More than twelve years ago, the co-founder and COO then CFO, Hernan Kazah, together with the former CFO, Nicholas Szekasy, of now Latin American technology giant Mercado Libre decided to build a “true venture capital firm for Latin America,” one where entrepreneurs and former operators are partnering with founders rather than just investors deploying capital. 

114+ ventures, 275+ entrepreneurs, and 7 funds later, co-founder and managing partner Hernan Kazah goes on call with Insignia Ventures’ Yinglan Tan to talk about learnings from his 25+ year career from P&G to Mercado Libre to Kaszek Ventures, what it has taken to build this “true venture capital firm” for the region, the opportunities for Southeast Asia companies in Latin America and vice versa, as well as a mini-masterclass on maturing your startup’s finance function. 

Highlights and Timestamps

(00:27) Learnings from an Operator VC’s 25+ Year Career: From P&G to Stanford MBA, Founding Mercado Libre to Founding Kaszek Ventures;

“…together we launched Kaszek Ventures with the idea of building a true venture capital firm for Latin America. In our days as entrepreneurs, we had investors, but those investors were mainly banks or other kinds of private equity investors who did not really understand the technology and did not really understand the startup world. So some of them were really good people and tried to help us. Some of those were not so helpful, but they were not former VCs. They were not entrepreneurs who could really understand what it meant to build a company from the ground.”

(11:04) The New Style of Venture Capital in Latin America;

“We have in our firm two big teams, one that works around and is focused on technology, on how to build your infrastructure, how to get users organically, et cetera. And then another team that works on recruiting. Cause we’ve found that the two most important pain points or challenges that typical entrepreneurs have are, on the one hand, how to grow efficiently and the other is how to add talent to the team because typically you have 1, 2, or 3 co-founders and you need to add the whole team around them.”

(17:50) The Latin America-Southeast Asia Emerging Markets Dynamic;

“I think the kind of gaps or underserved markets that we have in Latin America are similar to those that you may encounter in Southeast Asia. So if someone is solving something for the education sector or for the distribution sector or something around healthcare in Asia, probably the same problem is in Latin America. So then how you apply that solution to that market, you might need to adjust things here or there, but I think the root of the problem is probably the same one.”

(23:12) 114 Ventures, 275 Entrepreneurs, 7 Funds: What’s in the Next Five Years;

“You have a couple of large companies in Latin America that are tech related, like Mercado Libre and Nubank. I’m sure that in five years you’re going to have a few more, and in 10 years you want all of the top companies to be technology companies.”

(24:58) #MinuteMasterclass: Building a Finance Function from Mercado Libre’s former CFO and Kaszek Managing Partner

“It’s very important that you have the finance function with that idea very clear in their minds, understanding what they should do, what risks they should take, what they should not take, what things they should avoid. It’s really about resource allocation…start also building the procedures and controls because what you want is for your company to scale in a healthy manner with good controls and nothing’s going out of whack.”

(26:22) #RapidFireRound;

About our guest

Hernan Kazah is co-founder and managing partner of Kaszek Ventures, a venture capital firm partnering with extraordinary technology founders in Latin America, founders behind companies like Nubank, Kavak, Creditas, Gympass, Loggi, and many more. He co-founded Kaszek with Mercado Libre’s former CFO Nicholas Szekasy in 2011 after 12 years with the Latin American technology giant, serving initially as COO and then CFO after Nicholas left. Hernan co-founded Mercado Libre with Marcos Galperin, whom he met while taking his MBA at Stanford. He took this MBA after more than three years as a brand manager in P&G where he started his career.

Transcript

Learnings from an Operator VC’s 25+ Year Career: From P&G to Stanford MBA, Founding Mercado Libre to Founding Kaszek Ventures

Yinglan: As Paulo mentioned today, I’m very privileged and we are very pleased to have someone I’ve known for a long time, one of our role models, the co-founder and managing partner of Kaszek Ventures, which I think is, if there’s only one fund in LatAm that you need to know, it’s them, and managing partner Hernan Kaszek, whom we have been learning a lot from, as we see a lot of similarities between Southeast Asia and Latin America.

And without further ado, I’d like to ask Hernan to quickly introduce himself and walk our listeners through his personal journey, because I think Kaszek started quite a while back, but they have quickly developed into one of the forces of nature in the startup ecosystem in LatAm. He was one of the co-founders of Mercado Libre, so I wanted him to talk through his personal journey from P&G to Mercado Libre to Kaszek, and how he has seen the LatAm startup ecosystem evolve over that period of time. 

Hernan: Thank you so much for inviting me. And thank you to all the listeners of this episode. A pleasure to be here. So, as you all said, I started my professional career working at Procter and Gamble as a brand manager. Clearly something very different from what I do [today], but I think it was a great school in general terms about what it means to run a business. And I got two very important things from there.

One, I realized that I really like to lead businesses. At that time, being a brand manager meant that you had a small business that you had to decide on and see what marketing strategy you wanted to pursue, what were the right price strategies, et cetera. So it gave me a really good idea about what the business world was and I really liked it.

And then interestingly in those early days of my career, I was a young professional, obviously, not paying too much attention to doing things by the book, et cetera. I wanted to be a rebel. And I always complained about the bureaucracy that I thought P&G had. Then a few years later, we started Mercado Libre.

Then we had a company of our own, and I realized how important it was to have those processes so things could be under control. So when we launched Mercado Libre, we applied a light version of those bureaucratic processes that I saw in Procter Gamble around performance matrices and budgeting processes and performance reviews — those kinds of things that really were very important for setting the base of what company we wanted to be.

So I spent a few years at Procter and Gamble in Latin America, working in different countries. Then I decided to go to business school and I was very fortunate to go to Stanford for my MBA, at the time of the bubble. So I went to Stanford in 1997. It was the time when Netscape was ruling and the internet was suddenly available to almost everyone.

So all [types of] business models started to pop up and I think the first wave around the consumer internet really took off. And being in Silicon Valley during that period of time, I think had a significant influence on me and what I ended up doing later. So during my years at Stanford, I met Marcos Galperin, who’s still the CEO of Mercado Libre, and he had this idea, at the time, to take the eBay idea into Latin America. 

Then Mercado Libre grew into something much more complex and comprehensive. And today you can say that it is the Amazon plus the PayPal plus one of the number one credit providers in Latin America.

But at the time, that was the idea. So I was working on some other projects and had the bright moment of deciding to leave those projects and join Marcos. We graduated in 1999, went back to Latin America, and started working on [Mercado Libre]. 

Long story short, I stayed there for 12 years. First as COO, and then as CFO, we went through the typical, not that typical, Latin America journey of a startup that literally got started in a garage, went through several rounds of financing, went through even more crises and challenges and things that fortunately we could pass, but they were very, very difficult. We IPO’ed in 2007 and since then the company kept on growing to create a 60 billion market cap company, the number one technology enterprise in the region. 

And in 2011 I decided to [leave] and I got together with another colleague from the company, Nicolas, who was the initial CFO of the company and stayed there for nine, 10 years. And together we launched Kaszek Ventures with the idea of building a true venture capital firm for Latin America. 

In our days as entrepreneurs, we had investors, but those investors were mainly banks or other kinds of private equity investors who did not really understand the technology and did not really understand the startup world. So some of them were really good people and tried to help us. Some of those were not so helpful, but they were not former VCs. They were not entrepreneurs who could really understand what it meant to build a company from the ground.

So with that idea of creating what we had seen in Silicon Valley in Latin America, we founded Kasek and, and again, fast-forwarding 11 years, we have seven funds, five early-stage funds, and two opportunity funds. We’re currently fundraising for another early-stage fund and another opportunity fund.

We’ve invested in over a hundred companies. We think that some of the most successful companies in Latin America are in our portfolio and that those companies are the ones that will be the leaders of the next decades. That is an overview of my last 25 years. 

Yinglan: That’s I think a great journey that you have shared with us and I wanted to go back and talk about the MercadoLibre on two axes. 

One is that actually you had a role change, right? You were initially the COO, then you were CFO, and I thought that was very interesting in the transition of roles.

And the second thing, which is actually quite relevant for our founders today is that you grew Mercado Libre through the dotcom crash, went to IPO, and the ‘08 recession. And I think going forward, the next 12 to 36 months is going to be a daunting period for founders. 

I wanted to distill these two things which you could share with our listener base today on first the role change or expansion of your role and then two, building Mercado Libre through crises. What are the lessons you’ve learned? 

Hernan: As I said, I was first the COO of the company and I was responsible for the operations [of the company]. So all the country operations, all of the marketing, product, customer service, fraud control, et cetera. And I really liked that piece and it had a lot to do with what I had seen in my P&G days as a manager of a company.

So I really liked it. But then in 2008, 2009, today my co-founder at Kaszek Nicolas at that time was the CFO of Mercado Libre, decided to leave the company and we wanted to have someone as a CFO who could really tell the story to the market, to the analysts. We were a young public company at the time, so we thought that someone who was a co-founder, someone who had a deep understanding of the business, and obviously some reasonable financial experience could do that well, so I took over the role of CFO.

And I think it was a great experience for me to complement the heavy-duty operational experience that I had with being the CFO of a public company. And obviously, I had a great team of financial professionals who would back me up in any particular technical aspect that I might not [be strong in]. So I think it worked really well.

And by the way, the person who at that time was really helping me and also had a more kind of operational past, Pedro Arnt, is today the CFO of Mercado Libre. So we somehow continued that tradition of having CFOs who really understand the business and maybe get more the strategic side of it rather than the pure financial accounting side of [things].

And the other question where you said we went through lots of storms, you mentioned some that are well known because those were global crises, such as the dot-com bubble and the 2008 financial crisis and COVID more recently. But if you live in Latin America, you not only get hit by all the global crises, but you have one in every country every year. 

So we went through significant crises in Venezuela, Argentina, in Brazil. So somehow we got used to it. But certainly, those were very tough times. I think the toughest one was the dotcom bubble because at that time we had a gigantic dream, a tiny, tiny business that was burning money and basically having little or no revenue. So it was hard to accommodate things to go through that tough period. But we focused on what we believe in. We worked hard, always maintained high spirits, and very importantly, a long-term commitment to what we were doing and things worked out really well.

“…together we launched Kaszek Ventures with the idea of building a true venture capital firm for Latin America. In our days as entrepreneurs, we had investors, but those investors were mainly banks or other kinds of private equity investors who did not really understand technology and did not really understand the startup world. So some of them were really good people and tried to help us. Some of those were not so helpful, but they were not former VCs. They were not entrepreneurs who could really understand what it meant to build a company from the ground.”

The New Style of Venture Capital in Latin America

Yinglan: Fantastic. And shifting gears to Kaszek, and you mentioned briefly earlier, you embraced the new style of venture capital versus one that you experienced. Maybe can you talk a little bit more about some of the changes you made or some of the principles that you had and how you implemented them as you started Kaszek?

Hernan: So we think of Kaszek more as entrepreneurs and former operators partnering with founders rather than investors deploying capital. Obviously, as the firm grows and as we have more capital under management, we need to also put on our heads the CIO role and I think of allocation of capital, et cetera. 

But what we really, really like and what we’re passionate about is to connect with the entrepreneurs to try to get their dreams into our veins and help them build those companies, help them accomplish those visions. So we tend to be quite hands-on investors, particularly at [the early stages].

So we not only provide capital to the companies and also obviously participate on the board and have strategic discussions with the founders, but we also try to help them with growth strategies, around product usability, and conversion rate. 

We have in our firm two big teams, one that works around and is focused on technology, on how to build your infrastructure, how to get users organically, et cetera. And then another team that works on recruiting. Cause we’ve found that the two most important pain points or challenges that typical entrepreneurs have are, on the one hand, how to grow efficiently and the other was how to add talent to the team because typically you have 1, 2, or 3 co-founders and you need to add the whole team around them. 

Yinglan: That’s fantastic. I think one of the founding principles of Kaszek is to partner with founders, as you mentioned, very hands-on in a seat stage. Could you share one story that you consider to be Kaszek’s most prominent or meaningful company that the firm has partnered with from the early days and the role that you have played? 

Hernan: It’s a story that I think somehow you know, it’s a company called Nubank that today is the largest digital bank in the world. Started in Brazil, now expanded also into Mexico and Colombia. The company went public in December 2021.

Today its market cap is 22-23 billion, before the current reset of prices in the market, it was worth 40 billion. And we believe it’s a company that will be worth eventually a hundred billion that will produce significant cash flows and that will continue expanding its businesses in each of the countries where it is operating today, and also to some other countries. We think it’s a terrific company. 

By the way, I was mentioning that MercadoLibre is the largest technology company in Latin America. Nubank is the second largest. So in one, we were involved as entrepreneurs, founders, and operators, and in the other, we were involved as investors. 

And in the case of Nubank, we knew David Vélez, the founder, from our prior experience in Mercado Libre, because he used to work at General Atlantic, which was one of the investors of Mercado Libre. So we connected with him during those days. Then he went to Stanford and both my partner and I went to Stanford Business School. So we had some connections with him through that.

And he ended up going to Sequoia and started investing in Latin America. We did things with them. So when he decided to leave Sequoia and start a bank in Brazil, on the one hand, we thought he was totally crazy because that market was a big oligopoly of a few banks dominating everything.

But we thought that clearly, the opportunity was very big. It made sense to try to disrupt it with technology, better services, with lower costs. And we thought that David, given what we thought at the time of him, ended up proving much, much, much more than what we thought in our best-case scenario. 

We thought that he had a chance at that. So we invested there. We became a larger shareholder because we invested in the seed round before he even got his co-founders and then we kept on investing in the company along the way with our early-stage funds and then also with our opportunity funds. And we’re still big, big fans of what David and the team are building there.

Yinglan: That’s a great story. And one that resonates with lots of the teams and the belief in founders that we have as well. And I wanted to shift gears — so obviously Nubank, you seeded it in its early days, and as your funds get bigger, how does your approach to supporting founders differ from the sort of early stage to expansion capital to growth?

Hernan: That’s a great question. So, as I said, at the early stage, we try to be very hands-on. Obviously, 99% of the work is done by the founders, but we try to add 1% which hopefully adds value to that equation. For the opportunity fund, we do mainly one thing which is to continue investing in the later stage round of our early-stage portfolio.

So somehow there’s a continuity with most of our capital because we end up investing in companies that we are already working with. So that is just another step in the same direction of helping those entrepreneurs build their dreams, those companies who invest in us as they start maturing and developing a more senior [leadership].

They start requesting less of our help around particular points like product or marketing. But we will continue to be quite involved in more strategic matters whenever there’s a round or companies continue going public, et cetera. 

We do participate there and we try to remain active, but certainly, the kind of involvement once the company grows and brings in very capable professionals, we tend to act more as traditional board members and financial investors, and not so much as someone that is close to the action and close to the operation with the founder. 

“We have in our firm two big teams, one that works around and is focused on technology, on how to build your infrastructure, how to get users organically, et cetera. And then another team that works on recruiting. Cause we’ve found that the two most important pain points or challenges that typical entrepreneurs have are, on the one hand, how to grow efficiently and the other is how to add talent to the team because typically you have 1, 2, or 3 co-founders and you need to add the whole team around them.”

The Latin America-Southeast Asia Emerging Markets Dynamic

Yinglan: And I also wanted to find the dot between Southeast Asia and Latin America, which is based on what you have seen in Latin America and what you observe maybe from far from Service Asia. What is something some of our Southeast Asia founders can learn from Latin America? Obviously, you are one of the godfathers of the Latin America startup landscape — and vice versa?

Hernan: I have to be modest with that because, I really know very little about the Southeast Asia market firsthand, obviously, I read everything and try to follow the market and there are several very interesting companies that have emerged in the region.

And we try to see if we can find something similar in Latin America, or if we can learn from some of those companies, a thing here or there to then apply to our portfolio, but I’m not an expert in the space. But what I can say is, what has happened in Latin America was that initially we were more influenced by the consumer model that was coming from the US. 

It was more of a one-trick pony, but that would do that really, really, really well with lots of depth and more based on an origin from a website or from desktops, [and] not from mobile, more around apps, and this concept of the super app, right? So you have many solutions within one company, within one app. So Latin America started being a hundred percent the US model, then it started to shift and to its hybrid between those two models. I think that from what I see in Asia, it’s still that horizontal approach.

I’m sure there are some opportunities where that combination might make sense. I don’t think that vertical is best for everything, but probably horizontal is not best for everything either. So there might be some kind of combination that can create very innovative business models that entrepreneurs might try to look into, and from there try to create the new wave of startups that get that right. 

Yinglan: On that note, we have also seen quite a few Southeast Asian companies expand their operations in Latin America, you know, including one of our companies, WIZ.AI. and I think Sea Limited as well has I think a presence in Brazil.

And I think this is interesting because one of the trends we’re seeing in Southeast Asia is that we are seeing companies headquartered in Singapore, maybe having engineering in Vietnam or China, but targeting the world, including LatAm. I wonder whether you see the same trend in LatAm where you are seeing LatAm companies going global, and also how do you feel about the direction of other companies coming to LatAm and obviously how have LatAm companies reacted to that?

Hernan: That’s a very accurate observation. In the early days of technology and of the internet in Latin America, it was all about US companies getting into the region, maybe a European company more of trying that play, and obviously some local players trying to expand their presence.

Slowly and steadily, as the tech ecosystem started to grow in Asia, we began to see many Asian companies in Latin America. And I think that’s a great demonstration of how big or how relevant the market has become. So when global companies look for opportunities where they can expand their business, they consider Latin America. 

I think the kind of gaps or underserved markets that we have in Latin America are similar to those that you may encounter in Southeast Asia. So if someone is solving something for the education sector or for the distribution sector or something around healthcare in Asia, probably the same problem is in Latin America. So then how you apply that solution to that market, you might need to adjust things here or there, but I think the root of the problem is probably the same one. 

Then you need to see if you can apply the same solution or an adapted solution to that market. But we think this is great, particularly for consumers and what we believe in Kaszek is that through technology, we’re going to help developing countries narrow some of the gaps they have around financial inclusion, around access to education, access to good healthcare, et cetera. So the more services we have trying to tackle those problems, the better. Then obviously we want our companies to be the ones that are solving that.

But I think the most important thing is for the ecosystem to grow for the customers and for the population, in general, to do well. And that can come from different angles, from local companies, from global companies, from Asia, et cetera. And what we’ve had is a few companies that have gone from Latin America to other parts of the world. 

We haven’t seen that many, but there are a few that have done really well, and I’m sure that as the ecosystem continues to mature locally, we’re going to see more of those in the next few years. 

“I think the kind of gaps or underserved markets that we have in Latin America are similar to those that you may encounter in Southeast Asia. So if someone is solving something for the education sector or for the distribution sector or something around healthcare in Asia, probably the same problem is in Latin America. So then how you apply that solution to that market, you might need to adjust things here or there, but I think the root of the problem is probably the same one.”

114 Ventures, 275 Entrepreneurs, 7 Funds: What’s in the Next Five Years

Yinglan: That’s great. I think one of the interesting things is Kaszek in numbers, right? 114 ventures, 275 entrepreneurs over seven funds across 12 years. Obviously, Kaszek has had a big impact on the LatAm ecosystem. What’s the thinking for the next five years? 

Hernan: We’re very excited about what will come in the next five years. All secular technology trends continue to be very strong. As we all know, the tech system has gone through some rough times lately, but that is more because of valuations, because of access to capital, and what has happened with now having interest rates that are positive and expensive versus almost negative in the past.

But if you look at our companies, they’re all growing a hundred-plus percent year on year. Consumers are demanding more digital services. Companies are also demanding more digitalization, so we only see things growing. I think that we have an amazing number of examples of how technology is really taking over everything and by the way improving everything.

It’s not that it takes control, and that’s a bad thing. I think it’s a terrific thing and it’s improving the experience of everything, improving inefficiencies in businesses. It’s a terrific trend, the one we’re seeing and that will continue to happen in the region today. You have a couple of large companies in Latin America that are tech related, like Mercado Libre and Nubank. I’m sure that in five years you’re going to have a few more, and in 10 years you want all of the top companies to be technology companies. 

“You have a couple of large companies in Latin America that are tech related, like Mercado Libre and Nubank. I’m sure that in five years you’re going to have a few more, and in 10 years you want all of the top companies to be technology companies.”

#MinuteMasterclass: Maturing Your Startups’ Finance Function

Yinglan: That’s great, and hopefully many of them will be in the Kaszek portfolio. Now we have a masterclass section and you have worked with many founders, you were the CFO for Mercado Libre.

If you were to give a masterclass on developing or maturing startups’ finance function and capability, what would be one key takeaway you would want your class of CFOs or founders to come to bring home from the class? 

Hernan: That’s a great and tough question because I have a long list of things, but if I had to pick one, I think you can oversimplify the allocation of resources. That is what you do in any business. 

At the end of the day, it’s very important that you have the finance function with that idea very clear in their minds, understanding what they should do, what risks they should take, what they should not take, and what things they should avoid. It’s really about resource allocation.

And that is by the way, what an entrepreneur does, right? It’s how to allocate resources efficiently to try to produce the kind of revolution that they want to produce. And if I had to add a second one, just kind of a fine print, I would say slowly but still start also building the procedures and controls because what you want is for your company to scale in a healthy manner with good controls and nothing’s going out of whack.

“It’s very important that you have the finance function with that idea very clear in their minds, understanding what they should do, what risks they should take, what they should not take, what things they should avoid. It’s really about resource allocation…start also building the procedures and controls because what you want is for your company to scale in a healthy manner with good controls and nothing’s going out of whack.”

#RapidFireRound

What digital technology innovation excites you the most today?

Hernan: ChatGPT.

If you were to produce your own Netflix series, what would be the title?

Hernan: Accomplishment of the unlikely. 

Looking back now, what is one skill, a soft or hard skill, that you wish you had learned back as a student? 

Hernan: Coding or programming? I should have been better at that.

If there’s one thing you could automate in your job, what would it be?

Hernan: Back office.

What is your favorite destination in Latin America? And also what destination will you want to visit in Southeast Asia? 

Hernan: In Latin America, Patagonia in particular, the Andes region, which is a beautiful area. You should all visit it. In Southeast Asia, when I was graduating from Stanford, I had a trip planned to Southeast Asia, in particular to Thailand. And that plan never materialized. There was a good reason as we started working right after graduation and I never stopped. And I’ve been to Asia a few times, to China a few times, to Japan, and to Australia, but never to Thailand. So I think that’s the destination I want to go to. 

Favorite activity to destress? 

Hernan: I used to be a runner, half and full marathons. Nowadays, I really got into CrossFit and I really like it because once you get physically tired, your mind goes blank and you just focus on the task you are doing. And that I think is very relaxing, at least for me.

Anything you have read that you would recommend?

Hernan: Snowball the biography of Warren Buffet. But a recent one is the Power Law. I think everyone that is in this business should read it.

Yinglan: And on that note, I would like to really thank Hernan for spending his precious time sharing his insights about LatAm, about starting MercadoLibre, and the journey so far.

And it’s really been enjoyable and we love to learn I’m sure our founders in all parts of the world will benefit from this session. Thank you so much.