Andrew: Hey there, freedom fighters. My name is Andrew Warner. I’m the founder of Mixergy where I interview entrepreneurs about how they build their businesses. And I do it for an audience of entrepreneurs. I believe that entrepreneurs, this sounds so cliché, but it’s so freaking true, they have the power to change the world. When you look at the world the way it exists today versus the way it existed 20, 30 years ago, the big dramatic changes, not all of them, but many of the big dramatic changes that impact your life are made because of entrepreneurs. And I unfortunately have been focused too much on entrepreneurs in the U.S. and neglecting entrepreneurs and the way that they change the world outside the U.S.
When I first said that I was going to go to Mexico to interview entrepreneurs in Mexico about how they build their businesses, how they build their ecosystem, how they actually change the country and I believe will eventually change the world if they haven’t already, everybody thought, “Well, first of all, Andrew, you’re going to get kidnapped.” “Andrew, this is a stupid idea. Why don’t you consider going to, if you want to do North America, why don’t you go to Canada? That’s interesting, right?” There’s only one person, literally one person who immediately said we’ve got to do this and jump in and help. I still have the email from him. His name is Santiago Zavala. He is the founder of 500 Startups in Latin America, Spanish-speaking Latin America, right?
Andrew: He invests in entrepreneurs in the area seed funding. He is the guy who beyond investing. I’ve talked to people who he is not invested in, who didn’t need his money or maybe even were rejected by you who still say, “He’s the guy who’s helping to grow things.” I don’t usually talk to venture capitalists because frankly I’m not that interested in the financing of entrepreneurship. I’m interested in entrepreneurship. And I believe that what Santiago has done is create two businesses from scratch. The first is a venture capital firm called Mexican.VC. And then the second one 500 Startups, the seed funding company decided to get into the entrepreneurship world south of America. He co-created 500 Startups with them here.
I want to know the story of how a guy who’s a developer becomes an entrepreneur who builds up these two organizations. And we’re going to go through that story thanks to two phenomenal sponsors. The first . . . I love that your brother was part of this. The first will help you hire phenomenal developers. It’s called Toptal. Santiago’s brother was actually a Toptal developer. I’m going to talk to him about that. And the second is site for hosting your website, it’s called HostGator. I’ll tell you about those later. Santiago, good to have you here.
Santiago: Thank you very much for being here, literally being in Mexico City. This is amazing. Thank you very much.
Andrew: You guys made it so good for me. Give me space. I was a little hungry because I didn’t eat breakfast, they gave me candy bar. Thank you. How many startups have you invested in south of America?
Santiago: We’ve done 150 investments since 2010 till now. Most of them through the accelerator programs that we do. So we opened an application process twice a year. We get a lot of companies that give us some information about what they’re doing. And then we pick some of them but we also do some seed investments. I would say 140 of those companies have come to spend 16 weeks with us here at the office. And we have another 10 that we just joined a round and we’ve been more like in their office working with them.
Andrew: So you don’t just give them money. And how much money do you give them?
Santiago: We do an average of $60,000 per company.
Andrew: Okay. Yeah. $60,000. And so beyond the money, you say, you also give them some guidance. Do you have a specific example of someone who was helped by your advice, by your guidance?
Santiago: Yeah, I mean, we’re very lucky. I feel very thankful that we’ve had the fortune of working with great, great people. And a lot of what we do in the accelerator is bringing content that will allow them to be formed as entrepreneurs and try to remove blind spots that would potentially lead them to failure. And then we try to bring some superpowers either discipline, ideas, use the structure of the company to make them potentially more successful.
Andrew: Can you be specific? Is there someone who . . .
Santiago: Yeah. I mean, like everyone. Like I would feel like absolutely every company that has come to the program has had this impact. I’ll give you some examples just to kind of like dive deep into some . . .
Andrew: It’ll also help me get a sense of the companies that you invest in.
Santiago: Yeah, absolutely. So a good example is a company from batch seven that we invest in, roughly like a year and a half ago. And it was a company from Medellin coming to Mexico City. They were very well recommended, because they were good developers. And they had a PMS, which is a property management system. Basically, software to manage hotels. And these are very interesting business because there’s a ton of hotels in Latin America and the world that don’t really have like the right tools to do online marketing, to bring customers, to do pricing, invoicing and everything else.
But then at the same time, like the hotels are not looking to buy these tools and they might not be good at adopting this technology. And if you were to Google like PMS, there’s tons of them online, you can even use them. So it’s kind of like a it’s a tough sale, but once you get it, the hotels really needed. But then when you start talking with other investors, they’re like, “Oh, it’s saturated. Like there’s so many tools that do these.”
It’s kind of weird, right? Like these kind of examples. So they came to accelerator, really good developers. They had experience doing marketing for hotels before as an agency. So we kind of saw like both sides like marketing and technology. They come to accelerator from early on. We were like, “Well, you know, it’s very saturated. The sales proceed is hard.” So through the accelerator we were able with them to find different ways to [compete 00:05:21] with this. So instead of going and selling software, now they actually partner with hotels and the hotels rebrand to their breadth. And what the hotel is going to bring in this partnership is the property and the operations of the hotel. But Ayenda is going to give them the software and is going to give them the online marketing. They set a minimum so if they say sell like less than they sold last year, Ayenda will cover it. So it’s risk free from the hotel.
Andrew: Because the way hotels work is often there’s a brand like Hilton as I understand it doesn’t own all the Hilton Hotels around the world. They’ve got the brand that they licensed to a business that does it. So you’re saying they now partner, these entrepreneurs who work with you, with the brands that then introduce them to the individual hotel owners and say, “This software will help you manage,” and your entrepreneurs guarantee the results.
Santiago: They guarantee the results. They licensed the brand. So it’s like you mentioned like some hotels might be Hilton. Here the hotels will become Ayenda hotels. And these are two, three, and four star hotels in Latin America. Now they’re growing like crazy. They raised a seed round from one of the biggest hotel chains in Mexico City. They have a great team. And hopefully they’ll watch this in Medellin because like they are awesome. And those are the kinds of examples that we take, right? Like these talented people who come here, we connect them with the environment in their industry. We can like face them very directly with the challenges of how you’re going to grow this business. And then we work together to find innovative solutions on how to do that.
Andrew: But it’s your guidance that helped them understand partner with hotel brands?
Santiago: I would say it was the result of the accelerator process bringing them here, all the mentors that we have and the mentorship that we give them and of course 99% of this as you know is the work that the same entrepreneurs are bringing into the business, right? So I mean, it’s a team effort, as you can imagine. But yeah, we feel definitely we’re part of that.
Andrew: I’m on your LinkedIn profile. On one of my screens here, I’ve got your LinkedIn profile. I see that you were a guy who did software development. Look at this, your whole like it goes engineering degree and then software development, software development. How did you start? You started telling me that as a developer, at some point, what you did was start to create a community here in Mexico, right? Mexico City?
Santiago: Yeah, correct. So I mean, I mean, like my backstory is my parents have been doing entrepreneurship around like technology all their life.
Andrew: What do your parents do?
Santiago: Well, right now, they do consulting for technology companies, but before my father started, like the first ecommerce company in Mexico, and they did software for content management systems back in ’98. And before that, they were doing the first like interactive like training CD ROM and stuff like that. So all the way through the ’70s. Like we’re talking like hardcore entrepreneurship, bringing technology to Latin America.
Andrew: I’m looking at your clothes, I just dig your style. Like look at these Onitsuka bright yellow sneakers, the jacket. I don’t know where you get this stuff.
Santiago: Well thanks. So I mean, like going back to that like, yeah, I mean, like all my life I’ve been around that and that’s why like, yeah, we started building technology very early on. Both my brother and me, we learned to code when we were like 10, 11 years old just like supported by my father.
Andrew: What did you do as a 10 or 11-year-old?
Santiago: Well, we started with Logo Writer which is this like little turtle that you gave me instructions and it draws. But the we took like a Visual Basic course and we started to create websites in ’98 I would say. And one of the websites that I ended up launching in 2001 was a community like a forum, and we started to get a lot of people from different places of Mexico to join the forum and talk about politics and technology and news and all these different things. And it was just a beautiful community. I remember 2002, 2003, we need like a national gathering and we have all these people from every place from Mexico coming in here. And this was like when the internet you wouldn’t put your name, you would buy a nickname. So people were shocked when they got to me and I was like a 15-year-old kid when they told maybe like, “Whoever was running this website was probably like, you know, at least like an adult.”
Andrew: What was your username on your site?
Santiago: It was the D-E-F-E-C-T, defect.
Andrew: Defect? Yeah.
Santiago: And it continues to be my Twitter handle. It’s a backstory. So Mexico City recently became like renamed to Mexico City. But before it was Distrito Federal, which is like Washington, D.C., right? So it was the DF. So I moved from another place of Mexico to Mexico City and my friends from the other place started to say DF Defect.
Andrew: Got it.
Santiago: As an insult and joke.
Andrew: And you took it on as the name.
Santiago: And I just said, like, yeah, let’s do it.
Andrew: And so this community knew as like Defect. They started to know you as Santiago in person. And the thing that they shared in common was what?
Santiago: Well, this was just like a general community. This was early 2002 to 2005. We have different sub-topics and we have moderators around politics and technology and, you know, like . . .
Andrew: Yeah, back before Facebook gobbled up all these groups, they were individual sites that had subgroups in them. And that’s what you’re saying you did.
Andrew: Take me through how you co-founded Mexican.VC, or Mexican.VC this venture capital firm.
Santiago: So between 2002 and 2010, we turned this community that I was mentioning and really zoomed into the technology side. And we started to meet every six weeks to use hack for fun. We’re doing entrepreneurship, coding, and just doing it for fun here in Mexico City. We got inspired by a group in Silicon Valley course called SuperHappyDevHouse. So we started that Devhouse here. And we started in Mexico City. So people from other parts of Mexico came here and we started to motivate people to start in their own hometown. So this was 100% grassroots. A 100%, you know, nonprofit volunteering.
Andrew: Why? Why are you doing this? Your parents are entrepreneurs, you’re a smart developer. Why waste your time doing this community stuff?
Santiago: Well, I mean, like, on the on the selfish side, I think I needed other people like me to be motivated and kind of like you need that community. But even more than that, we really were just so passionate about spending time with other software developers and other entrepreneurs that we just had to do it. Like the question even sounds weird “Why we did it?” It was like we didn’t really have another option.
Andrew: I was being provocative with that with what I said.
Santiago: Which is fine.
Andrew: Okay, so take through that. You were hacking together with you. You were coding together. Take me through why you decided that you had to create a venture capital fund?
Santiago: So in 2010, 2011, that community has grown to 16 cities in Mexico. Some of them hundreds of people, and we were starting to get a lot of people going to Silicon Valley to work over there. And then we also were starting to invite the speakers and other entrepreneurs to come here for conferences or just to hang out at our events.
Andrew: Like who is someone who you were especially proud to bring over here?
Santiago: Definitely a number one is David Weekly. He was the founder of SuperHappyDevHouse and PBwiki and he then started Ohana which got acquired by Facebook. And he came here multiple times, and he was very open to share how the community had worked in his favor in the Bay Area. So he really inspired us and connected with us with a lot of other people. Like early Twitter employees and we had other people from Facebook and Google and NASA who just came here. And there was a realization at some point that we’re playing the same game, right? Like it was the same . . . it’s code on the internet.
You can do it from anywhere. If you’re disciplined and you learn and you spend the time and you understand your customer and really bring something of value to them, it doesn’t matter if you’re sitting in San Francisco or in Mexico City or in Puebla, Mexico, right? So we started to talk about like how there was a lot of people starting things here but then I think David was the one that challenged us a little bit to say like, “Hey, why is there so many entrepreneurs at Devhouse?” Or trying to start something but you don’t have angel investors, you don’t have startups that are like, you know, full time in an office building product. It’s more like people on the weekend.
Andrew: “Why aren’t you taking this beyond the hobby stage?”
Andrew: Okay. And the answer was, “There just isn’t enough funding to allow people to do this professionally.”
Santiago: So there is a two-side answer to it. So first what we thought was the answer. And then now looking back what I think was really the answer. So we thought the answer was access to capital because no one was investing in companies. But then when you look at in a lot of people, including like people like David and all the people that we met, they were coming out of university with student debt. And then getting a credit card and spending two or three months of that credit card to build something and putting out there. Most people in Latin America, they either have public universities or their family pays for the university if it’s private. So we’re coming out in a better financial situation and still we wouldn’t invest in ourselves, right?
Andrew: What do you mean you’re coming out in better financial situation? Oh, better than the U.S.
Santiago: Right. We don’t have . . .
Andrew: You’re saying, oh, you don’t have the student debt that we have in the U.S. and you still don’t want to take your own money to invest.
Santiago: And we would be like, “Well, I don’t have enough money to start because no one has invested in me.”
Andrew: It’s like, well, you’re at 0 and nothing like minus 100,000.
Santiago: So, Santiago, why not just work on their mindset? Why not just say, “Look, guys, there are people in the U.S. who have deep debt, and they still invest in themselves a little bit more? Why aren’t you doing it?”
Andrew: So that’s exactly why I mean that it was like a two-piece answer because we thought it was access to capital. And we started to think about bringing angel investors. Ultimately, we learned that most of these angel investors wouldn’t invest in these companies just because they didn’t understand them. So we ended up saying, like, “Well, screw it, let’s us do the fundraising and then invest in the companies.” We understand what they’re trying to let us do it.
And after we did it and we started to work with these companies, many years later, I started to realize that the money was not the important part. The important part was having the community of people who are trying to do the same things that were learning or sharing what works and what doesn’t work. So at the end, what we should have done was work on the mindset. But we started by working on how to bring, you know, capital to the ecosystem, which was great because on the other side, having done that, we aligned the success of the portfolio to our success. So we couldn’t be successful if the companies were not successful. So we were, you know, working full time just trying to find good entrepreneurs, invest in them, and ultimately help to make them successful in a way.
Andrew: All right. In a moment, I’m going to come back and ask you how you got the money for Mexican.VC, the first VC firm that you co-founded and then how you found the entrepreneurs and what worked and didn’t. Let’s talk about my sponsor first. First sponsor is a company called HostGator. If you don’t like your hosting company, switch to HostGator by going to hostgator.com/mixergy. When you do they’re going to give you an unbelievably low price and a good service that just works. But my sense is that if you’re listening to me, there’s more to it than that. That you probably have a project or part of your business that is so strong that it could probably flourish if you gave it space, if you gave it its own domain name. Let me give you an example what that means. I at Mixergy understood that the Mixergy audience loves new technology, for example, chatbots.
So I started talking about chatbots on Mixergy. It did well. People said, “Hey, Andrew is introducing me to this new thing,” but it never really took off until I said I’m going to get a brand new domain name for it, Bot Academy, host it on Host Gator. And once I did, it had this place, this home for other people were excited about chatbots. And it grew beyond what the Mixergy community could do. Today it’s got a team of people now we’re working just on the chatbots space helping train people to build chatbots, helping people to get clients if they’re good at building chatbots. It’s connecting students with clients who need them. Anyway, it’s a whole new story that is beyond what it could have ever been if it was just mixergy.com/whatever.
So what I would urge you to do is look at your business, see what there is, that it can actually stand on its own and be bigger if it had its own identity and try it by going to hostgator.com/mixergy. Select that middle option which is going to give you unlimited hosting, unlimited domains and just experiment. One click to install WordPress very fast. You will be up and running. It’ll give your idea of brand new home on the internet and allow it to flourish. Hostgator.com/mixergy. Throwing that slash Mixergy at the end gives me credit and gives you a lower price. Thanks for doing that. How’s that ad read?
Santiago: That’s great.
Andrew: So I’m going to read. It’s just like an ad thing. It’s kind of weird when somebody is sitting here and I do the ad. But what do you think?
Santiago: Perfect. I mean, I was just thinking about like how important it is to take that first step and you just described like a great way on how to get inspired to do it.
Andrew: I also find the entrepreneurs who I had talked to . . . at first I was a little bit like shy about doing a sales pitch while I’m talking to them. I found that the lights in people’s eyes as I do a sales pitch is like, “We’re sales people. We identify.” The same thing that you might see at home or at a hotel room if you watch me looking at an infomercial like my eyes are like, “Yeah, I love the way they sell. That’s good too. I could do that.” Okay, back to you. Where did you get the money? Where did you get the investors?
Santiago: So the way that we were starting like, I mean, we knew how to do a few things at the moment, right? We knew how to build technology and buy domain names and put websites on the internet. And we knew how to do communities. So our first approach was to try to get angel investors to invest in these things. So we were doing mixers. And everyone had a lot of energy. They wanted to do this. But then once they started talking, we definitely saw a disconnect between, you know, even the language of how people were trying to sell their companies and how these angel investors that we knew . . .
Andrew: Oh, you first started to match angel investors?
Santiago: With entrepreneurs.
Andrew: How did you find angel investors?
Santiago: Well, we were trying to get Mexican people who had gone to an MBA in the U.S. because they probably knew how angel investing worked.
Andrew: But did they have the money to invest?
Santiago: They absolutely have the money to invest.
Andrew: Oh, so it’s not just that they were MBA graduates, it’s that they also had a career past that and that means that they had a good enough salary that they could support a few thousand dollars.
Santiago: I would say your average MBA graduate from like Mexican going to the U.S probably comes from a family that can tap into some resources.
Andrew: Oh, got it. Got it. Okay. So you weren’t looking at entrepreneurs who had a track record of success in selling their company now and wouldn’t [inaudible 00:19:06] invest.
Santiago: No, no, exactly.
Andrew: Got it. Okay. And so you match them up with . . .
Santiago: So matched them and nothing happed. It was like a lot of energy at first, and then, like no money or advice would really change hands whatever. So at some point, we were just like doing one of these events and no one showed up. And we’re like, “Well, like, do we just stop doing it or what should we do?” And we just joking around and we said, like, “Well, let’s just do it ourselves.” And, I mean, we didn’t know anything about starting a fund. We have no idea how to run one. And we said, like, “Well, let’s do it.” And we were joking around. We were just like, you know, it’s one of those like entrepreneurial moments, but it’s just such a great story.
So David knew the founding team of 500 Startups. And he was like, “Well, let’s see if there’s other crazy people who wants to support this story,” right? So he goes and he sends out this email saying like, “Hey, I have these two Mexican hackers. They want to start a fund. Are you interested?” And the 500 Startups team quickly replied, “Yeah, count us in.”
Andrew: Oh, really. So your first money for your venture capital firm came from 500 Startups. They invested in you. How much did they invest?
Santiago: I don’t remember. Like I don’t if I can say that talking . . .
Andrew: Give me a ballpark.
Santiago: A number like $100K. Yeah.
Andrew: Oh, that’s it?
Santiago: Yeah. So . . .
Andrew: Wait, wait, wait, you’re starting a venture capital firm with $100,000?
Andrew: And that’s enough to put . . . how much money were you thinking you were going to invest in companies?
Santiago: Okay. So we were thinking at the moment that we would go out and raise $5 million and invest in a whole bunch of companies. And we’d start investing in $20K to $50K tickets, work with them and just be super successful, ideally, hopefully, right? So that’s what we did. And we saw . . .
Andrew: You like raised $5 million?
Santiago: Nope. Well, not at that moment. We did later. But so we said like, “Well, I mean, if one email brought $100K, I mean, this is easy. Like the hard part is finding the companies. So we decided to quit our jobs. We bought a domain name, Mexican.VC. We created our website, and we opened an application process for startups. Because, again, like one email brought the first investor, “Let’s just do it.” And what we knew how to do was how to create websites and build community. So we got started on that. And then a couple of days later, we went with some lawyers and they were like, “No, no, dude, you have to shut down your website until you have like the fund and you have all these different things.” And we’re like, “Oh, we didn’t even know.”
Andrew: Why? Why can’t you just say, “I’m doing this?”
Santiago: Well, you cannot advertise a fund to invest in companies if you haven’t really started incorporating the [fundamental 00:21:22] things. Like there’s some legal like craziness. So anyways, that’s a little bit of how we started. And then we started pitching the fund and realize that fundraising was going to be extremely hard but we had already committed with our community. So we were, you know, anything we . . .
Andrew: So you had to go and get the money.
Santiago: Now we had to do it.
Andrew: Got it.
Santiago: So we committed to some companies. We started working with them. And we realized that with $250K we would have enough to kind of like do our first batch.
Santiago: Yeah. Show people what we could do. And then like everyone was saying like, “What you need is track record,” right? And we were like, “Well, this is crazy. I mean, like this one batch is track record,” right? So we were mistaken. People by track record they meant you have invested in Uber and exited, right?
Andrew: Oh, they don’t want lots of investments, they want one big one at least.
Andrew: Marquee names.
Santiago: And maybe like 10 years, right? But we didn’t know that. So we went . . .
Andrew: Oh, look, where did you get the other $150,000? $100,000 came from 500 Startups.
Santiago: Right. It came from three other angels from the U.S.
Andrew: And what was their background?
Santiago: One of them is a teacher at Stanford, the other two are entrepreneurs just they had the small exits and had capital deploy.
Andrew: So $250,000 for startup. By the way, I’m on the first version of your website and I see . . .
Santiago: That’s Eric Ries right here, yeah?
Andrew: Yeah. He came to see you guys?
Santiago: Yeah. I mean, he had recently left . . . what was the name of the company where he was doing games?
Santiago: Yeah, he had just recently left IMVU. He was about to publish “The Lean Startup.” So that was old school Eric Ries.
Andrew: And so you brought him in here to speak and you’re starting to find applications. Finding entrepreneurs is relatively easy for you because you had the network.
Andrew: What were you looking for?
Santiago: So we opened up an application process just to try to see what would come back, right? We had heard a lot of like, “Hey, I want to start a company.” But we wanted to see, like, “Let’s do it.” So we received like 70 applications. We ended up investing in seven. All of them were [pre pro 00:23:11]. Like they had a MVP, but they hadn’t launched and we took them there. We did our commitment. And we were very transparent. We said, like, “Hey, we haven’t closed fund. This is what we have. We will do it. Like we commit to go and raise the capital that will deploy into you. But let’s start working together.” So we started working very early on with these companies and we just, you know, found the money and deployed in into them.
Andrew: So when you had $250,000, did you give any of that to them?
Santiago: Yeah, yeah, we invested $20,000 in each one of these companies.
Andrew: But you said, “Trust me, there’s going to be more coming?”
Andrew: Got it. And in the meantime we’re going to help you.
Santiago: I mean, like that was the whole commitment for them. It was like, “We’re going to deploy $20,000 that’s ideally going to give you six months of runway.”
Andrew: That’s $140,000 of your dollars, that means you have $10,000 left for office space.
Santiago: Well, we have $250,000 . . .
Andrew: Oh right, so you had $110,000.
Santiago: Yeah, but we spent . . . like incorporating a fund is extremely expensive. So we invested in incorporating the fund, thinking that we would raise more capital. But then after doing these companies I think we were very successful. Like the companies were really good. I mean, you talk with Hector who’s one of the founders of one of those companies.
Andrew: Really? Hector?
Santiago: Yeah. Conekta.
Andrew: Conekta. The guy who is helping anyone buy online using cash in Latin America.
Andrew: Huge company.
Santiago: So I mean, we’ve had like, like, at least at that moment like there was interesting companies in that batch, right?
Andrew: Wait a minute, look at this. This is you?
Santiago: Yeah, that’s me.
Andrew: You used to be so much heavier.
Santiago: Yeah, I was.
Andrew: I am looking at your website. How did you lose so much weight?
Santiago: Well, I mean, the first two years of starting these I went from like, 80 kilograms to 100. So I was like 200 and something pounds. And I was smoking like a pack a day.
Andrew: Just from stress.
Santiago: And just like, you know, eating really whatever I would find, working 18 hours a day. And then after things had started to get better, which we haven’t got to that part of the story I guess but when they did, I started to quit smoking. And now it’s been more than four years. I started running, and I started losing weight. So it’s been really a transformation. And I talked with entrepreneurs all day. And I’m always telling them, like, the sooner you realize that you need to have like the same discipline that you’re building to your business through your routine and make sure that you have a healthy lifestyle that is sustainable is just equally important.
Andrew: Not to wait till things work out with the business and then lose weight. No.
Santiago: Yeah, exactly.
Andrew: Why? Why not just eat whatever you want, sit at your desk, just get the damn thing done, and then later on, you could worry about your weight?
Santiago: Well, I think I would have done better if I had had like a healthy lifestyle.
Andrew: Like what? What’s an example of something that held you back because you weren’t eating healthy and living well?
Santiago: You know, like I think it’s hard to go back and think of one example but I would kind of like think about it as a way that at that moment, I knew things were hard and I was trying to solve them and if I didn’t have like the solution, I would just work on things that were not really important, right?
Andrew: Oh, I’ve done that. Yes.
Santiago: So being centered and trying to understand like, “Oh, well, like, my problem is fundraising. Maybe I want to go and talk with the right people to understand at least the feedback that I get is better than spending 18 hours just working on another thing just to feel [productive 00:26:15] at the moment.
Andrew: What’s something that you would do just to feel productive back then?
Santiago: I mean, like, you know, just to code something that would help one of the companies a little bit, which was great by but it was not solving a real problem that was causing the stress. So I mean, like, it’s easy to get busy but it’s very tough to find the right things to work in.
Andrew: Now you run marathons?
Andrew: What was the first one you did?
Santiago: Well, the first one was very great like, again, like a lot of these stories they come back to like, that was a very dumb idea. So the first one that I did was in Tajin, which is one of the like pyramids here. But it’s in Veracruz which is very hot, it’s very humid and the whole 42 kilometers, the 26 miles is ups and downs. So it doesn’t even qualify as a marathon so they call an echo marathon.
Andrew: Why not?
Santiago: Because there’s a maximum of ups and downs you can have and this has more.
Andrew: I had no idea you could only beat people up so much in a marathon too. Okay. How long did take you to finish it?
Santiago: It took 4 hours and 15 minutes.
Andrew: That’s impressive.
Santiago: So that’s good. But I was destroyed. So the next ones that I’ve run have been better and just like more normal and now this year I’m doing my first ultramarathon. So wish me luck in September. It’s going to be fun. I’m just starting to get ready for that. It’s going to be crazy.
Andrew: We’re going to pick up the story the moment. First, do you want to reset the camera because I’m going to talk about my sponsor. This is Devon Meadows who is here helping us by recording everything. Devon is still standing. Our second sponsor is a company called Toptal for hiring phenomenal developers. Santiago, your brother was working with Toptal doing what?
Santiago: Oh, he was one of the developers that you can hire through the platform. So they have like these great selection process and they have great, great talent.
Andrew: What do you mean by the selection process? What was that like?
Santiago: Well, I mean, like this was my brother going through these but I remember he had to go through like some tests and selection process. He’s a great developer and, I mean, like if you look at what he’s done in the past, you would instantly pick him and Toptal was like, “No, no, you have to go through these tests and these interviews.”
Andrew: That’s what I’ve seen, right. First of all, it’s just super smart people who are incredibly talented who go through the process, then they put them through the wringer trying to get them to go through this like test, which I think makes them want to work with Toptal even more. And then any company that wants to hire them can hire them. The big question I have is if you brother is so smart, why did he pick Toptal out of all the different job opportunities he could have had?
Santiago: Well, in this specific case was because he knew someone else who was working in there and was super happy working with some clients. And he was just like, “Hey, you should join this,” and he did. He worked there for a good amount of time and he actually like he talks the best about Toptal. We had another company in the portfolio who used Toptal in a similar like the other scenario . . .
Andrew: Hire somebody . . .
Santiago: Hire someone and he was also great. So it’s been great both sides that I’ve been able to see.
Andrew: And my sense is that a lot of developers who work for Toptal are the best of the best but they want to stay in the country, the city, the home that they have. They don’t want to go to . . . I guess you were in the Bay Area, right? They don’t want to go all the way to the Bay Area. They want to stay here. Is that was happening with your brother or he wasn’t able to?
Santiago: No, no, that’s exactly the story and . . .
Andrew: He wanted to or he had to stay here?
Santiago: He wanted to stay here. And like, I mean, if you’re charging top dollars and you’re living here, you have a very good lifestyle.
Andrew: Yeah. That is what I’ve heard.
Santiago: Instead of paying a real estate in San Francisco. Like, it makes no sense, so, yeah.
Andrew: Often it’s, I have a family that . . . not just like kids family but parents family and cousins. I want to be around them. I’m great developer. I’m not flying out to San Francisco. I’m not flying out to wherever these people are who are hiring you. If you’re looking to hire the best of the best developers, really, you’ve heard it from so many people who have interviewed, that’s what Toptal is about. They’re not going to give you the cheapest price. They’re also not incredibly expensive because look at where people are living, they don’t need to earn Bay Area money to work through Toptal.
So best of the best developers, reasonable prices, and I’ll actually give you 80 hours of free of Toptal developer credit when you pay for your first 80 hours in addition to no-risk proposition if you go to this special URL, which frankly will give me credit for sending you over there and will make Toptal want to keep sponsoring me. Here’s the URL, top, as in, top of your head, tal as in talent, .com/mixergy. Toptal.com/mixergy.
How did you get the rest of the money? You said you eventually got to $5 million. How did you do it?
Santiago: Okay. So when we finished doing that first fund or that first batch . . .
Andrew: The first batch was nothing but $250,000.
Santiago: It was seven companies from my apartment, four people . . .
Andrew: Your apartment?
Andrew: Wow, were you living in the apartment by yourself?
Santiago: Yeah, of course. And they and they were . . . some of these companies were staying there for like a week or two. So it was a little bit of like “Silicon Valley,” the TV show without the drugs and just working all the time.
Andrew: Wait, wait, wait, does that mean that was Conekta was there?
Andrew: Hector was in your house?
Santiago: Well, actually, Hector [hadn’t 00:30:53] joined full time at Conekta at moment. And Cristina, his co-founder was at that time.
Andrew: Got it. So she would come to your house to do . . . What kind of guidance would you give them?
Andrew: What kind of guidance would you give them? What would you do?
Santiago: We were working on a product. We knew how to do that. I had worked at a Silicon Valley startup. So I had like all these best practices on how to build a software. We were thinking about launching, and we were connecting with entrepreneurs who were connected to David Weekly in the Valley. We was just trying to find . . . like we’ll do a daily stand up with each one of the seven companies, all of them sharing their progress from the previous day. Imagine how quick we’re iterating and then find the biggest thing that you needed to do that day and we just try to help in anything.
Andrew: Oh, and the energy in the room watching other people produce . . . make so much progress day after day is got to feel incredible.
Santiago: Yeah. Yeah.
Andrew: Having you code with them. Wow, you know what? I just got a GoPro 7 camera that I use for like random shots. I would have loved if we could go back in time and put a GoPro at the ceiling of that apartment and shoot video of these guys, these women as they’re getting started.
Santiago: I mean, I might be able to get some footage from that area. I have some time lapses from that time. So I could do that.
Andrew: Was Hector always a good dresser?
Santiago: No, not like that. He’s actually a developer. He learned to dress when he was starting to the commercial side of Conekta. And learned that in Mexico, like people will treat you a little bit different on the business side if you’re not dressed correctly.
Andrew: He told me how young he was when he got started and how he would have to really dress up because people were not willing to trust the guy who was that young with the financial business.
Santiago: Absolutely. Yeah.
Andrew: Did we just lose one of the cameras to heat?
Andrew: No, we didn’t. He’s just looking for a different shot. Wow. Okay. So you were working with them and then you launch.
Santiago: So they all launch their products to the market. We do have them all in the U.S. We try to get people to invest in these companies.
Andrew: Did you fly them out?
Santiago: Well, we didn’t fly them out in the way, like, we paid for it. Like everyone paid for their own plane but we all went to the Bay Area. We got sponsored by Microsoft. We have this beautiful space. There’s these mall . . . next to our office now in 4th and Market, and they used to have like a floor, and we invited investors, and some of these companies were able to raise money from the conversation at that moment.
Andrew: Really? Did you teach them how to pitch too?
Santiago: Well, actually, it’s a funny story. We were not going to do it. We felt they didn’t have enough traction to do like a really good pitch and the market was very different. So we didn’t do like pitch prep and everything that we do now. We got there two days before, and we’re just talking with people. And we realized that people were getting excited. So at that point, like two days before, we were like, “No, no, we’re just going to do like a graduation.” I just mentioned a little bit about each company and they just have drinks and networking. But then, like, people started like, two days before just having meetings. We realized people were getting excited. So we were like, “No, no” And in two days with did pitch prep and everything.
Andrew: Ah, really?
Andrew: Who helped with the pitch prep?
Santiago: Well, David.
Andrew: David McClure?
Santiago: No, Weekly.
Andrew: Oh, and he was also a general partner at . . .
Santiago: Yeah, it was David Weekly, Lisa [Sesame 00:33:55].
Andrew: Got it. I see. So when you say our office at 4th and Market . . .
Santiago: Now it’s 500.
Andrew: That’s 500. Yeah, that’s like walking distance from my office. I remember going in there. It actually doesn’t even look as nice as this office over here. Frankly, I’ll be honest with you. But it looks very startupy. I imagine your apartment must have looked like that. Got it. So you go in there, they raise money.
Santiago: Some of them and others decided to have like conversations with people. They meet some mentors that we have introduced through Skype. Like it was just a beautiful experience for everyone. And then . . . so we use that as our track record to go and raise more capital.
Andrew: Got it. Well, let me ask you something very basic. You invest $250,000. Your upside is how much? You get 3% of the money you invest plus a percentage of any exit? Is that right?
Santiago: Yeah. So the way that the fund works you have two revenue streams, if you will. One is you get the management fee, which is the one you mentioned, 2%. So a vanilla normal fund is to 220, in which means 2% management fee, 20% carry, which is the second part of the dimension. So $250,000, 2% of that every year is almost nothing. So it doesn’t . . .
Andrew: Is $5,000, right?
Andrew: I mean $5,000 a year, you get to pay for things like office space and a team.
Santiago: That’s it, right? I mean, $5,000, it doesn’t go around one single person.
Andrew: And then the 20% is what?
Santiago: And the 20% is the upside of what it’s called the carry. So if you sell these companies, and then ultimately generate returns, the first capital that comes in, it helps to repay the initial capital. And once you’ve repaid the initial capital, then just plead 80% of the returns to the investors and 20% to you.
Andrew: So 500 Startups in other investors would get 80% and 20% comes to you.
Santiago: After you repay the original investment including the management fees that you have paid yourself. So I mean, like you’re actually returning the $250,000. So the 2% that you charge actually lowers the amount of money you have to invest. Actually makes it harder to do your job. So for this initial fund, we’re not charging a salary. We’re paying like everything from our own savings, and then we were trying to do returns, right? So after that, we went to investors, and we’re like, “Hey, like, whatever months ago, we came to you and you said like, ‘Oh, I want to see track record.’ Now we actually have these thing.” Right?
And we started to hear like, “Well, you’ve done something, which is good. But at the same time, you don’t have anyone in your team who actually knows how to manage our funds for 10 years.” So we went back to 500, and we, kind of, like, asked them for more money, but also gave them this feedback that we’re hearing from the market. And they suggested like, “Hey, why don’t you join us we do a fund for Latin America together. That way you have like the track record from 500, you have our experience, and then you can go out and pitch this thing.” So 2012 we joined 500. We raised an X fund, which was a $3.2 million fund to 2012 to 2015 we . . .
Andrew: I’m sorry to pause. Where did you find these investors who were giving you this kind of solid feedback?
Santiago: So we were peaching people in the U.S. who were closely connected to some of our mentors in the network that have helped us in the community.
Andrew: Ah, because you bring in mentors to come here. You weren’t flying them to Mexico, right?
Santiago: Well, at that moment we were not, now we do. Like after we joined 500 . . .
Andrew: So back then how did you find enough investors to go pitch on your fund on Mexican.VC?
Santiago: So, you know, it was mostly connections that people like David Weekly were good at that.
Andrew: Like David Weekly.
Andrew: I didn’t realize how connected David Weekly was to you, until I went back to the early version of Mexican.VC.
Santiago: Yeah, yeah. He’s one of the GPs. Like, we co-started this, [25% 00:37:29].
Andrew: Got it. So he is a guy with a track record, good friends. He was in like San Mateo I’m seeing here, which is basically the same, kind of, random a bit of a [inaudible 00:37:38].
Santiago: So our first 20, 100% came from connections from David Weekly.
Andrew: Got it. And it’s all introductions from friends of friends. The same thing that your startups have to do, you had to do.
Andrew: They were getting your feedback. Got it. And then you said, “All right, this is not working.” You went back to 500 Startups with that feedback, they said, “How about you partner up with us?” So what I want to understand is how does this partnership work? What happens exactly?
Santiago: Right. So I mean, when we started, it was the first experiment that 500 was doing like this, right? We didn’t really know how to structure it. We ended up trying to understand how that would look like. And what we ended up doing was just start a fund. So 500 Global keeps a little bit of the carry and a little bit of the management fees. But in exchange, they give us all the back end services up of a fund. So finance and legal they will cover it. But we have to do the fundraising and the investing. So we do both . . .
Andrew: You do the fundraising, but you get to use their name?
Santiago: We are the same entity. So we have a subsidiary in Mexico. I am an employee of 500, just like that.
Andrew: Got it. Okay.
Santiago: So and then we have multiple funds. So we done the global funds that we invested.
Andrew: What are they called?
Santiago: Well, the global funds are just sort of 500 Startups fund 1, 2, 3, and 4.
Andrew: Oh, they also invest along with you?
Santiago: Sometimes they do. And then we started a regional fund called 500 Luchadores, right? So what we did there, and it’s very interesting, is that we’re able to, you know, get all of their experience and bring it here. And I think like one of the first things that 500 startups, kind of, like got into us was that we needed local investors. So we got a little bit of money from people in the U.S. and 500 Startups to start Luchadores one. But the goal was, “Hey, you have to go and raise in Mexico.” So we came here and we had, I would say, around 400 to 500 meetings with people to try to get money for the fund. That took us a year and we ended up having 28 investors. So if you think about it, $3.2 million, 28 investors is roughly $100K each. So in a way that first fund with 500 was a little bit like a group of angels just getting together to jumpstart some, like, investment practice in Mexico.
Andrew: Why do you have to have Mexican investors?
Santiago: So we’re investing in Mexico and Spanish speaking Latin America. And some of these investors are owners of really important corporations in the country. They have done businesses here. They have really good connections. So that kind of opens the door for the portfolio to lean a little bit on that for next rounds, for commercial partnerships, for a lot of things. So, I guess, like when we started talking about doing this fund, it was very clear for us that we just couldn’t do it with U.S. money because then you don’t have anyone in the local ecosystem who has skin in the game.
Andrew: You want to be able to say, “This entrepreneur needs help from this big company. Not only do we have a phone number but we have somebody who has a vested interest in their success.” Got it. Okay.
Andrew: Okay. And so the way that it worked was you raise money from them. You now have this and I know you’re going through the process now of picking companies to invest in so I’m appreciative that you had the time [to sit with me 00:40:46].
Santiago: No, no, super happy to do it.
Andrew: And you’re sitting down with them. You’re figuring out who to invest in. You invest roughly $60,000 mas or menos in each company, right? You get what percentage?
Santiago: We used to start with 15%, now we’re doing 10%. And that number sometimes sounds high, especially for people coming from the U.S. But you have to keep in mind that we’re doing like a convertible note that is simulating, “I was buying 10% of the company now.” And then we get diluted every time that they raise more capital. So I would say in the top company that we have right now, we have between 2% to 5%. So we’re very like a minority, you know, shareholder that will be incentivized for the success of the company for 10 years. And even after the four months of accelerator, we’ll continue to provide services as much as we can forever, right? I mean, as we’re partners, we’ll continue bringing connections, advice. We’ll continue to meet with people after the program, sometimes for 5 or 10 years. So it’s important for us to be aligned with the success of the company.
Andrew: Yeah, so Hector from Conekta was here doing an interview with me. And as soon as we were done, he said, “Where is Santiago? I want to talk to him for a bit.” You happened to be in a meeting, I guess, interviewing entrepreneurs at the time.
Santiago: [inaudible 00:41:55], yeah.
Andrew: I’m looking at your website, the previous one, mexican.vc. I keep calling it mexican.vc, just be clear that’s the domain and also to not make it sound generic like a Mexican Venture Capital firm. So mexican.vc. It says here you returned eight times the money to your LPs. What does that mean for you, you personally? How much do you get out of that? Let’s be open.
Santiago: Right. So it’s a little bit of a tricky story because sadly there the transaction that we did that generated those returns was from a company that ultimately failed due to fraud.
Andrew: What do you mean? This is Yogome.
Santiago: Yeah, yeah.
Andrew: Okay. What happened?
Santiago: Yeah, I mean . . .
Andrew: This is an edu-tech . . . sorry.
Santiago: So this is an ongoing situation that is happening so I don’t think I can comment on that one.
Andrew: Wow, I can’t believe that I didn’t do my homework enough to pry about that. No, I do see permanently closed. Got it. Motivate your child while having fun, browse and play with more than 2,000 curriculum aligned learning games. Got it. And so months after raising . . . Wow, I see months after raising $27 million education startup, Yogome shuts down. What does Yogome mean?
Santiago: It doesn’t mean anything.
Andrew: It’s just a name that they came up with.
Santiago: It’s just a name. Yeah.
Andrew: Got it. Okay. So the big company that you have now is Conekta.
Andrew: From that’s first batch. From the first batch. Now you’re part of 500 Startups, Luchador. What does Luchador mean? Why do you guys call your funds Luchador?
Santiago: So when we started the first regional fund, we realized that we needed to have like a name for the fund, and it couldn’t be Mexican.VC because that would lead us to Mexico. So we wanted something that would work in all Latin America. And we started joking around having like a funny name and we realized that the aggressors, the Luchadores they are well known in the U.S. and they also . . . like here it means like fighter and we really liked the fact that entrepreneurs have like that DNA. So we decided to just call the fund 500 Luchadores and now we have 500 Luchadores II and we’ll potentially do, you know, more funds with this name. And then, I guess, one interesting thing to mention is that 500 Startups looked at this as an experiment to have like a regional fund or a micro-fund or a thematic fund, if you will.
Andrew: A what?
Santiago: A thematic.
Andrew: Oh, thematic fund, yeah.
Santiago: And it kind of worked, like we learned a lot from that Luchadores one. We iterated on how that relationship works, which is what I was explaining a little bit of how the back office works and their relationship with the brand and other things. And then we started doing other ones. So we did one called Durians which is in Southeast Asia. We have Kimchi which is in Korea.
Andrew: Called Kimchi in Korea?
Santiago: Yeah. And now we have 13 different thematic funds. So it’s really nice for me to look back all these different years and know, “Well, we had the impact in Latin America.” And we continue to work on this strategy. But we were also helping shape how 500 Startups can have this relationship with people in other geographies. And now looking at some of these funds that are $20 million, $30 million $50 million funds that have been leading the most active seed investors in their own regions is pretty cool.
Andrew: Why do you care about being in Mexico? Why should entrepreneurs care about starting a company in Mexico? You could find a way to go back to Silicon Valley. You were there, right?
Andrew: Where were you there?
Santiago: In Mountain View.
Andrew: No, I mean, I saw that on your bio, on your website but I don’t know where it fit that you’re in Mountain View. Wasn’t in your career.
Santiago: Yeah. So after having worked here and doing communities and everything in 2018, just after graduating, I went to work for one year for startup over there.
Andrew: Okay, so . . .
Santiago: And when we started the funds, I was actually living over there and I came back here to continue operating the fund.
Andrew: So I don’t want to be a jerk about it. I’m not a jerk but I want to just ask why Mexico? Why would you come back to Mexico when it is harder here? Why would entrepreneurs build their companies here when it is easier to go somewhere else?
Santiago: Okay, so there’s multiple answers to that and they might be different. So the very first one I think is that venture capital is a game where you win a lot when you’re right and other people are wrong, right? And I think like most people would think that it’s hard to start businesses here, would think that the opportunity might be smaller and I believe the opposite. And believing that and ultimately if that is like it turns out to be true that there was tons of opportunity and building companies made sense here, we’ll see their returns of win, right?
So you always hear about like how investors want to be contrarian, but then they all go and invest in the same geography which is kind of weird. So I think like just coming, like having to spent time here, having those . . . being through those communities, I see that there’s tons of talent. I see that there’s tons of interesting people. So for me, just a no-brainer to come here and tap into that talent and those opportunities.
Now, why would entrepreneurs want to build companies here? I mean, normally, entrepreneurs want to solve problems. And you usually know the problems that are around you. So it’s very weird for me when I see these entrepreneurs who know like a problem here and then they go to San Francisco to try to solve something that they don’t even know about.
So, I mean, if you look at some of our top companies, we have a company called Konfio, which was part of our batch four. And they are doing loans to small and medium businesses here in Mexico. It’s a huge problem. Just bringing more financing services for companies in Mexico is going to make these companies survive longer, generate more development. They recently hit $85 million Series C last year, and they are going to have a ton of impact as they continue to grow.
Andrew: And you’re saying, look, they know the problem over here better than anyone in San Francisco or anywhere else in the world. So they have a huge advantage. Why would they give up that advantage and trade it for a disadvantage of not knowing the problem that exists in a different . . . got it and that’s . . . All right. Why don’t we close that? There’s so much that I didn’t cover like the fact that you’re still coding. The fact that you, I don’t know, where you came up with this idea but you decided that I got to give everyone who I turned down feedback. And so you did want to give them that feedback?
Santiago: Yeah, we created our own tool. And we were received 1,420 applications. Right now, we’re going to pick 10 to 11 of those to invest in them. But for everyone else, we’re actually going to give them feedback specifically for their company with perks, free classes online, servers, legal services, everything that they need to continue working on their startup.
Andrew: Here’s why we did want to invest in you and here’s all the other things that you’re going to be able to use to build up your business. Some of them are going to come back here and you will invest them.
Santiago: Hopefully, yeah.
Andrew: Others will just go on to do well and you’ll have a better ecosystem here. So you quoted that yourself. Like you sat down and typed it yourself in between ceramics class. You’re in ceramic class.
Santiago: Well, I love a lot of hobbies and I like creating things.
Andrew: I noticed that.
Santiago: I do soaps and many others weird . . .
Andrew: You make soap?
Santiago: Yeah. I make soap.
Andrew: I know. I talked to people about this. I found out so much about you but I didn’t get to cover all of it. Here’s what I will close with. If anyone wants to like get to know the Latin American startup ecosystem by coming to 500 Startups here, do you guys have an event? Is there a way for them to do it? If someone is visiting Mexico City and says, “You know what, I like that I get to . . . ” There’s so much to see here, believe me, especially food. I’m not talking like just Mexican food. I’m talking about this fusion stuff that is un-freaking real. But in addition to like visiting here, if they decide I want to come in and just get an experience, you guys have an event or a meetup or somewhere for them to connect?
Santiago: We do a ton of events and we do a lot of meetups and other things. We have a newsletter of events. So if you join 500.co/boyo, B-O-Y-O, you can get like all the events that are happening every week from us and other people in the community. But I’ll do you one better. I’ll give you my email, firstname.lastname@example.org. Email us and we’ll love to share what’s happening whenever you’re coming and connect you with amazing entrepreneurs who might be doing things in your specific industry of interest, anything you want. We’re more than happy to connect you. I’m kind of sad that we’re not able to connect you even more this time you were here. We’re in the middle of reviewing all these companies, but usually we’d say like, “Hey, let’s go have dinner and drinks and like meet all these other people, and just connect everyone.”
Andrew: No, you’ve been really helpful and your whole team has been really helpful. I’m glad first of all that you didn’t laugh, that you didn’t . . . man, it was so tough. It’s so tough. Really? San Francisco. I want to interview. Forget about I want to interview. We have tons of people coming to us saying, “I want to be on Mixergy,” tons. Our hardest part is not hurting people’s feelings because if we turn them away now, we might want to like beg them a couple of years in the future to do an interview. That’s the hardest part. This has been so good for me and the team to say, “Look, we’ve been comfortable. Let’s push ourselves and go reach out to people we couldn’t.” I couldn’t have done it without you.
Thanks for the space. Everyone out there who’s listening to me, if you want to . . . Is that camera on? Should I be talking to the camera? Look at this. I love that. Devon is here. Devon not only has a camera, he has mics. He has a mic and then another mic and then another mic because we don’t know what’s going to fail here in the space in addition to all this other equipment? Thank you, Devon. Devon Meadows. I want to thank all of you guys for watching and listening to this interview and I want to thank my two sponsors who made this interview happen. The first will host your website right really take whatever idea it seems to small, bring it on to this website, watch it feel big and take on a life of its own. Go to hostgator.com/mixergy. And I want to thank Toptal. If you’re looking for developers, go to toptal.com/mixergy.
This is not the last continent that I will go to. I ran from Texas to Mexico as a marathon runner, you can appreciate it. But I’m not eating well. There’s like a thing right here, my middle looks so bad. Devon takes us beautiful photos and all I do is go to my belly and go, “What am I doing? Enough with the freaking fries. You’re not a luchador.” But if you guys want to see as I progress, hit my goals and if you want some help reaching yours, follow along. Let’s get on calls. And you could do it all by going to runwithandrew.com. Thank you.
Santiago: Thank you very much.
Andrew: We’re going to see the zoo.
Andrew: Let’s see. Bye. I was like trying to slap hard to get a big sound. Let’s see. There your mic. Right?
Santiago: That’s it.
Andrew: And instead I might have broken his bone first. Thank you so much for doing this. Bye, everyone.