbling and we did lose some, some, some opportunities, some great opportunities, but the damage that these tourist capital do is twofold. They encourage, and again, this has happened before in history, they encourage a mentality of growth at any cost, which is not healthy for the development of companies. Um, because If you grow measured in a measured way and focus on unit economics and focus on fundamental, the feedback loops are, come in time so you can fix your strategy and make your company even better before you spend all your capital. But when you're doing things so quickly, that feedback loop is, is, is noise and you just burn through the a hundred million dollars without having the benefit of learning and companies lose thems…

AI assessment note: “we knew this was a temporary phenomenon, uh, but we didn't know how long”

Q How do you create an environment of safety where younger people in particular feel that they can say, Martin, I actually don't agree with you on that. I, I see it differently. But can challenge you in a positive way, but it's how do you create that environment where people can speak up and feel safe to?

A You listen when they do speak up. That's all it takes. And you create the forums where they can speak up. So our investment committee is open to everyone in the firm globally, and you can hear everything. And if you're a partner, you can even go into the executive session and look at the voting and see why people voted against your deal or in favor of your deal. Extreme transparency. And if someone speaks up and you listen, everyone knows it's acceptable to speak. In my region, for example, when we're looking at a deal at the initial level, we start with the youngest person at the team to give their opinion. Because the tendency is, you know, if I start with my opinion, it's over, right? Everyone, the risk is the hierarchy is preserved and everyone wants to please the hierarchy. But if it starts with the youngest person, occasionally you get a brilliant insider. And as a young person, I'll tell you another thing. When, when I started in the investment profession, one of the mistakes people make is they just crunch the data so that someone else can make the decision. I always tell the young people, it's like, I gave you the homework and the data, but I want you to start with the conclusion. And then you show me the data, but come to me with the conclusion. As I was growing up as an investor, not only would I get to the conclusion when I was preparing the data, I began to try to …

AI assessment note: “You listen when they do speak up. That's all it takes.”

Q So what's your favorite book and why, Martin?

A Two books. Man in Search of Meaning and Viktor Frankl. I've read three times in my life. It's, it's, it's great. It should be read many times in our life. Uh, good to great Jim Collins book paired company analysis is the ability that to truly drive an insight about a business. You can't just look at the success story. You need to look at the alternative story, the alternative reality to know if that's just lucky or it's due to something that action. So that, that, that idea, which is alive in genetics, when you study twins that are separated at birth had never been done in business. And he did it so beautifully. That I actually copied. I wrote a book just, Good to Great for Brazil. It was written by Martín Escobarri. It sold 29 copies. Mom bought 10 of them. So there's, uh, there's 19 people that have, have read my book. Uh, but it was exactly the same idea. Paired company analysis, and I love those two books.

AI assessment note: “Two books. Man in Search of Meaning and Viktor Frankl... Good to great Jim Collins”

Q my god, we're getting eaten alive by Tiger and SoftBank in every deal. Can I ask, what did your internal discussions look like when SoftBank and Tiger We're running rampage on growth and actually winning good deals often, but beating a lot of, I'm sure they didn't beat GA, but, you know, beating a lot of great growth players because of speed and price. What did those discussions look like?

A In growth and in emerging markets, which are new markets, right? Growth markets are new markets and emerging markets are new markets. You often get tourists. Tourist capital shows up when it's sunny. And they're very excited. They're very loud. But as soon as it gets a little rainy, they always leave. So we knew this was a temporary phenomenon, uh, but we didn't know how long it's going to be. 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, it, it, it was humbling and we did lose some, some, some opportunities, some great opportunities, but the damage that these tourist capital do is twofold. They encourage, and again, this has happened before in history, they encourage a mentality of growth at any cost, which is not healthy for the development of companies. Um, because If you grow measured in a measured way and focus on unit economics and focus on fundamental, the feedback loops are, come in time so you can fix your strategy and make your company even better before you spend all your capital. But when you're doing things so quickly, that feedback loop is, is, is noise and you just burn through the a hundred million dollars without having the benefit of learning and companies lose thems…

AI assessment note: “we knew this was a temporary phenomenon... was humbling and we did lose some”

Q Can one person lead a deal? Do you need the team behind you? How does the consensus versus conviction work for you?

A So we have a four person investment committee. You need three, three people to, uh, vote yes out of the four. And it's the co-president, the co-president and the CEO. Deal teams are staffed trying to get the best of the local, uh, expertise with the global expertise. We're the most global of all investment organizations I've come across. Because more than half of our people and more than half of our assets are outside the United States, but we partner in every deal. The sector experts typically in the US or Europe partner with the global teams. So we get the local and the, um, and the global sector expertise. 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, but more importantly, we have a culture of extreme transparency. We go to the investment committee not to sell the deal, but with the three things that are keeping up at night. It's like, guys, you saw the memo, and the memos are standardized, and the checklists are standardized, but like, these are the two, three things I struggle with. Let's make this decision together, and it's typically two partners on a deal plus the four of us in the committee, and we discuss things three, four times at committee, and it's hard.

AI assessment note: “Let's make this decision together, and it's typically two partners on a deal”

Q So the reason I don't like thesis driven investing is because I fear that it's exactly what you just said, which I mean respectfully, but it's like you have an opinion and then you find data that supports your opinion and leads you to confirmation bias. Do you not worry about that? If you start with the conviction and the opinion, I agree with the statement you made.

A But we love thematic investment. But I'll tell you how thematic investing works. We look at a trend, and I'll give you an example of a trend. The banks ought to be disintermediated in this distribution of retail financial products. Because they're doing a horrible job in the United States in the nineties. That was the theme. And then we went to market and said, who's going to benefit from this idea? Who's got the best mousetrap to eat this business away from the banks? And we landed in E-Trade, and E-Trade multiplies market by the 27 times, and the banks, what, 80% share in the United States went to 10% share in ADEC. 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. So that thematic investing does work. Now, being more granular, saying the way you're going to disrupt the cyber industry is by doing this type of technology, and I think we should find a company that does this type of technology? No. Decide that cyber is going to become more important because systems are more interconnected and bank actors are getting more sophisticated. Go out and meet the people who are on the front lines who are really doing that. And then you invest. So it's, it's, it's, you need a macro theme…

AI assessment note: “you need a macro theme, not a micro theme.”