Stanford Graduate School of Business lecturer Federico Antoni will tell you that he was never supposed to be a venture capitalist. But then, his home of Mexico City was never supposed to be a VC mecca either. When the former fashion industry executive first started thinking about launching a fund for early-stage startups, there were few success cases he could point to.
But the firm he founded along with fellow Stanford MBA ’04 alumnus Fernando Lelo de Larrea, ALLVP, is defying expectations along with the region it calls home. Since its creation in 2012, the firm has raised two funds and invested in 22 Latin American companies, most at the seed and Series A stage. In 2015, ALLVP had its first major exit, with the acquisition of the ride-sharing company Aventones by BlaBlaCar, a market-leading French startup with eyes on Latin American expansion.
It’s clear to Antoni that whatever the challenges faced in emerging markets, there’s a golden opportunity there for bold investors and entrepreneurs willing to forge the global connections needed to succeed. In this interview, edited for length and clarity, Antoni discusses the unique challenges faced by VCs in developing markets, and what it takes to succeed in a dynamic global climate.
When you started, Mexico didn’t have a strong startup culture. What unique challenges did that present?
I think one of the first things needed is that a new ecosystem has to reconcile with failure. The relationship to failure in Silicon Valley, and also in the United States in general, it’s a very healthy relationship. You’re in fact often trying to fail, because if what you’re doing won’t work, you want to be able to go onto the next challenge as soon as possible. People trust that if you fail you will try harder next time and you might be successful. There is belief in the will of a founder and what they can build. Even if you’re trying for the fifth time, well, maybe the fifth time is when you will build something special.
But in developing economies, that culture is rarely there. Failure is not well seen. That’s a huge hurdle to launching companies. Because most companies fail, and if the culture isn’t comfortable with that going in, not enough new companies will start.
And it’s not just companies; you need to tolerate failure of investors. Our limited partners have to be comfortable with the idea that we might send them an email and say that there was a writeoff. Theoretically, a lot of people will say that’s part of the game, but when they actually get that email, it’s very hard for them. So it’s often hard to find enough limited partners like that to sustain the ecosystem.
Tolerance for failure is just paramount. So I think the key to building that is role models. I think it’s important that different organizations start talking about failure. Just being open about your screwups, that’s actually a start.
How do you overcome the lack of role models and build to an ecosystem that’s more self-sustaining?
This is going to sound a little bit obvious, but the best thing we can do is be successful. We’ll be successful if we show that a young engineer from a small town in Mexico can build a superb company. If we show that a couple of middle-aged operators can return a lot of money to their investors, then the cycle is going to start. The engines are going to start going faster. We need to be successful, and this is important.
For example, there’s a company in Turkey called Yemeksepeti. Yemeksepeti is a food delivering company that was sold for $500 million. That has had a great impact in the Turkish ecosystem because now you have a proof point. Now you have investors and a couple of funds that made a lot of money. You have entrepreneurs that became wealthy. Just one company like that can really kickstart an ecosystem. Then you have more investors investing. You have more young people trying their luck and launching a company. You have universities, filling the need of teaching more entrepreneurship. You have everything because of a success case. A big success case.
In Argentina, for instance, you have a company called Mercado Libre. It was created in ’99, out of Stanford actually [Marcos Galperin and Hernán Kazah, both MBA ’99]. Mercado Libre is a huge success. It’s a similar marketplace as eBay. The founders went on to start up a very successful VC fund. You have a whole generation of entrepreneurs that came out of that one success in Argentina.
Success cases can go a long way. In order to create them, you need to have a huge amount of people trying their luck. There’s no magic. It’s about big numbers. You need a lot of funds, funding a lot of startups, being able to follow on, attracting foreign capital, European capital or American capital. A handful of success cases like those, coming out of some big fund. Then I think the things are going to start becoming interesting in developing countries.
At the same time, governments around the world have been trying to kickstart their own tech and entrepreneurship hubs for years now. But if you look at global venture capital dollars spent, more than half of them are in the U.S. and the vast majority of that is in Silicon Valley. Why hasn’t the distribution become more equal?
It is clear to people who know and understand Silicon Valley that no government program, no internal market will create a new Silicon Valley. Neither government nor ecosystem participant should be thinking about creating another Silicon Valley. The only Silicon Valley will always be Silicon Valley.
I think the opportunity is actually to build great connections to Silicon Valley. The opportunities to attract not only Silicon Valley capital, but also Silicon Valley talent. There is the big opportunity for teams that come to emerging ecosystems.
The case of Startup Chile is a good one. Startup Chile is a program that basically subsidizes any entrepreneur who wants to launch a company in Chile. If you are an Indian engineer, you go to Chile and you get up to $90,000 to start your company. You don’t need to prove anything. You only need to be there and to start a company there.
When you talk to the creator of that program, a Stanford GSB guy named Nicolás Shea [MSx ’09], he tells you it has been both the best and also the cheapest PR effort the Chilean government has ever done.
If you study the history of Silicon Valley, government participation was paramount to the building of Silicon Valley. People talk a lot about Elon Musk, his mission to go to Mars. They don’t talk as much about the subsidies that SpaceX has received that allowed it to be built.
In general, there are very good signs around the world. China and Israel are probably the best success cases — but they’re doing their own thing, not trying to be Silicon Valley.
Israel’s success as an innovative nation in particular is fascinating. As with any ecosystem, it’s a bunch of different things playing together. A book called Startup Nation by Dan Senor and Saul Singer explains that Israel is a nation of immigrants, which makes them by definition risk-takers. It also suggest the mandatory military service builds skills and connections that entrepreneurs leverage. Entrepreneur-friendly government policies and a highly educated population in STEM fields definitely helps. Another contributing factor is counterintuitive when you see what’s happening in China. Israel lacks an internal market to really scale and the region is, well, complicated. Developing deep technologies to solve global problems is the best way to have an impact for Israeli entrepreneurs.
But it’s nonsensical to try to replicate Silicon Valley. The best way to take advantage of Silicon Valley is actually to build a relationship, build close networks.
Do you worry that the more isolationist trend that’s taken hold in the world — Brexit in Europe, America’s Mexican wall, etc. — will make it more difficult to build the global networks that emerging markets need to thrive?
It’s interesting because people who are older than us understand the crisis of the ’70s, what happened to the governments that were particularly protectionist. There’s a lot of history around it. It’s always related to the mobility of goods and people. Trump and the new English administration, they want to stop the movement of people and goods. They want to protect the manufacturing industry and they want to stop illegal immigration.
They want to do it in a world where both the flow of capital, the speed of the flow of capital, and the speed of a doctrine of technology is completely global. It’s completely global, and it can’t be stopped. Technology has a tendency of making the world smaller. Just the sheer volume of capital that moves every hour, every second all over the world, is just too big, just too broadly integrated to go against it.
It’s funny that the platform that President Trump loves most, Twitter, is such an international platform. Whenever Trump tweets to the world, there are no barriers. There’s no “America First” on Twitter.
And that’s the world we live in. Maybe they can stop the flow of cars made in Mexico from crossing the border. But they’re not going to be able to stop people from accessing Twitter. That’s why, in general, I’m an optimist. I think we’re going to be OK.
The other point is that the entrepreneurial journey should be a journey that is accessible to all. Not only Silicon Valley, but all ecosystems would lose so much if they’re not accessible. It’s already not accessible as it should be to women. It’s not as accessible as it should be to minorities. It’s not as accessible as it should be to immigrants. That has to change. Silicon Valley and other ecosystems, we have the responsibility to keep the promise that if you have an idea, if you work your ass off, if you have talent, then you will find the resources to build something cool.