Jeffery: Welcome, thank you very much for joining us today Cristobal. Very excited to have you today the way we like to start, we go right at it. But I’d love to learn a little bit more about your background, where you’ve come from. And, I know it’s pretty extensive, but throw a little bit about that and then where you’re at today. And then one thing about you no one will know.

Cristobal: Yeah, the first thing is, I’ve been an entrepreneur for most of my life since I was 17 years old. I started off selling vacuum cleaners and I did that because I was extremely shy. I thought that calling people and selling vacuum cleaners would be pretty hard and that would make me break out so it thankfully worked. It made me much more social and that’s how I got started. Then, I did all sort of things. I had a video game Coinbase company. I had a nightclub for a few years and that’s where I figured out that it was much better doing big entrepreneurs than being a lawyer. i want to get back to that. So, I decided to go to business school thinking that there was this thing called the internet at the time and this is the late 90s. Everybody was talking about venture capital and I thought I was going to go to business school. People were going to be offering me jobs fulfilling venture capital left and right so when I got there, I said that that’s not the case. Nobody recruits for venture capital. Nobody used to recruit venture capital. So, I came out of business school. At the typical business school, we did consult then corporate jobs and basically forgot about doing venture capital. About 10 years ago, I started a company which we sold off and then I started a second company which I sold my stake to my partners and that’s where I met a venture capitalist. I thought this is what I want to do all along so it might be a good point to jump back. So that’s how I got started.

Jeffery: Awesome! Well, we’re going to dive more into how it’s working and all that good stuff, but one thing about you that nobody would know.

Cristobal: More than someone, something nobody would know is that once people know, it clicks for them. It’s how much reading I do. I typically read between 60 and 70 books a year. I rarely am without a book. No matter where I’m going, I always have a closed hand. But I love reading. People usually say it makes sense to have the personality for that. I love that I’ve never actually calculated how many books I read but I love that. I love content, taking in as much as I can everywhere. It allows you to bury your head and get into something else. I can have about 20 books going but it’s all good as long as I’m able to jump in and get a different experience. I think it probably matches. The same on your side. I used to do a lot of news reading or news consumption. I’ve stopped doing that. I think books allow you to have a much more longer-term perspective. Because if you’re just looking at news, you know everything changes every five minutes. They have to give you a new headline. I think you never get into any deep content, just little stuff. And I think that does that good. You can’t always follow along the whole storyline from beginning to end. It’s very choppy. You’re only getting tidbits of information and then you think the world’s warped because you never got the 12th word prior. That really matched up to why this says what it does and that’s the unfortunate part of news. And then you figure out that three years have gone by and very few little things of actual importance happened. And you were worried about 24 things in one day. So, it really puts things in perspective.

Jeffery: I like it. That’s very true. Well I’m going to have to go back to your background because I find it fascinating. All the great things you’ve done but the one that obviously stands out the most is Enron. So, I have to ask you were there, at the year that Enron went down, how much of a part did you play in this? I’m just kidding how much did you see here? I’m just fascinated.

Cristobal: The first person I’ve got to ask this question to experienced so much on it. In the sense that you realize if a couple of things had gone differently, Andrew would not be like a poster child company right like everybody would love Enron. It didn’t go right. I started working as a lawyer for them as an outside general counsel in Mexico. When they’re starting their approaches in the country. I was fascinated by them because they were incredibly competitive and incredibly cutting edge. For example, we had different enrollment entities clients right and I wasn’t allowed to share anything with another entity. That was just extreme competition, really Darwinian. I was really amazed by them. When I decided to go to business school, I asked them for a recommendation letter. They asked what I was going to do after that and I said I don’t know. But I’m sure I’m not going to go back to law. “Hey, we would love this. This different kind of background. So, we’d love to have you aboard. So, why don’t you come back and work for us.’ They gave me the software where they would pay for my first year. I would go back for the summer and then they would pay for my second year depending on how well I did. That summer was the last summer event run, so I didn’t get the second-year check. But by the time, I went there for the summer it was super clear that things were gonna go overboard. Like when I started, it was the first week of June 2001 and the stock price was around 27. By the time I finished at the end of August, it was around 11. So, it was already like one-third of when it came in. You see all these sorts of things like the boss of my boss. He went to jail. There was this one assignment I had where I had to check the marketing desk with the risk desk and the contracts, they had between them and I figured out this whole presentation. I went to see my boss’s boss which I wanted to go to jail and I started doing this presentation. About through slide five, he says, ‘you know what stop it. We don’t want to look at this you know. We’ll look at this in private when you vote.’ It was a weird. After the internal thing, I didn’t have a full-time job. So, I was going to go up to school and didn’t have anywhere to go back to. So, every interview that happened would just happen with you. People didn’t care about my resume. They just want to talk about everyone. So, I would end up interviewing, ‘are you going to ask me anything about myself?’ ‘No, sorry we’re on time.’ It even became difficult to get a job because of that.

Jeffery: Well, first of all we’re about done now. Thanks for your time. That was good. Appreciate our learning. Oh that’s crazy! But I can understand that too because when it comes down to it, people aren’t used to being part of such a big witch hunt that was done intentionally and needed to be done and it’s pretty uh amazing how a Ponzi scheme like that was able to make its way as far and as long as it did but it’s interesting because in all of the things that you’ve done from the legal side and getting into the VC side and obviously, your entrepreneurial stuff, I think there’s got to be some strong learnings that you’ve taken from that Enron experience. You were pitching to people that eventually ended up going places where they won’t be going and talk about anymore. But because of that, there’s a risk factor on your role which was based around mitigating risk. Throughout time you’ve worked on different startups, how much of that really sits in the forefront when you’re building a company or when you’re working with startups that you’re mitigating the risk or the unknowns that they’re not sharing to you?

Cristobal: I see this now when I’m working with a company. They’re like we’re not having a board and I’m like what’s going on here. ‘Why don’t you want a board’ or they’re saying ‘well, I can’t share that information. I’m like what’s so secretive about this information. I’m an investor in your company. I need to know so I’m not even part of anything like this on the extreme that you have. To me, I’m questioning when I can’t get information. I’m assuming you must as a lawyer. You must be really strongly opposed to anybody that’s not opening the doors when you’re coming in to talk to them. At the stages which we invest which is pretty early, definitely not that much objective information you can look at rather than bank accounts and maybe some legal papers. I think our job is much more around psychological stuff. Like really getting into people’s motivations and values while they’re doing this in five years. I think that one of the two biggest lessons from Enron was around talent. Everyone took it to extreme where everybody had to have like three degrees, two & three MBAs, and maybe a PhD. You do realize that there’s a marginal return on education. Not everybody can be a superstar. There’s not a job for everyone. You need talent, but you need the right talent at the right place. There’s not just a bunch of superstars and see what comes out. I think that doesn’t work out. The other thing which everyone was coupled with was the talent thing. And then they also had this super short-term incentive. Nobody was cared about long-term. It didn’t make any difference if a company made money five years from now. It was all about the next quarter and getting to those numbers. So, a superstar Enron was one that had these multiple jobs where he had hit on the short-term numbers. Nobody cared what happened after that. That’s something that’s completely antithetical to what we do in DC. You see, we’re always thinking about 10 – 20 years from now. In DC, all the values terminal value. So, there’s nothing interesting coming in the next few years. I think that’s really different and that’s something I always worry about. ‘What’s this company going to look like in 10 years?’ ‘Are these people going straight here for the time that it takes to build something meaningful right or they want to cash out at the first video they have?’ I think it’s very different incentives from what a typical investor would have for what a VCU looks at. So, to go on to that talent side, I wholeheartedly agree that you know a lot of companies that do go after the town pool they do tend to build bigger faster sharper companies because they are working with a high caliber of educated brains. If you want to use that kind of term for it, there’s probably a place for people that work hard and there’s a place for brains. I’m sure you can figure out what that balance is in the model you’ve built. So, one thing that really interests me is the short-term gains that you’re talking about here because how much does that affect a company. When you’re going in and putting money into a company, are you looking at incentive packages and saying. ‘Hey, I think this is the wrong incentive package. Why don’t you put something like this in because you’re also trying to build growth as well in these companies?’ Startups don’t tend to have that understanding. So, they’re going to be looking for you to say, ‘hey you know here’s some ways that you can incentivize. Do you again look at these past learning and say you know what this might be a better model that’ll get a better longer out term longer outcome that’s going to benefit everybody versus these short plays that might actually create a bigger problem inside your company in the years to come? So, I think that’s a great point about doing this investing. It’s such a people’s game. There’re very little financial things we do here. There’s not a lot of math involved. There’s more thinking about the right people, the right attitude and the right ethic. One thing I enjoy most is helping companies build these management teams right. When you bring in someone, you really look at this person as a believer in division or they are doing this about their CV, and going to go to work for Uber or Amazon or wherever. That’s something that’s always at the back of my hand. Is this person really believing in what we’re building or are they just here because they want to check off that they’ve worked at a startup? A well-funded startup is something you always look at. I think it’s also very difficult for one-time founders. It’s very rare to find repeat founders and the first time they’re building a team is the first time they have the money to pay this team. So, they do need a lot of outside help and that’s where we try to get involved with.

Jeffery: When you do come in and help with these management teams, and the build-up, do you have some criteria that you look for? You mentioned one obviously that they’re not here for a short time or they’re not here to pad their CV. Are you looking for more people that have just worked in startup space and saying hey you know what I agree. Go after this person. They’ve been in startups quite a bit because they get what it takes. They probably lost some money and hours of sleep. Or you go poach that guy from the Bank of Canada. He’d be a great fit. Who cares pay him what he needs and get him in here? Is that how you guys associate to that?

Cristobal: I think I don’t know how it’s in Canada, but in Latin America there’s not that many people with startup experience. So, if you were just gonna recruit from that pool it would be a pretty small pool right and also you see that there tends to be a lot of job jumpers that are within the tool They just like new shiny toys. So as soon as the startup raises some money, they’re gonna jump there. So, I don’t think it’s the greatest feat. I’m much more inclined towards looking for the person that you really have to sell into the idea of the company. Like you said, someone comes from the Bank of Canada or has worked at American Express or Pepsi Co., we know that they’ve put the hours. They know what it’s like to be sitting behind the desk eight hours a day and have this shitty boss. And you see that those people will appreciate and work harder for you because they know the difference. They know what it’s like to be part of something you’re building, supposed to be just one more number in the payroll. So how do you mitigate that risk for them? That was always one of my fears when I started. I didn’t want to poach anybody that hadn’t experienced it because this was early in my earlier years of building companies. I always had this fear of not making payroll with a whole family dependent on me. I can’t handle that stress. I need somebody who’ve done this before because if I come to you and tell you hey I’m gonna need three more weeks to pay you and you’re like what man my family’s not gonna eat this week. There’s a lot of still of prejudice against joining a startup Latin America. People say I have a nice job. I get paid well. I’m going to get paid every month. Why would I do this? It turns into being counter-intuitive that the people that are worried about it. You automatically know they’re not good for because if you’re going to be worried about this, it’s definitely not a right fit. You really want the people that are saying, ‘hey you know I want to give it a try and I’ll see where he goes right.’ It’s something that I’ve wanted to do for years. I’ve never had the guts to do. Maybe this is the right time. So those are the ones that you want to roll with, the ones that really are willing to take the risk. I think if someone has any reservations about joining a startup, I think it’s not a good fit.

Jeffery: Now that makes sense and now taking this lawyer background that you have you must have a really good sense of how to build out a lot of these great contracts that are a little bit more sound. Even from an investment standpoint, are there any recommendations you give to startups when they are early on and they’re hiring people into their company like everybody’s like here take some equity and you know pay all this money? Is there anything that you say you know, ‘Here’s a better way of doing this’?

Cristobal: Well the first thing I always say is don’t save money on lawyers. That’s nowhere you want to be saving money. Because your uncle does family laws he might not be the best person who wraps up your company information So i think it’s one area where people don’t see the value until the problem shows up right. Getting sound structure from the beginning – getting sound label contracts. Those things really work out in the end right especially if you’re building something that’s going to grow big. If it’s going to go bankrupt in two years. People tend to work to worry a lot about things that aren’t worth anything. And then when they’re worth a billion dollars, they don’t think about it. It’s better to worry early when you can still tackle these things. I try to not be a lawyer because I haven’t practiced law for 20 years. But I do try to remind them of where the danger zones are. Like you should be worried about this thing. You should care about this thing. For example, one thing which we don’t care about, like any time as one of our co-investors start you know negotiating dividends, when are we going to pay dividends. I know that’s something that I really don’t care about. If we ever pay dividends we made the wrong investment. This is not what we’re looking for. You see that kind of things that maybe for someone that hasn’t done this before becomes very important. You know that’s just not worth your while. It’s very rare to get dividend payments. I agree we have invested in one company that paid dividends and everybody was going crazy about it. When we had the discussion and walked through it all, we understood the logic. They were trying to get a small select group of people to invest and benefit them so that they would then bring in other investors other value. They were trying to use that and they were like no we’re making this happen. This is why we’re doing this. After trying to see no use for marketing, we just accepted it. It was so small but it was just the fact that these guys were just really good guys that really understood their business model and they built it in but I do agree that it does seem very different when you have investors saying I want to get paid dividends because that means you’re trying to drain the business when the business needs every penny they can keep at this very moment. So that does become a little shocking or I think maybe I think Canada is probably much more sufficient in Latin America. Its still a veteran capital. It is a very strange asset class because you don’t own whatever you’re investing in. You don’t have cash flows and it’s not liquid. So, it goes against everything people are usually used to investing. So, it’s really for them not having nothing at casual. It’s like when are we going to start getting paid out of this and hopefully never right hopefully at the end, you’re getting a big check and that’s it. It’s very common though just in in reference to that what’s going on in Latin America and in North America. It is very similar in the sense that only in the recent years you’re seeing a big push for venture capital. There’re more funds coming now than ever before. But the knowledge understanding is pretty different because you still have a small asset class of people that understand these types of assets so they don’t all invest. I think there’s only 600 000 people in the United States that are accredited investors or have made an investment in a startup. It’s very small compared to the massive size compared to Canada as well. Because it’s so small, you’re always educating people on how that process works. So, at the end of the day, there’s million different types of deals that are being structured every day because there is that much indifference between people understanding. What is the right way or what is the practical way um versus how do I make sure that my wallet’s getting money put back into it if I’m putting all this money out so people treat it like a mutual fund, they think that if I put money in, I should be able to take it out anytime? That’s not the concept then you have to keep explaining that because you know everybody sees, Uber went public or these guys when they’re like well how do I not get into those. Well that’s not the same thing and that started 15 years ago not last week so there’s there is a learning curve to all of this. That’s something actually I like about VC the most. It’s very well aligned in that almost anything worthwhile is long-term obviously. Whether it be educating investors like you said, maybe that person you dedicate today, it’s gonna call you up in 80 years and say hey I finally have to invest in a vc fund and I want to be you. There’s also this part where there’s a lot of going of giving back that you don’t know if you’re ever going to get back or not but you really don’t care. So even if they don’t invest in me and I get to help someone, that’s going to get a check because of what this conversation have with that investor. It’s always really meaningful. It’s the most least sum game you’ll ever see. Because really you’re creating wealth all around whether it be financial wealth, whether it be educational wealth, maybe health wealth. It’s all around.

Jeffery: Agreed. Very well said. So, just to go back. Just a quick second to the whole side around. The employees and how you can help build out this team on the contract side to this or how you would structure this, is there any pointers that you can give to early stage companies when they are going out you?

Cristobal: Don’t reduce their cost to lawyers. Put the right money in. Is that going and getting HR help or is there certain things that you guys would look for because you’re trying to mitigate costs when you’re a startup. But team is number one it’s the most important thing for any investor but any startup that’s going to get anywhere.

Jeffery: Is there any recommendations that you would give that would say take a look at these five things they’re going to really help you hone in on talent and getting your business where it needs to be and you need to do that in the first 12 months of your business or you can might as well just walk away and build something else

Cristobal: That’s a great question. Maybe not for a super early stage startup but at a pretty early stage, I think the sooner you can get someone on board, they can help you with recruiting talent the better off. You realize that it’s such a core component of what you’re building that if you dance you don’t have someone thinking 24 hours per day about who you’re bringing in and really talking to people you’re always going to be running behind you never have enough pipeline of talent around you. So, I think getting someone that’s doing recruiting full-time as soon as you can afford it it’s a godsend. I think that’s really helpful. I think most of the other like even the CFO, most of the time, what a company needs is more of a treasurer like a CFO. You need someone to make sure that there’s enough money to pay at the end of the month. That’s about debt structure. I think it’s it depends a lot on the business. If it’s something that and you can build a very big business, that’s a sales team-oriented business. You need to be new sales people right and really have the right sales people that can that can really make that difference and pay them as well as you can right. If they get paid better than CEO, so be it but they’re really creating the company uh so that’s a typical mistake I see. That’s something I mean I think more of a discussion here in Latin America that CEOs or founders feel like they have to be paid the most right and that’s usually the perfect recipe for not getting enough talent right because those are people like we said like maybe the one person worked at front of the meeting or wherever and they got paid very well they’re not going to jump ship for half their salary right so either you pay them with equity or you’re paying with salary but it’s very common for the best companies to see that the CEO or the founder is not the best paid person. They’re really literally sacrificing today for tomorrow right. They know that they don’t need to be paid well in salary but because of what they’re building they’re going to be very successful down the road and you also see that in general right that the best entrepreneurs we see for VC investing right not in general but the best adverts for VC. Investing are those that financial rewards are by product water building right they’re not informed to make money right they know that if they’re successful they’re going to make a lot of money but that’s not what they’re thinking about all the time. If you see someone saying about it all the time maybe they’re starting company for another reason. Maybe they don’t have a job and they just want to get employed. But if they want to build something, they’re not thinking about the money. That’s a very big point on the CEO. He doesn’t have to be the highest paid player in the business because especially early on, they should just be enough to keep delights on and focusing on the talent that’s going to get their business off the ground. I think that that is massive. I wouldn’t say its news but it could be a headline. We could put that up on the podcast and we release it because it really does make a big difference because one it also controls your cash flow and two it ensures that you’re putting the money in all of the brain power that’s going to build and get this business moving forward. You’re already going to be there you’re not going anywhere as the founder your whole job is to grow this business so why not put the money where the money is going to drive the business faster.

Jeffery: I think that’s brilliant. I agree that even if you were to make one question to a founder and that’s the one question where you decide if you’re going to go deeper or not, is how much is he getting paid?

Cristobal: If they’re getting paid market you know they’re not founders. They just built the company to have their job. They’re not about the other thing. I think that’s one completely binary question, yes or no. Either you’re getting paid well and you’re not a founder or you’re sacrificing because you know you’ve done something for the wrong. I’m adding that to my list of questions when I ask a founder even though I pick them up regardless on this. That’s going to be part of the question.

Jeffery: I love that. So now you and you’ve got some core people that you’re really going to drive and support inside this business. What ways do you look at incentivizing these teams so that they do build for long term because not everybody’s a fit three years from now? So what kind of things can founders do that will help their teams grow and get to that series race that makes sense for you as an investor

Cristobal: I think that the most important thing is figuring out what’s that seriously going to look like in the sense that what am I going to be selling at that point and build back from that. I know I want to get to x amount of clients x amount of retention x amount or whatever and what do i need to get there right and going back on those numbers you can figure out which positions within the organization are going to help you drive those metrics. The people are going to be driving those metrics. I’d pay them as much performance compensation as you can because they’re really building a company. It can be deferred performance conversation or wherever you want to make it but it shouldn’t be insane for someone. For example, a company you invested in not doing about a million dollars a month in revenues and one of the key people want to pay them half a million dollars a year for a startup. That’s only sigma, but if he gets to the numbers, they’re going to pay for that, it’s going to be well underpaid. It makes a lot of its actual absolute number. It’s regard to what you’re getting that number right so I’m a big fan of performance pay. Maybe this goes back to everyone at the internet had the right idea with the wrong execution. I think performance pay is great. It’s not possible for everyone in the team so I think you have to make ways for some people whose job is not as easy to measure to get some of that metrics for the company to do well. XML gets yes to you or as leaders, can make it. One lesson I learned about interviewing sales people right the one question you have to ask a salesperson is to do percentages. Ask them what’s 12 percent of x, or what’s told if they don’t if they’ve never sold anything in their lives because sales people live on commission and they know every time they sell something what person’s like exerting things getting back to them. So, you really have to figure out that the right incentives for each role in the company whether it be the developer maybe the finest person. Each one has their own buttons.

Jeffery: I like that. It’s a good trick question which shouldn’t be a trick question if you do this every day. I like that might as well call them out right away and make it happen. That’s good advice. So now your kind of working with these companies. You’ve structured them. You’re helping their team size. They’re helping them with metrics on how to better understand their business. They’re going to a series they’ve kind of circled back figured out where they want to be and how they’re going to get there what role do you guys play inside of this as they go to a series 8 you become kind of a setback and just kind of watch the ship move forward or you guys take an aggressive position and keep helping all the way up to that series. So, I think this goes back to our philosophy for investing.

Cristobal: I’m very proud in saying that I know very little about investing. I’m not surely not the most knowledgeable person about it but what i do is how to build companies and it’s something I really enjoy. So, the way I see it is founders are investing. They let me work with them because I give them money. So that’s the excuse they’re getting me into the table right but once I’m in the table. I don’t care about metrics or financial metrics right. I care about really building a company. So we’re very hands-on investors and we offer a whole menu of what we can do right. I think that the most comprehensive thing we do is we try to talk to the companies we invest in to figure out if there is something they’re already doing as a team we can get involved as a team member. Not that we don’t want them to have the jaguar. Meaning just give us feedback. We want to participate in the actual meetings. It could be a staff meeting, a sales meeting, or a KPM meeting. Whatever they do, we would like to participate in for the first probably five or six sessions. We’re only going to sit there and listen. Maybe by the seventh session, we have an international question to ask about it and we start to get really raw information about the company and what’s happening and that’s how we think we really help founders. Being a founder is probably one of the longest jobs in the world because you can never have down date. Either with your investors or with your employees or your co-founders or with your clients, you always have to be booming. I think founders really appreciate that we’re approachable per person, that they can come back with bad news or the bad ideas and not be afraid of saying it right. I think that really builds the wrong one as you were saying. We usually get a board sheet. If we don’t get one, we don’t care right it’s more about really being a part of the of the whole idea then which role we pay we play right. It’s typical for us, as companies mature when they get into larger series, have more of these big funds that they do require to get a board seat, that they require to have ex things. We’re okay about not being a part of that. We understand. We want the effort to succeed and if we can help them by not being there, we’re always up for that. Now, that makes sense and well shared on that we help you get to here and we’re also happy to maybe not get off the bus. We’ll hold on to the window on the outside and watch and learn but we’re not going to be. We don’t have to be inside the bus the whole time. So, there’s nothing wrong with that. For sure, I now you take a look at this business. It’s gone out of your hands. It’s going series a to keep investing or you just kind of let them. I think that’s the billion-dollar question. Follow-ons are dumbed down as people say. You got to dull down on your winners. The more we look at it, the less sense it makes for us. And, for us, I mean a small fund right and the reason is that there’s such a big jump between races nowadays. Like you would raise a serious seat, maybe three-million-dollar donation and then seriously is at 20. So that additional capital you put into the company really has a much less effect on your total returns. It’s really diluted. So, in our case and that’s going to affect our numbers. The companies that have done well had exits where almost all the money comes from the first check. So, because of our size, it doesn’t make sense to lose tolerance. Maybe we’re managing 400 million dollars it might make sense right for us. We’re 25 funds. We put in half a million-dollar checks. We’re fine with doing the first check and just letting that multiply, but I think that that follows the problem with following is how high is the sky, and not the American. Well there’s a lot of unicorns. It’s still not the norm. There’s still not that many. So, you’re somewhat capped on your upside. Also, the upset could happen. For example, we missed a new bank at a valuation of three billion dollars which was huge. Trillion dollars was like, there’s not a lot of companies are worth that in the Latin America, let alone startups now the company is worth over 27 billion. So, what we did, in our first check, the second chain could have put in at seven billion. We thought it doesn’t make sense. We already know three billion that’s going to get a 2x return on that one and it could have been a great return. So, I think its general rule to follow us. I do understand there’s acceptance for that for example you’re going to put the third check or going to the sixth round for Facebook or even a tremendous return. But those are far in between and does that play into also your time that you’re looking at for the investment. So if you’re saying that you want to exit by seven years or nine years whatever that might be. So if you’re going in at five years you’re only going to have two years of your money being in there so maybe it doesn’t have the same return so you kind of keep those reinvestments up to one to three years and then after that you just kind of let it ride. It gets out of your hands because it’s too high um so that’s another great question and the truth, the honest truth is that we don’t know because our first fund is a 2014 vintage. So, it’s still all around our last check. Out of that fund was done in 2019, so it’s the fifth year. I imagine that when we reach the end the thirst companies, I still have some somewhere to go. We’re either going to do an extension maybe one or two years and then either distribute the shares to the to the investors or sell them in the secondary. I think that shouldn’t be the reason why we invest or not. I think that would be playing chess when we shouldn’t. We should just be worrying about making the best investments. Regarding timing you know we have a terminal limit on where we can invest so we can invest in the first five years to fund. So that should provide enough of a culture of a cushion for us to be able to get returns.

Jeffery: I like the idea too that you can go secondary market or just distribute the shares up between the investors and they can decide what they want to do with them at that point. But do you do that as a purchase as well? Or do you just look at that based on keeping a position even if you do distribute some of the shares just so that you’re part of that? How do you look at that?

Cristobal: So we haven’t done it yet, so I don’t have an objective answer. I think because these funds have a close term. We need to get some closure on them. I think ideally as we progress at one point, we should have some sort of eternal or never ending full of capital which can take these positions when some of these companies, like I said for example Merkel Libert, which is the largest insurance company in Latin America. They went public at 600 million dollars in 2007 and that was a great exit. The company is now around 90 billion. So those 300 million from the original check in 2017, fourteen years later is like nothing. Like a rounding mistake or a bad day trading, if you had kept those shares for 14 years, they’ve done very well. So, I would imagine our funds progress and some of the companies we invested do well. I think it should be some opportunity for us to take those shares for longer and really stay with them. Whereabouts say, you know holding periods, should be forever right. I like that holding things for a longer duration of what I believe in them. Sometimes they take a kick in the pants and you’re like, ah maybe I should have gotten rid of them, but again it’s a longer-term play. So if you’re keeping and let’s just use a number of 20, distribute everything else but you keep 20, I think that that could be just your own carry and you hold that until whenever but I think that’s where the upside becomes that your risk analysis says, ‘hey you know what there’s a bigger opportunity here so this makes sense for us to distribute this and hold on to our portions so that we can benefit this in five to ten years and then exit at a 30 multiple again on top of what you already exit everybody else on. I guess it’s just part of your risk model.

Jeffery: I agree so the last question. I’m going to have in this and this risk model is again we go back to the risk side from Enron and all the things that you’ve kind of gone through how much of the business analysis that you do when you’re making that initial investment into a company, how much of that risk factor is in your brain? Is it 90 risk, 20 open-ended? I’m just going to just jump at this or do you really have a real strong risk characteristic that you’ve built through that says if i don’t have these 10 things we’re not making an investment and it’s really important to you because you’ve just seen too many of these things fail or too many ups and downs and this is what you look for. I think there’s two types of companies. There’s those companies where you’ve seen a lot of similar teams try to execute so you have a lot of information about what can go wrong so it’s easier to just go through them and say ‘this didn’t work because of this because. That’s not really the case. Maybe one out of every ten companies we see, the other nine are things that nobody’s doing. Those are much harder to analyze because there’s no reference to whether they go well or not. In those, we go to more. We have four things we look at when we invest. The number one thing is team, like I said and obviously everybody says I invest in great founders. I think that’s no surprise but I think the best founders, we’ve a lot we’ve had luck to partner with, bring in people that are better or as good as them. They were obsessed about that from day one so I think we saw a lot of investments in good founders that didn’t have this obsession and you can see their companies grow to a certain size and never got beyond that. The companies that keep growing and growing are always renewing talent right and they’re always looking, even five years on the road. Maybe they’re talking with this American Express person that they’re not going to be able to hire in the next few years but they’re already making that connection because when they get the money in two years. They’re going to bring them or there’s a role for them so the first thing is team and I think that’s the one that trumps it all. The second thing is market. We used to think that Latin America might be different from the US in the sense that you wouldn’t have a lot of billion-dollar companies. You had a lot of 100 million-dollar companies and that’s probably out of your portfolio. Maybe there would be a couple write-offs but most companies would do okay and Venture Capital is not like that anywhere. Venture Capital has very few winners, a lot of losers and you have to be huge winners. So now we will worry a lot more about markets and in that sense one thing we learned about markets is it used to be that. We just thought about the potential of the market from what we saw but there’s some markets where there’s an invisible ceiling for those markets because there’s nothing that you can do as a company or as an investor that can grow that market beyond what it’s going to be by natural cultures. A typical case of this is one company we invested in that does home cleaning services. In America, there’s a lot of domestic service so there’s a lot of it ingrained in the culture. But even with that, there’s very few people that are willing to hire someone through the internet right and that’s not going to change no matter how much money invested in Facebook or Google is just the ceiling. We didn’t see that we saw that this was a huge market and we didn’t see that feeling was going to be there and it was going to grow organically. You have to be careful about those for the market which seems to be very huge but the actual market once you get into the mechanical way of how it works, you’ll see it’s not a big problem. That’s another thing. Then unit economics, we’re obsessed about unit economics you really think about them night and day and it comes out to just, are you getting any money back from what you put into what you sell. We think that the idea of selling dollars for 90 cents doesn’t make a lot of sense it’s been successful sometimes on the road but it’s really the case so there has to be a very strong conviction why something is going to work and change economics. Usually economics might change a little bit down the road. They’re never going to flip. You’re going to start making so that’s something we really put a lot of attention to. The other thing is that the product market fits right and Afro sparse market fit comes down to basically are people willing to pay for this and are they repeating and that’s for us part marketing. If someone is paying for this, then you have actual customers and if those systems are staying around then you have really good customers. If you don’t have that, it’s a tough sell for us to think that you’re going to get that with our money. Are they willing to pay and repeat? And of course, unit economics huge. I like the idea about the market and sharing that invisible ceiling. I think a lot of us forget about this ceiling part and just think that sky’s the limit all the time and it isn’t always the case it’s probably different by jurisdiction areas countries. I’m sure there’s a lot of things demographics can change really quickly so I guess a lot of things can really create more barriers than good right and of course founders and team are the number one driver before any investment.

Jeffery: Awesome. So we’re going to jump into a couple more segments here but the one question I have is, in all the time you’ve been doing this over the better part of 20 years that you’ve been working in and out of startups, and all the great things that you’ve seen your own companies you’ve been building, is there a heartfelt story that you have where you just couldn’t believe this company made it through and it could be one of your own stories and you just saw this and they were like blown away by what it showed that this entrepreneur had to do is to be an entrepreneur, this is what it takes and it’s just one of those stories that you have to tell?

Cristobal: I think this goes back to a little bit how we picture the role of the VC and this was because we had another investor in the same cap table and that investor had a completely different idea. In a first part meeting, the guy starts explaining the way he sees it like the co-pilot of the founders and if he says the founders are going to go into a mountain, he’s going to drop the controls, move the plane and save him. I always look at him like that’s exactly how we don’t see it. We might be the control tower downstairs and say, ‘hey by the way there’s a mountain coming your way but if you’re going to crash into it, it’s going to be you. You’re going to be the one dying. It’s not us, we’re down here and we’re cheering for you. But it’s not us. And I think that’s a big misconception about what venture capitalists do. We’re don’t do management. We try and give you as good advice as we can and be as supportive as we can right but we don’t solve problems. Unfortunately, that’s not a role and in that sense this same company. They have this business model where the unicorns didn’t make sense because they needed a huge volume for them to be big. They were running out of money they had. Maybe three months left of money in the bank and they wanted people to actually start lending themselves. There was a business that was a comparison for for car loans and against our bureau judgement. We said, I think it makes no sense for you to start lending. You have any money, we might as well, just call it quits and get over it and thankfully one thing we do is we always speak our mind. But once we’ve done that and if the founder wants to do the opposite thing, we’re right behind them. We’ve spoken our piece and we’re finally doing what we want to do so they said you know we don’t agree that we can really make this work they were able to find the money, start lending and that was like four years ago and that company is raising their seriously huge multiple way we invested. I don’t really care much about the return of that company. I think it’s going to be a great a great return for us but the really big thing is seeing the entrepreneurs doing good and the relationship with built. Because, I know for one thing, we have allies that are going to be with us forever. They’re going to be partners and they’re going to be recommending us to any founder ever meet in their lives right because we really stood by them and you know we might not have agreed with them but they pulled through and that wasn’t because of us. That was in spite of us it’s even better.

Jeffery: I like that they almost had to prove you wrong. They benefited from you and it will benefit you in the outcome, but that’s a great story. And you’re right. It’s sometimes hearing what you don’t want to hear can help push you over the line to make the right choices to go in the right direction. I love it. That’s great and I do like the analogy you shared about, we’re not in the airplane with you we’re in the radio tower telling you that there’s a mountain coming and you need to steer around it and that’s really, I think 100 not just what an angel VC is. Anyone that’s providing money should be offering is the foresight to be able to help them with problems, potential issues, the upsides and everything. They have to do it from the radio tower. They’re not doing it from inside the plane because I think that that creates more issues and more reason for that startup to not share and going back to the story, I mean it’s also obvious that the information they were seeing in the cockpit was the same information I was seeing downstairs. So they saw something that I couldn’t see and they had faith in that so they went with it and I think that’s great and that’s what you need and maybe if you were in the cockpit you might have seen it as well but maybe you would have been a disbeliever because the mountain was in front of you but you thought you had no problem getting you were going to hit it and they could see over so I guess it all depends on the positioning and what. You know the business. Great analogy. Alright! We’re going to jump into some quick rapid-fire questions. What is your favorite part of investing?

Cristobal: I think this is CSU so I think you know in opposition to most people in the world every day I speak to people who love what they do right and I think that’s really unique right uh usually when you’re in a corporate job half people are going to hate their job but they’re just for the pay right here is probably the opposite right most people don’t like what they’re getting paid but they love what they’re doing right and I think that’s something that I’m privileged to do.

Jeffery: Amazing! I love it. How many companies do you invest in per year?

Cristobal: We don’t have a set number. I do see that it’s become a lot more as both we as a fund involved and the ecosystem involves. For example this year, between generator and now we’ve destined eight companies. That’s a lot. In the six months, eight companies a lot we used to tend to invest maybe in five six companies a year. Now it’s getting a lot more rapid so you’re almost double the average.

Jeffery: That’s good. I hope the quality as well. It sounds like you’re becoming very good at this so this is good. Any specific verticals you focus on?

Cristobal: So the truth is, we don’t focus in any verticals. We try to think about the business bottom up so if it’s a good business. We look at it no matter what they do. If you want to look at it at sectors we like, we invest a lot in fintech e-commerce marketplaces because that’s what we knew as reverse. Both my partner and I, before and fintech because the first few investors we did that did well, were fintech investments. We sort of started this virtual cycle where those founders recommend us to other founders and as we see more fintech companies were better at analyzing them. So, it’s just very natural. Aside from that, just as general principles, we don’t invest in things we think we wouldn’t like us or our children to have or play with. We tend to think about this thing about vitamins and experience. We invest in things that make you better or take away some pain if they don’t do that that’s not something we’re interested in. So we don’t do any social media or any gaming.

Jeffery: I like it. Any specific things that you look for from a due diligence perspective like paperwork? Cristobal: Whatever paperwork, I think paperwork at the stage we invest in, we do very live paperwork. I think it’s much more about really calibrating. The incentives or the motivation someone’s doing this is one thing. This is something we’re always thinking about. Like how can we improve how we evaluate owners. One of the newest questions I’ve come up with is the best founders we work with or they’re actually settling into the company they have some role model they look up to and they sort of have this inner bug about making it right for them. So, one question I now always ask founders is, who’s the relative you most admire and why and if they don’t come up with someone that’s really good right we’re not investing. It’s like it’s not a good sign. You really have to be very clear with who you aspire to be. If that’s not clear in your mind, it’s hard for me to believe you’re going to build a company.

Jeffery: Well that’s good. And you said a relative because if its someone you saw in the movies or you can say Warren Buffet, that’s very trivial. But you can say, I don’t know my grandmother who came from Syria or wherever and she built this or that’s really potent like you actually knew the person and you know the story. I like that it’s a great question. How long does it take you, timeline wise, to make an investment from the day you start talking till the day you make an investment?

Cristobal: So it used to be pretty standard. Let’s say we took between four and eight weeks to make a decision. I think it doesn’t make sense to do that much time so we stream like now between two and six weeks. The shortest time we’ve done is one week, so we’ve been able to do that I hope that we are able at one point to make all investments in one week. Not really and I make the investment decision because the paperwork can take anywhere. It depends a lot on the company where they’re at, their needs whatever but to be able to say yes or no, we would live long to be able to do that in one two weeks. What we do is we’re always very clear on a next step or not, so as soon as we see there’s a no. We cut off communication when we tell our founders like we’re not going to invest, so don’t send us anything any more stuff because that’s something that happens a lot. Founders are being dragged along and they’re not clear where they stand maybe the fact maybe the investor don’t actually have a fund they’re just using them as bait to raise funds and we hate that. That’s really not good for founders. They typically don’t have a great idea about PCS. They don’t like us a lot so why help them get that with that idea, why fuel it anymore.

Jeffery: Interesting! Alright. Do you lead rounds?

Cristobal: We don’t care about leading or following. I mean the only difference for us is how much more we do. When we lead we do a lot more work. When we follow, we just take terms and you know get into the round.

Jeffery: Did you follow on investments and do you have a percentage of that?

Cristobal: In the first one, we did have a certain percentage for follow-ons like I said we noticed that for us it doesn’t make a lot of sense. Financially-wise, we’re very upfront about that with founders so when we invest we tell them we don’t do phones or we would rarely do one and we explain why. Whenever they go see another investor and they say why they’re not well then they only said that they want to get two phones. Some partners on the side somewhat founders don’t but that’s what it is.

Jeffery: You mentioned that you do take board seats so the last question is are there any preferred terms that you like? Is it prep shares, common shares, you’re okay with sales?

Cristobal: So we always prefer shares. We do equity preferred shares. It’s more than one common that people just do saves and until they do a big enough round they do and the big enough round allows something more than 10 million dollars. They do equity. We typically do the things we always ask for. And this is interesting for most founders is, we know that preferred the first shares we have a limited preference of one. We never ask more than that. We ask for participation, so pro rata. For the next round and then one thing that we learned is we always ask for a put option to sell our shares for one dollar right back to the founders and the reason for this is liquidation for a company can take a long time right and we’re not in the business liquidating companies. So, if you go into a liquidation process, we better give you back your shares and deal with it. Then firstly and also fiduciarily, we cannot give you more money than what we’re legally required to right so we want to help you we’re going to call an RFPS to give you money just to help with that regulation so it’s easier to just give you back the search for one dollar and you know sorry it didn’t work out.

Jeffery: Interesting. I like that makes things a little easier and cleaner even though it’s not an easy process and also because of some fiscal regulation in some countries, you can take that right off in your own personal statements. It also helps when you do that. That makes sense. We’re just going to finish up with some last personal questions. So, what’s your favorite sports team?

Cristobal: Oh, that’s a tough one. So, there’s three there’s three sports I really love soccer is one of them. American Football is one of them and baseball. And in each one, I have a local team called Christopher in Mexico. They’ve played nine championship games in the last nine years and they’ve only won one. So, they’re perennial losers in the championship game so I like them. I think that I share that with my baseball team, the Chicago Cups. I love the cups and they’ve always been losers so I think there’s something about the underdogs I really like. And then my football team is the New York Giants. They’re probably one of those giving me the most satisfaction because they’ve been championing the most yeah.

Jeffery: Very cool! I like it. Favorite movie and what character would you play in the movie?

Cristobal: Oh, that’s tough one. So, my favorite movie is Gallipoli.

Jeffery: I haven’t seen it. What is it Gallipoli?

Cristobal: Gallipoli, it’s Mel Gibson’s first movies. It’s about the battle in Turkey of Gallipoli in the 201. I think it was a long time ago and it’s a really good movie and it’s about these two friends that go into war and one of them dies right and I don’t know I probably would like to play the male given character because he survives.

Jeffery: Alright! I’m going to look into this movie I might watch it again if I haven’t seen it I’ll give you my review but I like that. Very cool! Alright. what is your superpower?

Cristobal: Hmm, another great question. I think self-awareness would be my superpower in the sense that I think I realize how much I don’t know. I don’t understand and I don’t try to play no at all I’m not afraid of saying I don’t know and I’m saying about saying you know I’m not going to understand that and I think that that makes it easier for everyone around.

Jeffery: I like that. That’s awesome. Well, as I normally say and do, Cristobal fantastic interview. I loved it. It was great. I learned a lot. I took a lot of notes as I always do. I can’t help it. I’m like an old bookworm just right and away but I learned a lot and there’s uh a lot of great things that I’m sure the audience is going to love this. There’s so many things I could dive back into but again thank you very much for all your insights today. Super appreciated and the way we like to kind of end our shows is that we like to give you the last word so anything that you want to say to the investors or to the startups, I turn the floor over to you to share but again thank you very much.

Cristobal: So, I think for this for the startup founders, it’s a typical question to ask should I start a company or should I go into controversy and I think the answer is unless it’s something that keeps you up awake at night or you know bothers you while you’re in the shower, or you just can’t just get it out of your mind, I think it’s worthwhile to start a company. I think you really have to get it like a virus and you cannot get rid of it. If you don’t have that, I think you’re better off in your comfort job.

Jeffery: I like that brilliant all right again Cristóbal thank you very much for that so that was Cristóbal. Fantastic! So many great pieces of information just around the talent side and hiring the right people and what type of people to look for you know great advice there. I really appreciate how you’re going to hire a team you’re going to look for. Eighteen people you’re going to spend the money and the CEO should just reduce their salary and focus on making sure their team is getting paid. I love that I think that that really makes a big emphasis on ensuring that your company has growth and stability and pay the people that are going to keep crushing it. And then of course, just different ways that they looked at the unit economics the market the founding team and then market fit you know great ways to support the business and the biggest one was you know as VCS and Angels we’re just in the radio tower and you guys are in the plane running and we’re just going to let you know there’s mountains and everything around you but you got to steer the boats to hear the plane and make it happen so again appreciate all of his time and all the great insights. Share, like, comment. Looking forward to seeing you guys on the next podcast, thank you.