🎧 A Bullish Take on LatAm’s Growth Investing

My guest today is Paulo Passoni, Managing Partner at Valor Capital Group, a venture capital and growth equity firm investing across Brazil, LatAm, and the US.

Before Valor, Paulo played a protagonic role in developing LatAm’s growth equity ecosystem as a Managing Partner at SoftBank, managing their $8 billion LatAm Fund. Paulo invested and acted as a board member of several Brazilian unicorns including VTEX, Loggi and Creditas. He also invested over a decade in Latin America’s public and private equities at Third Point Management and Eton Park.

In this episode, we talked about the non-obvious investing principles he’s learned over his career, why he’s bullish on LatAm’s venture and growth ecosystem, unlike other investors, and his reflections from his time at Softbank. We also discussed his frameworks for investing in growth-stage companies in Brazil and LatAm, including markets, regulatory tailwinds, business models, metrics, and teams; and how this has changed since 2020 and 2021.

Learn about investing principles in growth-stage companies today:

Spotify | YouTube | Apple Podcast

🗒 Show notes:

[02:15] - Transitioning from Private to Public Investments

[05:48] - Understanding the Dynamics of Private Equity and Venture Capital

[07:56] - Insights into LatAm’s Growth Ecosystem

[11:55] - Reflecting on Investment Lessons and Market Dynamics

[22:18] - The Role of Local vs. Global Investors in LatAm

[29:31] - Regulatory Changes and the Rise of Fintech in Brazil

[39:11] - Rethinking Business Models and Capital Efficiency

[55:18] - The Impact of AI on Business Models

🧠 Key Takeaways

#1 Adapt for Local Success: The companies that succeed in LatAm are the ones who don't think about the other countries' success cases, but companies that tailor their strategies to local regulations, taxation, logistics, theft issues, and income levels. Copying models from the U.S. or Europe can be counterproductive. 

#2 Don’t Try to Win Every Deal: As an investor, you’ve got to be losing deals, almost as a ‘sanity’ check for knowing that you're doing the right thing. There’s something to be calibrated with your risk appetite and valuation analysis if you put out 10 term sheets in a year and every single term sheet is accepted.

#3 How AI Will Shape the Venture Industry: Producing code is going to get cheaper, and the barrier to entry will be lowered, making it more challenging to maintain margins and protect excess economic profits. Investors might need to get involved in software companies at an earlier stage (up to Series B), as companies will become profitable sooner and need less external capital. Although this dynamic affects pure digital goods, like fintech and software companies, other types of businesses will still require capital.

😲You won’t hear this anywhere else

What challenges do founders face when transitioning from startup growth to scaling a company, and how can they address them?

“It's common for them to take a company from zero to one hundred, but not necessarily from one hundred to one thousand. This transition can be problematic and often traumatic. Founders might either manage to step out gracefully or inadvertently destroy value during the process. Some founders are versatile enough to handle the entire journey, but it's rare.

Most founders believe they are versatile, but the truth often proves otherwise. Realizing this sooner allows them to move to an executive chairman position and hire a capable CEO. This mindset should trickle down, with continuous upgrades at the C-level being necessary. Although it's a ruthless and challenging process, it's essential for the company's growth."