Good Investing Talks - Why invest with VEF in Emerging Fintech? A talk with CEO David Nangle

Episode Date: June 9, 2021

With David Nangle I talked about the strategy of VEF - the emerging market fintech investor (formerly: Vostok Emerging Finance).

Hi, David. It's great to have you on for a talk about VEF, Bostock Emerging Finance, or is it just Weff at the moment? It's just VF. That's our new official name, a smaller, punchier acronym for what was a long, winded name. And thanks, Tillman. It's great to be here. So let us start with your website. And there you have this very short phrase that describes you. I want to wobble a bit along. It is the emerging fintech investor. And why have you chosen, as the first word in this phrase are not a emerging fintech or an emerging fintech investor why are so unique and so the yes okay um fair question and there's nothing um pompous about being

the um as in the only one the greatest of the world there is a lot of investors out there in the world in the venture capital space and private equity space doing a lot of different mandates, whether it's country, regional, segments, and some are broad-based. But what we found when we started five, six years ago, there was nobody approaching FinTech, which is a long-term structural, phenomenal value creation trend across emerging markets, which are the biggest, most populous, fastest growth markets across the world. So when we went at the problem of building a portfolio of the best fintech assets across the

emerging world. We didn't find any peers or comps doing what we were doing. So it's not that other people in locally in Brazil weren't investing in some Brazilian fintech companies or some global venture capital funds didn't find themselves in an Indian fintech company. But there was nobody who had dedicated themselves to this mandate totally and purely. So I think we were very comfortable taking on the mantle of the emerging market fintech investor. Maybe it's because we are we're the only one. So is it the only one of one? But I think that's why we were very happy branding ourselves and calling ourselves that, as opposed to there's 20 out there and we felt we're the best and shame on them. Are you still the unique as you have been like five years ago

or is there more competition coming? Luckily, we like to think we're unique. I guess everybody's unique. But no, I think given five, six years later, given the trends and the opportunities and the space and more specifically the value creation that we've seen in emerging market fintech assets, the competition has come. And that's just a positive factor of we're in the right space. We confirm that we're in the right space, so to speak. Has anybody else turned up to do exactly what we do in a dedicated way? There's one, maybe one other out there. But then there's a bunch of others on a regional and then global or whatever level. But I think not to move forward to other questions, but the beauty of venture capital

versus investment banking that I used to work in is that it's not a zero-sum game. You can invest Tillman in a company at an angel stage, then a local seed fund in Brazil can invest, then we can invest, then partners of ours can invest in. And all of a sudden, six funds all benefit and win from the same growth trajectory of one asset. so competition collaboration it's a lot more blurred in the world of venture capital versus the world of investment banking where it's zero sum winner takes all you win i lose kind of thing maybe let's wobble along to the next word it's fintech what is why fintech and what is so attractive about it for you as an investor yeah look i as a

word, I think it's a word that's been used and abused over the years. And it's probably a word that took me a while to get comfortable with. But realistically, all that is is financial innovation. It's the future of finance, where finance is going. And that, you know, people tend to focus on the tech and kind of try and fast forward on banking is broken and a new banking is going to come and somebody's going to develop or find that new banking and we're investors in that. but what we're finding is that it's an evolution of a story and it can be tweaks it can be at the front end customer acquisition it can be in the producing of products it can be at the back end it can be country or regional specific or segment specific so once it's innovation around financial services and doing financial services and delivery of financial services in a better more efficient tech enabled way versus what was done in the past that for us falls into fintech and in some market markets, that can be very basic. It can be moving from a branch to a call center, which seems old world, but just moving from that branch to the call center and some of the more frontier

markets is taking that front line out of the way. So moving from paper to phone, now it's phone to digital. It doesn't have to be the tech, tech and the fintech. It can just be financial innovation and moving things forward. So it's a broad-based area, it's fintech in terms of ideology, but also it's broad-based in terms of segments. It's payments, credit, investments, there's a whole range. But if you think about the financial sector, there's a huge interlink between the financial sector and nations and the state and regulation. So you have a certain limiting in the financial sector.

So you're limiting yourself as an investor, if you're going focusing on fintech to bets on certain nations. Is that right or is that idea wrong? What is your take? No, it's not wrong. What we find with fintech is there's no one-size-fits-all. So if we're looking at fintech as an ideology in Brazil versus Egypt versus the UK, they're totally different landscapes and playgrounds for us to invest our dollar.

And we've got to take all aspects of those markets into account. And that starts with a macro-level view, old world. You know, size of country, wealth levels of country, populace, demographics, age level, tech enablement, how penetrated smartphones and tech and internet is in those countries. Then you move on to the system of banking that exists today. Maybe it's a new world banking system, the likes of Estonia, maybe it's an old world banking system. Then you've got, well, the other new tech players are doing in terms of social media, e-commerce, marketplaces are all muscling into financial services and have deep pockets and

lots of monthly and daily active users. And then you touched on the point around the regulator. What the regulator will let you do, will not. not let you do, how enabling they are for fintech companies, how disabling they are for fintech companies. And all these aspects feed into how and where fintech is at in any given country who is driving that fintech evolution. In some countries, I say, it's the banks themselves, Russia. In some countries, it was the new economy giant, social media, e-commerce, China. In some countries like Brazil, it's actually the new coming fintech companies. In some

countries like India, it's the government, which generally never get innovation out of a government, but we did. And they all are the ones which are moving financial innovation, fintech forward. And it just makes it so interesting that we don't have a color in by numbers playbook for each country as we go. Each country is different based on all the moving parts. That all feeds into how we think about the opportunity in a country, size and scale, what space we want to be in, small business, consumer, payments, credit, and when we want to be in it. So it's fascinating as a top-down ideology, but the bottom-up from each country is totally different.

So looking at your portfolio, which will go into detail later, how many of your companies are present in more than one country and successfully present? We like to think they're all successful, Tillman. But what we have is we have 14 companies in the portfolio today. We are heavy, neck deep in Latin America. We've got six in Brazil. And that's by design, not by default. We love Brazil.

Brazil is the number one fintech opportunity in the world today, in our view. We've got two in Mexico. That's going to roll down from being neck deep in Brazil, next door neighbor, investing with the same partners and knowing the same terrain. We've got two there. And we've just made our second investment into India. So there are kind of markets where we're more than one investment in, but also Brazil dominates versus the others.

We've been in two investments in Russia, think of or out of. Riva, we're in. Which of the companies have the possibility to be in Brazil and Mexico or Brazil and Argentina or Russia and Poland as players? Yeah, look, I think if we pull back to more fundamentally how you think about things, we love companies in single countries. financial service, you touch on the regulatory point. So the regulator is different in every country. So what tends to happen, I know a lot of startups is that they tend to succeed within their own borders. And it's easier for a Polish person to succeed in Poland than a succeed in Russia

or a Brazilian person to succeed in Brazil versus Mexico. So we tend to love single country scale plays. And most of our countries or most of our companies are that. But specifically to your question, creditas is one that's moved beyond Brazil now into Mexico. But once again, it's off the, off a base of strong success in its core market. We hate people running off to more markets when they haven't succeeded in their own market. But creditas is very front and center in that. We could see Confio doing something similar out of Mexico. But then we have a couple of companies which are multi-country plays.

And that's more like transfer go in the remittances space. So it feeds its model into many countries. Jumo, which is in mobile financial services and banking as a service in Africa, many countries. And then Rievo was taking this buy and pay later business out of Russia, well, still in Russia, but from Russia into other markets of East Europe. So there's a few multi-country plays, but the singular country plays are the ones that we love that focus. I ever wanted to do this in a video. What is about what is about? Until a minute, you should be, it should be dollars.

Dollars are always better in euros. It looks better. I just have thought. Oh, next time. What is your take on cash? Is it some kind of your enemy if you're thinking about cash societies like Mexico where still a lot of the transfers are done by cash? Or what is your relationship to cash as an fintech investor?

It's not so much the enemy, but it's the past. It's history. It's inefficient. It's disease-ridden. It's costly. It's non-traceable from a, It feeds into the gray and the black economy. So, you know, I think the war on cash is there for a reason globally.

And it's been in some places led by governments because they want to digitize everything. So there's transparency in all movements of financial services. And that's good for, I say, just managing the economy. And it's good for tax take. For fintech, it's great because everything's digitized. You can understand it. So you can score small businesses and individuals. better and you can give them better financial products because you can see all the

transactions as opposed to not seeing the transactions all of a sudden. So I think the war on cash is a very positive one, both from a government point of view and from a company point of view. And the trend is clear globally that cash is a dwindling proportion of overall savings, spend and use in society. And that's net positive for fintech. So I think we're quite comfortable with the trend. It's positive for what we do.

You know, I think with COVID, it kind of got a step change in terms of pace. Some countries like India were a bit more dramatic and they had a demonetization push. So you get these kind of step changes, but the gradual move is definitely towards cashless world. That's an opportunity for you. Yes. Yes, it is indeed. Maybe if we are talking about the financial backgrounds, let's also take a look at currencies and you have a big portion of your portfolio in Brazil, and here's the chart of the Real to the Swedish currency, Real2Sec. It's, how are you factoring this in in your investments and how you're going about currency developments? It doesn't look that good since I think it took it from 2015 to today.

Yeah. No, super. We are very aware of the movements in the Brazilian Real, as we are in the Russian Rubel and the Mexican peso and a Turkish lira and many others. What we are at a core is we are structural growth investors. So we're looking to invest in the best companies in the highest growth markets in the structural trend that is fintech. These companies are growing in many cases two or three X a year and that compounds over many years. In the emerging markets, we get the headwinds of currencies, whether it's in one fell swoop in any given year when the Egyptian pound will move 50% in a Mexican peso or what it's gradually over time versus hard currencies like the

Swedish Corona or the US dollar where they'll move 5 or 10% per annum. What we're betting on and what the history has told us is that the structural growth of these winners will outweigh any currency headwinds that are coming their way. So we accept the currency headwind. I won't say we welcome it, but it's a fact of investing in these economies. What it does do, it keeps a lot of the competition away so we can find the best assets at the best prices. We can enjoy. that structural growth story, albeit we need to factor in those currency headwinds. Now, if we look at Turkey, which is a classic example, you know, you bring up a chart of the Turkish lira versus the dollar over the last 10 years, and it's horrific. We made a 60% IRA on our easy co-investment

over a two and a half year period. And we invested when the tanks were on the streets. We invested while the lira was volatile, but that was a company that was doubling and tripling year on year. So that is one of the headwinds or cons in our investment case. But we invests, but we But once we're investing in the right companies, we tend to outgrow those headwinds. So how do you factor the currency in in your framework of valuing a company, you to just say, okay, with the real it's like it goes down 15% a year and the company just has to grow 15% plus more, plus 30% or plus 50% or? What we do from a, whenever we're making an investment, we always have a 30%. 30, IRO hurdle. So we're forecasting these companies out five, seven years, and we're looking to get

a realistic exit on them, but we're factoring in into our forecast a 10% headwind on currency per company, per market per annum. So we're not getting out, you know, we're not trying to forecast the currencies per se, but we're just taking a 10% headwind into our models, which I think in emerging markets we might get lucky, they might be flat, we might get unlucky, it might fall more, but it's a realistic headwind to be building inner buffer. Thank you. So the next point of your short, saying the emerging market,

FinTech investor are the emerging markets. Are there any emerging markets where you say as an investor, I could imagine to do holidays there, but don't invest. First of all, I love emerging markets. I love the size, the scale, the shape, the shape, the volatility, they're fascinating. They're never dull. They are the future, but the path is not linear in any way, shape, or form.

It's definitely a zigzag routes to any kind of success. But where would I go on holiday but not invest within the emerging world? That's a bit hard. I guess Argentina, I'm a big fan of Argentina as a country, but as an investment destination, it is hard country, almost from a mass. macro level more so than a micro level. It's a, it's a country that's been in a difficult, with its leadership macro place for quite a long time, but it's a country that I've been to, and it's phenomenal as a country, both the capital and the countryside and the coastline.

So definitely I would spend time there. I don't know if I would invest there as an emerging market. That's for me and a family point of view. I think personally, though, I like a bit of adventure. So there's many emerging markets that I would travel to that I wouldn't. invest in, be that Belarus, Iran, Venezuela, but I wouldn't bring the family and I wouldn't invest dollars there. And which emerging markets do you say they are interesting? It's worth studying then, but the competition is way too strong that we could add value there. China.

All about China. China is an educational playground for everything tech and fintech, but where do we start as investors in that market, I just don't know. Sitting in Europe with a small team, we've managed to take on countries as big as Brazil, Mexico, and now India, find their place, find our partners, find good assets. I wouldn't know where to start with China, but there's so much to learn from that market. I don't want to blame these countries, but with India and China, I had some interviews with other investors that said you have to do work on the ground, be close to the people because there's a a certain risk to be frauded. How are you going about this risk in emerging markets?

Yeah, look, I wouldn't put any single emerging market in that bucket. Every emerging market is difficult country. They all have their own specific quirks, whether it's politics, geopolitics, rule of law, governance, transparency. They're all on a path to better, I would think, but they're all difficult terrain from an investor point of view. So first and foremost with us, it starts with the people that we're investing in. We're talking about the right people, ethical people, people we get to know over time.

We don't rush into any investments. They're generally professionals. They've spent time in worlds like startup or new economy or tech or some of the big consultancy firms. We spend a lot of time with the people. Then we spend a lot of time with the people around the people. We're generally not the first investor in most company. So in India, we're investing with people like Sequoia, Excel, big investment. bonds in Brazil. It's Kazakh and Red Point. People, people around the people. And then even

after that, then the legals kick in. We have in-house counsel and a house council. And a lot of these companies jurisdictions are outside their countries that are in Delaware or Caymans or Singapore. And then the legals kick in to save us from ourselves if everything does go wrong. But a lot of this is around the people. And then once we're in, we're board members. So we're active investors. We're on the board of 12 out of 14 companies as a team. We're getting sometimes daily updates, weekly updates, monthly updates. We're on quarterly board calls. It used to be board visits.

But obviously, COVID put a few headwinds on our travel in this window. But we get back to that and get back on the ground. And we've got a lot of venture capital partners as well who are co-board members. So a lot of work goes on there. On the active investor point, how scalable is your active approach? You have a very lean setup. I think it's seven people currently working with, and so there's a certain problem if you have more companies in the portfolio with being that active, or is there still room to be active? There's room to be active.

There's plenty of room. I think what we've done very well is we have built the team with the size of the company, the size of our NAV and our portfolio of assets. So we just made a recent hire, a guy called Cahillard, a guy called Cahill, here in Dublin. So we're up to eight people now as part of the team with a portfolio of 14 companies. We've got five people more or less on the front end of hunting, gathering, working on investments. There's definitely more that we can do with the team that we have. So I think we're a good-sized team to do more.

Each person can be very active in five companies while also doing pipeline, we'll also do in all the other things that we do. So there's definitely scale from. You already mentioned the word of pipeline. And how have you built the pipeline for ideas to bring interesting opportunities to Sweden and to you? Yeah, look, it's nonstop in terms of the pipeline. It's become very busy in each of the markets that we play in in terms of entrepreneurs and capital supporting them. And companies coming through in each of the sub-segments in fintech and broader insurance and embedded fintech.

So I think year today, we've looked at over 100 companies, and that's this year alone. as a team. Now, some of our first calls and we're done because it doesn't fit. Others are second or third and we get into it. So it's non-stop the pipeline. Some of it comes by our venture capital partners on the ground in these markets. Others become because we are the emerging market fintech investor and there's not many of us. So they tend to come at us. Others come from our founders. We know very well on the ground. And others, we're just searching. We like certain spaces and we do the work and we try and get into it. So I think pipeline is not our problem. in terms of quantum quality is.

And we have a high bar. We look for a bunch of things in any investments. And we haven't done, we haven't found an investment this year that we have done yet. We've done two investments this year, but they were from last year in terms of we closed them this year. So we tend to do one, maybe two new investments a year. We're in no rush. We just sit back. We wait for the buses.

They come. We watch them go by. And we find when we like, we try and jump on. So then let's move on. We already touched this last word of your small sentence, the investor. You have, if you type in your website, it's web. It's web.c. Is this really the kind of animal of investor you are, or are you different than the VC?

We are a very fundamental VC. We do a lot of work. We do a lot of thinking. We don't jump on a call with somebody and go, we love you. We love that idea. Take some money. We really analyze countries, segments, opportunities. Then we find micro-level opportunities and teams.

We do a lot of work on them. A lot of the time we let them raise money. Seed, Series A, we pass, we pass. Then Series B comes along. We've seen them to get to where they need to be, and it becomes organic in the right time for us to put capital in. So we're definitely investors. We're definitely long-term investors.

We're not traders. But we are very focused and very diligent in what we do. We have anti-fomo. We don't mind missing stuff because it comes around and around and around. And we grab it when it feels right to us. So what kind of timeframes are you thinking in as investor? The beauty of our company and our investor base is we have permanent capital. We have forever money.

and forever is a long time but the way we see our companies in the countries that are operating in is it's a long-term game. You're not going to build the stripe or the square or the JP Morgan of Pakistan or Egypt in five years. It might be 20 years

and that might be 20 years of 50% growth and we want to be there for each of those years of that 50% growth, albeit every three or four years you might get a currency move and you might get a step backwards but that's the game that we're in. So, you know, in Turkey, we were in and out of a company in two and a half years. We didn't plan to be.

We got an offer we couldn't refuse, so we didn't. And that was a good return. But, you know, looking at Tinkoff in our portfolio in the past, that's one that the Vostok group invested in back in 2005. And we only exited the final piece out in 2019. I look at something like Creditas or Compio in our portfolio today. And they're companies that I can see us being in for 10, 15, 20 years. given the space that they're in, the scale of the opportunity, their track record and delivery, you know, that kind of the 100% plus growth may become 50%, may become 30%, but we want to be there to enjoy that journey. What is the reason for you to sell?

Selling, sell. First of all, there's a few things in that, Tillman. The diligence of return on capital. We have what we're expecting, 30% return. So there's an offer on the table that gives us 30% return. So there's an offer on the table that gives us 30%. percent plus return and IRR terms, we'll take it seriously because that starts our promise to shareholders. More importantly, I think is the founders. The founders come to us and they say, we want to sell. We back then, we're founder first. That's what happened in Easyco. When the offer came, the founders came to us and said, this is something we would like to explore and maybe do. And as much as we wanted to be there for longer, we were very happy to support them in their exit. I also think it's good from a professional process point of view is to have some exits. I won't say investing is easy, but investing is easier than getting money back. So to keep a

certain level of exits going as you go through the cycle is healthy discipline to show that cash comes in as well as cash going out and investors like to see that. But generally speaking, it's a fundamental support of founders with founders on their journey. once they're succeeding and looking to exit with them at the right time, IPO or M&A. You've been five year plus at Weath. Where have you gotten better? And Wealth has gotten better and whether you still need to improve or want to improve. Yeah, we've got better at everything.

You know, you kind of think back. I don't know if you think back to your first interview, Tillman, but we think back to when we were raising money back in 2015. And would I have given us money then? I don't think so. People did. We're very grateful to our investors from the start. They believed in us.

They backed us. But we were raw in terms of we had a long career in emerging markets and financial services. We knew these countries, these terrains, the old world banks, the future of finance, as we saw, Trudeinkoff in Russia. But we were still nascent or young in our investment careers, is that part of our career. so where have we got better absolutely everything but the most part is really on the investment side finding investments the diligence in the investments working with our investments growing up with our investments in terms of what works what doesn't work mistakes made

battle scars which is the best way of learning unfortunately it's with capital capital depreciation when you make a mistake but overall our mistakes have been small so far and our wins have been big So net net, it's been a positive education journey as opposed to one of those investment education journeys, which ends up with a zero. And we all go, we learned lots from that, but we got no return. I think over the last five years, we've been delivering about 27% returns on average per annum while getting an education. But where can we get better? I think we can still get better working with our companies and helping them. It's a real goal of ours to be the number one investor for each of our companies.

and that just comes to time and would experience and I think on the investment side always you can get better better at being quicker with our pipeline more efficient and finding the assets that we want so maybe also looking back at 2015 14 when you were asked

to work at Weth what made you take this opportunity and start on it yeah look it kind of the forces coincided for me with Veth or Vostok as it was.

And I was in investment banking, working at Renaissance Capital in Russia and then in London, but emerging markets investment bank, and I was head of research and head of financials. I was nearly there for 10 years and loved every minute of it. It was an amazing place to work, an amazing bank and great people. But through the work on Tinkoff Bank, which I worked on as an analyst and in banking at Renaissance Capital, worked on the IPO, their exit, got to know Oleg Tinkoff and the top management team. team there, got to see the other investors around that story. Goldman Sachs were in there, bearing Vostok and Vostok NAFTA, and Pere Briliot, who was the guy

behind Vostok NAFTA. So it's kind of like my ideology of moving out of banking into running a fund of some kinds at a classic venture capital or listed investment company to invest in future think-offs, cross-reference with Perr-Brilyat and his timing, moving Vostok NAFTA away from what was, you know, marketplaces on one side and some fintech on the other. So the conversations became organic as opposed to pair approaching me and saying, come on board and do this or me approaching pair saying, I should come on board and do that. We just kind of got together and kept on talking through the tinkoff process, through the exit, talking to some of the investors

behind Vostok. And almost organic, he came to the point where we're saying, I should come on board, we should split this company, should be marketplaces on one side, fintech on the other, two separate entities and we should raise capital around the fintech entity that's rebrand also vf and vmv and off we go so easier said than done but an amazing time opportunity meaning of minds and the hindsight is it was a great thing to do at a great time and i say that because we've succeeded clearly success makes you feel happy about hindsight so what has changed since this five years and the motivation you started doing this job on the things that drive you look um the motivation was always long term in nature the older you get the more long term you get with your vision it's

bizarre but true uh we're looking to build something special here over the long term to have a portfolio of the winning and biggest and best fintech companies across the emerging world and that is something which is taking time and we'll take another it could take forever uh because innovation is constant and these companies can keep on growing to be the future. Barclays and HSBC and J.P. Morgans of their market in their specific spaces. If they're in our portfolio, we will grow with them. So our goal, my goal is for this to be something of real size, a real special. People say emerging markets, financial services, the future of finance, they say Beth. It goes hand in hand. At the same time, to continue to create shareholder value as we go is key. We need to make money for

our shareholders and deliver a great return, all with a growing ESG overlay because the impact of what our companies do is very important as well. So I think these are the motivations. And it's really about creating something. We're investing in companies who are themselves building businesses while we ourselves are a startup building a business. We're a six-year startup. We've got eight people. We started with sub-a-100 million dollars of NAV and market cap. And now we're 400 billion dollars of NAB and market cap. We had one investment at the start. We've had 16. We've had two exits. we're building our own startup story and we've kind of gone from early C stage, series A, we're probably at series B or C stage, but there's a lot more to go.

If this concept of retirement exists for you, will we see you retiring at Weth? I don't like the word retiring. I'm a worker. I like to work. I like to be involved. I like to be active, to grow, to travel. so my presence and my foreseeable future is doing that at VF where I'm with a great team with great backers and great shareholders

on a great journey I don't see that changing in the future it may I may take on other things things happen life happens you've got to be open to these things but that's nowhere near my talk process at this point you already mentioned we and we how would you describe the relationship is a bit of the parent the brother some other concept probably all of the above you know

the grandfather the wise uncle the parents the brother I don't know pick your family member but they are our benchmark that's where we've come from

that's where we were born they've been doing it for a lot longer than us with a lot more track record a lot more success we live and learn from BNV so I've only got good things to say about

them and we just watch. We share a similar history, a similar ideology, whenever I've got a question, an issue, something we pick up the phone. Per Briliot sits on our board. So he's very directly involved in terms of influence, ideology.

Yeah, that's the history and that's the present and probably the future. What have you copied from them and where are you daring to be different? Dare to be different. No, look, I think copying, I don't have we copied it, but we've had similar levels of success as in investing in the right companies that create value. That's key. And I think we were founder friendly and founder

first. And that's a similar ideology. They're to be different. I think individually we're different people running different companies. So I think maybe they've gone developed markets. We're staying pure in emerging markets. I don't like developed markets. Develop markets are too stale, too boring, too competitive. I have no interest in France or Germany, no offense, or the USA. It's all about Brazil, Pakistan, Egypt, Russia, for us and FF. So is that different? But that's just our core and our focus. That's one thing. Maybe on the team front, we have a bit deeper of a team, even though both teams are small and lean. I think ours is less lean. Is that daring to be different? Maybe a slight difference in ideology.

competition was already a point you did mention a lot so how is the competitive landscape and the markets you're investing in compared to France, Sweden, Germany? It's less but it's getting busier I would say because when we start doing this, there was nobody who's going to Egypt or Pakistan but investable dollars in but they are now. I think Brazil, India, the bigger emerging markets are getting relatively hot. What we've probably found in the last 12 or 18 months is a few forces have collided. One is the very low interest rate environment globally, so there's a lot more capital out there. Two is the fact that nobody's traveling, so everybody's on Zoom. And so places like Egypt and Pakistan look a lot less intimidating on Zoom than maybe they do in real life. So we're getting investable dollars from places which normally wouldn't be in these markets coming through.

But these are waves and cycles. The beauty of what we do is we can, if Brazil gets hot, we can invest in Mexico. If Mexico's hot, we can invest in Egypt. There's always a place that's less hot if valuation is a key aspect of what you do. But also, you know, we're quite comfortable in our own skin in terms of what we do and our dedication to emerging markets in fintech. and it generally helps us get into the right investment opportunities even if there is a lot of competition out there which is turning up for the first time of these markets how much of your personal wealth is invested in with if you can you don't need percentage you can say in some other measures or no look um let's put it this way maybe it's half um my my my balance sheet or my net asset value is theft um um give or take, if you take a full suite of pensions and home and I don't know how much my kids are worth, but when you put it all together, but I would like to think, given the path that we're

on, that my value in VF will dwarf everything else. And that's the key. I've got no other key investments. My only investment, my only focus, my only job is Veth. I do think about VF from a personal financial point of view, but that's not my prime. I think that's an output and based on the function of delivering a great company and a great product and a great shareholder value and then I'll wake up one day and it will be worth a lot. And you already mentioned you have some news.

You have a person number eight coming to Wef. How is the team aligned? How are they compensated with stocks? Yeah. No, look, from a VF, it's a very much a core compensation package around cash salary and bonus and pension. The upside is all stock, long-term incentive plan, L-TIP.

That's myself, the broader team, everybody's involved, and we all get a piece of it, and it's a five-year program, and it's all about creating value for the shareholders. And once we do that over the medium term, in return, we get our piece. How do you think about buybacks? What is your framework for them? Look, I think they've got a place in an investment company. similar we can put a dollar to work

in either a new pipeline company so something totally new we can put it to work in our current portfolio so following on and putting more capital into them or we can buy back our own shares what we're looking for is 30% 300 IRA or on every dollar that we put to work so we haven't had to do anything extensive

on the buybacks to date because a share price has been in a good place especially more lately in a good place and close to nav but going forward if there was a massive dislocation in our share price and we were sitting on cash, the best thing we can do from a value add for shareholders' point of view is buy back our shares. So there's a place for it. It's part of our investment thesis,

but we haven't had the opportunity to do something aggressive on that front yet. At this point, I want to close our looking at the small sentences you have on your website with all the details of the different words and move on to your portfolio, which is also a very interesting topic. when you think about your portfolio is there any metaphor you're using or any picture you like to describe your portfolio with or how are you going about the construction the framework of what is in your portfolio or yeah yeah um look i think the best way of answering that question is to talk about our view on concentration and we actively seek concentration. If we have a concentrated portfolio, it means we found winners. So when we find something like Tinkoff in the past or Creditas today,

and we can see we're on the inside, we sit on the board very close to these companies, and we can see that they're breaking out and winning in their space, especially when they're later stage, we try and get as much capital into them as possible. So Creditas today is 42% of our NAV, and we're very happy for that to be 50, 60, 70 percent. Then we move to exit. We take capital off the table at some point, and we do it all

again in theory. So I think are we looking at a kind of portfolio theory or portfolio spread across different countries, across different stages? No, we are not. We are looking for on a micro level the best fintech company opportunities. We get them into the portfolio when they're performing. We look to concentrate the hell out of them, as we have in credit us. And that is good news for us. So that's how we think about things. So today we're Brazil heavy and we're creditors heavy or Latam heavy. You know, three, four years ago, we were Russia heavy. Now, in five years time, we might be India heavy. That's geographic and that might be company-based. But, you know, we're quite open to that. And that's the way we think.

What kind of pay points are your companies you're investing in the dressing? but generally speaking it's around price point so a lot of especially in brazil the price point of all financial services are astronomically high you know payments can be 30 days and you can pay three to five percent to process payments money market funds you can charge two percent credit for consumer credits it can be a hundred percent rates so a lot of our companies are providing a well a better product but be at a better price, which isn't hard, given the incumbents and their cartel. Also for user experience, you really are a much better user experience across most products and most of our markets.

Then there's the aspect of the unbanked and underbanked. Jumo is providing a financial service to people for the first time in Africa. So, you know, working with the M&Os, the mobile operators and the banks on the other side, they are delivering a financial product to the on or underbanks. And so is Juma or very comfy on Mexico. where small businesses are just underlooked by the big bank so whether it's first product

or a need for product in wide open spaces whether it's a better user experience whether it's a better price point we're attacking all those problems with different companies and different markets how much copying of concept that works that work in the West can be found

in your portfolio yeah we love a bit of copy paste replicate it's the easiest thing to do in the world with a bit of local flavor So if we can, you know, in what tends to happen, Tillman is in the developed emerging markets, a lot of models pop up that are very similar to the developed markets. So online payments or small business lending, you know, something like Square or Stripe exists in the US or in Europe, I guess, N26 or Tink or Klarna, these models pop up, they tend to pop up in Brazil

or Turkey, more developed emerging with, you know, quite decent banking systems. We did out Easyco in Turkey in the past, online's payments processing. That was very much the Stripe or the Adian model for Turkey. A bunch of Germanic Turks, actually, came back from places like Hamburg and Nuremberg, moved to Istanbul, their ex-Klarna, ex-Pael, and they built the model there, pretty much copying the Stripe or the Adian model, but for a Turkish market. So I think in those markets which are developed emerging, there's a lot of copy, paste, replicate, execute with some local flavor. for us when you get the right founders doing that it's great there's a good playbook there

and it's probably the quickest way we get the best return on capital other markets and other models are very fit for purpose in the frontiers where it's very early stage very cash dependent and it's less copy paste replicate and executes so like jumo is a totally unique model for a very unique space in africa versus other things like creditas in Brazil which is you know very similar to what happens at Carvana or rocket companies in the US or Confio in Mexico, which is building like the square capital of Mexico. So yeah, there's a lot of different examples in there. You have some great investments in your portfolio, but you said at the battleground investments,

you learn a lot. And that's why I want to talk about the investments that still are below the initial sum you invested in. It's except I hope I spell them right. You can correct me then. and please do it's xerpa and jepa yep how do i spell this gui guilla bolza gia bolso and umo they are sometimes only a bit but sometimes even stronger below your initial investment And why did this value decline after the year investment of these companies?

Yeah, no, look, I'll talk about all three. I'm quite happy because they've all got stories where we've got more conservative evaluation, but they're looking good at this stage from these lower valuation marks. But, you know, Gia B also is very much, it's in the personal financial management or open banking space, very much like Tink does in Europe but it was focusing on a B2C model initially and the B2C model was very hard to convert in Brazil

so we spent a lot of time trying to we had a lot of users, a lot of active users, millions and we were just trying to convert that into a profitable revenue based model and it was very difficult and we found that over a two to three year period

so we marked that down aggressively as that model effectively wasn't working but what we have found is that open banking is a big thing globally in Europe and now in Brazil. The regulators are forcing it. And our technology is well placed for that. So on the B2B open banking space, GiaB also now is front and center.

And you can almost see a second coming or a second wave or growth trajectory in that. But I think what that nav mark shows to our auditors and to our investors is we're quite quick to mark things down for conservatism if something isn't working as opposed to keeping valuations where they're maybe not justified at that point. I think Sherpa is one where,

it's in the salary advanced space. So it's giving you an employee access to your earned salary in advance of the end of the month's payroll. And we invested in that in Brazil just before COVID. And it almost, it was just launching the product. So we've kind of had a standstill, as Brazil has been in standstill and human resource departments have been in standstill

for that window. So it kind of took us a year delay. So true COVID and with the currency and with Brazil, we just got more conservative because the model had taken a long time to really pick up and grow. And it's only starting now. So it's kind of like we lost a year, but that brought in conservatism and valuation.

And the final one, Jumo, is one where that's really starting to hum now. It's really the partner is starting to kick in. You know, we got, you know, this is Africa. There's an element of credit. So during COVID, we got very conservative just in case on that model. But now we're starting to come out the other side. And I think you've seen a number of Nav marks in Jumo, maybe in the last quarter, but things are starting to come back in the right direction.

And that's a function of how well the business is doing. So how you're going about the NIV route downs? Is it just like you're saying it's a sign the business isn't working that much? Or how are you going about this valuations and the communication with your investors? Yeah, no, it's fair. Look, we work very closely with our auditors, PWC. And we mark our companies the last investment round. So there's a big funding round.

We mark them at that level. and that's for a period of up to, you know, 12 months. And then after 12 months, we move to a marketing model, so a more fundamental, realistic basis. So for each of our companies, we have a financial model. We have a quarterly or an annual valuation that we roll on a quarterly basis. And if those companies aren't performing versus when we initially invested according to that plan, we happily mark them down to a new valuation based on how the markets

are doing, how their peers are doing, multiples, how the currency is doing. As we've seen, the currencies can move against. and how they're doing so in many cases we're moving things up in valuation over time in some cases we move things down

to move back up so it's kind of an iterative quarterly process but it's very formal very mathematical done with our orders and you know we're quite quick to mark things down

when we feel a bit more conservative about them as much of you are quick to move them up when they're on fire in a good way do you expect this companies to be a good investment or is there any risk that they might be a permanent loss of capital

here in your eyes. Yeah, look, there's a few things like, you know, what we have the marked at the NAB today is the point. So we, either history is history. So whatever we put into any company in the portfolio in the past is point one. But the most important point for us any day when we wake up is what we have it in our nav today. That's reflected in our overall nav, which is about $400 million.

And reflected in how the market sees us on our market cap. so we always ask ourselves from here today how will this company do and when any of our companies are looking for capital we ask them as of this point not historically should we give them more capital for the value they can create from here going forward so all three companies are in a much more stable stroke positive footing in their journeys versus when we took down their mob marks and a lot of that nav mark movements was during COVID conservatism and now we're starting to come out of that how much time you've You said you're an active investor. How much time do you need to put in these markdown companies? This might have problems structurally and how much time take the winners in comparison? Yeah. It's an interesting. We don't really think of it as, you know, do we spend more time on our bigger companies than

our smaller ones or the ones that are increasing in NAV versus decreasing in NAV? We have a portfolio of companies. We've got a team that different people, you know, aligns at each one. And we work with these companies to help them out in any way we can, whether it's raising capital, modeling, you know, decision-making. And we look to help them win at any point in their cycle. So we do, maybe on average, tend to spend more time with the bigger companies in our nav because they will have more impact.

So the more positive impact we can have on a credit us and a confio, the more positive impact it will have in our overall nav, hence our share price and for shareholders. But that's only marginal. And what we tend to find is that the bigger companies, because they've got to a stage where they are big, more professional, deeper, they maybe need less of our time versus some of the smaller companies, even that are only small parts of nav, actually more of our time. So it tends to evolve. Interesting. So let us take a look at your biggest holdings. Credit Tas is really the biggest holding.

I think it's 42%. You have them in your portfolio at the moment. What is your investment thesis for Creditas and what do you expect in the next three years from the company? Yeah, look, I'm biased, but Creditas is a really special company. And the beauty in our world is you come across one of these every so often. And when you have it, you know it, and you just wrap your arms around it. Creditas starts with people. I don't go back to this point.

The founder is a person called Sergio Furio. He's actually Spanish from Valencia. But he moved to Brazil with his wife at the time. he's ex-BCG so he's a consultant super logical very energy driven very methodical in his thinking he's got an excellent team around them and some of the best investors in the region more importantly he's playing into a scale opportunity place which is secured lending in Brazil so this is lending to people with using collateral against their home or against their car or against their payroll so it's lower risk lending in its nature but what Brazil has is a very big unsecured loan book at horrific rates so he's to people at much lower rates, you know, bigger amounts, better economics, safer, effectively. So instead of you going out and borrowing off somebody for 50% as a loan rate, you can borrow off credit costs to get for 10% if you put your home in a Brazil context. So it's a good ethical ESG overlay to what they do. It's a scale space. It's $500 billion existing unsecured credit

in Brazil today. And that needs to be replaced by more longer term secured credit over time. and the credit house loan book is only about three or four hundred million dollars today. So the thing where they can grow two to three X a year for the next 10 years is very realistic given their size and shape. Also, they're doing a lot more around the collateral of home, auto, and payroll

where they're getting deeper into these three ecosystems and providing more financial services around these kind of product suite. So they were lending against car. Now they're lending to buy a car. Now they're doing insurance for cars. You need an eye buyer, buying and selling cars. So there's a whole ecosystem going in around the car.

And they're doing something similar at home, doing something similar payroll. And as we talked about earlier, they're moving from Brazil into Mexico. So from one scale market into another. It's a company that was valued at $1.7 billion in its last investment round in Q4. It's on a path towards IPO, which we like. Obviously, exits and transparency and pricing. It may raise more capital before it gets to IPO. We'll see.

But this is a company where we can see. The predictability of compounding of value from a bigger base is very real. And that's something that gets us really excited. So it's not all these companies, which, what is it yet? We don't know or how will it monetize or what happens next year. There's a real degree of forecastability around the path that they're on with some risks always. But that's what excites us a lot. And we can see the value in this compounding.

This is a $10 billion. It could be a $100 billion company in the making. because they are part of the future of finance in Brazil and they're on a very strong path towards it. What are the risks you are seeing for creditors? I think most of the risks for a lot of our company starts at country level, whether it's macro, markets, regulation. But specifically for credit tests,

I think this is one area that banks could do well. You know, banks, FinTech exists because banks are just, well, their old world, they were asleep at the wheel and they allowed for innovation to come in around them. So I think this is an area where the banks have maybe some competitive advantages around cost of capital. And they have a lot of the customer bases that they're lending to currently in an unsecured format. So the banks have to undercut their own revenue to give their own customers a better product at a better price point, but it's possible. They could do that. So I think the biggest risk for credit assets is around the competitive aspect, but we haven't

seeing anything too much there and it's such a big space that there is room for more what will change in your ownership if they do a successful IPO will you keep the shares in VF or will you carve them out to shareholders or will you sell whatever your idea we are open we are open to making the best decision to create as much value as possible so the fact that they're on a path towards IPO is super welcome. We welcome that. We support that. Will the IPO next year, the year after, we don't know. It'll be a function of the markets and when we're ready. When we get to that point in time, we'll see how the company is doing, how we predict the future of that company, and what price the IPO is done at. We could very easily not sell a share in the IPO and hold on for another

five years, or we could sell everything in the IPO because we think it's gone far enough or the IPO is value, one of those IPOs that's everybody wants a piece of and it's priced way too high. So we'd have to make decisions at the time. Most realistically, it's probably a case of taking X off the table in the IPO and holding Y for the journey thereafter.

But there's plenty of time to get into that before you get there. I think in the meantime, what we want to see is this company continue to compound up in value. Our shareholders are getting closer to it, understanding it. That's been reflected in our share price. And everybody's happy. What is your investment thesis for Confio?

Yeah, Compio is an interesting one because the Mexican market is nothing like Brazil in terms of opportunity. It's a big market, albeit smaller than Brazil, but it's a much more unbanked and underbanked market and cash first market, as you referred to earlier. The opportunities we see in Mexico are more based around a small business. I think it's a small addressable consumer market in Mexico versus Brazil, very unbanked and underbanked market. So looking at classic fintech, we saw a lot of opportunity in the small business space where the big banks were focusing on big corporates

and then microfinances focused on very small corporates. So we were looking for something in a small business space, either small business payments, credit, or ERP management information systems. And we found Compio, which is focusing on the credit space, small business credit. but they have an aspiration of becoming similar to what Square is in America or Pags and Stone are in Brazil, which is a small business financial services ecosystem. So for small businesses, you do their payments, you do their credit,

and you do their management information systems or accounting and processing. And that's the path that they're on. So credit first, but they've also now moved into payments, inorganic as well as organic, and same with ERP. So this is a company which, you know, I think the last round was worth about three. 300 million dollars. They'll probably raise more money this year. And this is a company that we'll definitely support in that journey. But this is one that can be the dominant financial services play for small businesses in Mexico. And Tillman, across the world, you find the small businesses, I guess Germany is an exception because small businesses are everything in

Germany and the banks are built to support small businesses. But elsewhere in the world, small businesses are one of the biggest unserved parts of financial services. Everybody focuses on consumers or big corporates but small businesses get not a lot of love so it's a big opportunity that's interesting how do you think about optionalities in the businesses you own um you can also think about certain examples what businesses might come out of these businesses where you might have a chance to even conquer new markets yeah no i look I think there's two things on that. I think one is a broader than financial services.

So what we're seeing globally is companies that are in e-commerce, social, ride sharing, moving into financial services. So you can Google, Apple, Facebook, they're all moving into payments and maybe credit, even Amazon. But at the same time, we're seeing a lot of these new fintech companies moving into the real economy. So you start off as a digital bank, but all of a sudden you're doing ticketing where you're doing e-comer. or marketplace on top, you may be doing auto lending, but all of a sudden you're doing, buying and selling cars and maybe producing cars. So financial services is moving into the real world, while the real world is moving into financial services. So I can see through a lot

of our companies, especially the ones that have a lot of customers, a lot of brand loyalty and capital, moving beyond core financial services into other areas. And specifically, that can be in areas like health or mobility or education, around which people are actually borrowing for are doing payments in. Geographic-wise, I think there's lots of opportunities, especially credit tasks in Confio, they can dominate Latin America for their product suite. I think going beyond that is probably a push too far,

but you never know. Revo is all across East Europe now, and Jumo and Africa could easily be across Southeast Asia, which is a very similar markets to subcontinent in Southeast Asia. So geographic expansion is a lot easier than product expansion, but that product rollout beyond the core that they're all delivering on. can be A, financial services, which is easy. So you can from payments to credit to investments to insurance,

outside of financial services are starting to happen, which is probably one of the more interesting dynamics that we're seeing. Could you think about using, if there are some innovative concepts coming from emerging markets, as for instance, like in China, every social media company now looks at China and copies them? Could you think about moving like concepts your experience in emerging markets and move them to develop markets?

as a model for for you look um the problem with developed markets is that everything works so we've had all the iterate financial services we've gone from cash to check to card to mobile but cash still exists and credits check books still exist in some markets and you know cards still exist physical plastic cards and mobile you go to china and you jump from cash to digital So you would love to be able in a lot of developed markets to jump to the future. But in many emerging markets or frontier markets specifically, you can go straight to the future and you can jump or leapfrog all these different phases. So I guess if you're going to Sudan or you're going to Bangladesh or pick a market and you're looking at the future of finance, you don't have to go through all the historic chapters. And you can go stress straight to best in class.

And you mentioned it, China, China has a great track record of data, just moving straight to digital because it was driven by the new economy companies. So I think there's learnings there, but I think the unfortunate path about the developed markets is we have a history. You get rid of those things gradually and then innovators come true and they take the top of the end of the pyramid and it counts roll through to everybody else. So I don't know if we do take the benefits of emerging markets to the developed world in such a dramatic sense, gradually, but not as dramatic as what happens in China, where you go from cash over here to all. 100% digital over there. Could we expect some new regions or topics you might see coming up in your pipeline and you're playing? Yeah, look, I think regionally where we're heavy is Brazil, Mexico, India.

That's where we're spending a lot of time. But beyond them, we're looking at next frontiers, next frontier growth markets. Pakistan gets a lot of time. Egypt is getting a lot of time. We'd love to do a first investment in Egypt. And that's all while still, you know, we love markets like Russia and Turkey, which are always on our radar. I think more interesting is on a segment's viewpoint where embedded fintech is becoming more interesting, where we're looking at more companies in education, healthcare, ride sharing, which is not our core, but they're getting more into fintech, whether it's

payments, credit, investments, insurance. And it's becoming a bigger part of their business. So we're looking at them with fintech eyes, even though they're not. at core fintech companies. So I guess what you could see something popping up in our portfolio in health or education and you might go, what the hell is that? But there is an aspect of fintech and a growing aspect of fintech in that. So I guess that's probably the most interesting one. And then there's the insurance part where, you know, classic fintech innovation has been

quicker or deeper than what's happened on the insurance side, albeit the insurance opportunity is as big. So we're looking at the innovation and that's probably a next wave of investment. to us to do, you know, as that progresses. In your smaller positions or the dwarfs in your portfolio, which companies are you most bullish on and think they could double and double and double for the future that make them, that they get a bigger position? Yeah, look, top of the pile is still stays credit tasks because it is doubling and doubling

before our rise. And something doubles when it's small is fine, but something doubles when it big, it just gets bigger. So we love the doubling, the super compounding of value from that size. So I can't help point into credit tasks because that makes everything tick. That said, if I look through our portfolio and some of the names that exist across different areas, like there are more recent ones in India. India is such a scale market, but it's just pay and mobile payments or rupee can go back lending. No matter how you look at them, they're only getting started, even though they're, you know, their company's worth north of a hundred million dollars apiece.

So there's so much scale in that market, so much wealth creation on an individual and collective basis in that market that, you know, from a macro perspective, you can't help but be excited by the Indian opportunities in the portfolio. But if I went, you know, back down to the smaller end of the scale, what's interesting? Which one would I pick? Like I said, look at something like Finan Zero in Brazil,

which is very early it's a marketplace for lending but lending is just booming in Brazil and they're just sitting in the middle they're not taking balance sheet to just connecting lenders to borrowers like the Zmarta model in Europe or Lendo in Scandinavia

copy paste replicate we talked about this great founders executing and that just can keep on doubling and doubling and without taking any balanchi risk just being part of the market trends and that's quite nice to see play out you're now like five plus years at Veth

and looking out like five years to 2026, where do you see with and yourself? Hey, Tillman here. I'm sure you're curious about the answer to this question. But this answer is exclusive to the members of my community Good Investing Plus. Good Investing Plus is a place where we help each other to get better as investor day by day. If you are an ambitious, long-term-oriented investor that likes to share, please apply for good investing plus just go to good minus investing dot net slash plus you can also find this link into show notes i'm waiting for your application and without further ado let's go back to the conversation

i'm at the end with my questions and want to give you the room to add something we haven't discussed is there anything you want to add to our conversation at this point i think it's a look it's One is a big thanks for this interview and for how prepared you've been and the questions you've asked because you've hit all the right spots and the high notes. Two, it's an element of because of the space that we're in, the markets, emerging markets and fintech, we're only getting started in terms of, you know, five years in, a lot of value created, but, you know, there's a long-term journey here and we're very comfortable in our own skin. And it will be cycles in this in what we do. These markets glow hot and cold. But we're doing it for the next 5, 10, 15, 20 years. So we're making decisions today, which are very much focused on that long-term horizon.

As opposed to maybe some of the classic VCs, which raise a fund, close a fund, raise another fund, close a fund. Ours is evergreen. And it's important that we think long-term property. Maybe let me do another follow-up question. How are you thinking about the concept of scale and scalability? And do you see any innovations enabling your companies and investments you did to even scale more? Look, I think the innovation of the smartphone, which is obviously a historic innovation, has been the great enabler for a lot of fintech, like it has been for a lot of new economy. And then the penetration of that and the availability of Wi-Fi globally.

has been key to enable this. And a lot of countries, countries are mobile first, like India, Pakistan. They'll never be desktop first or a smart device versus a smartphone first. So I think that's the innovation that continues to drive. You combine that with the right regulatory drive and the right well levels and growth levels

in a certain market, and it comes together in a great force of opportunity. I think also what's kind of drawn in as the capital, the amount of capital which is supporting these companies in these countries today is more than ever. So it's not innovation in itself, but it's capital being drawn into countries delivered by innovation. So it's a great time to be in these markets and where you're seeing this value and these companies being enabled to create what's been created in the developed markets over many years. And maybe another question.

What is the main interface your consumers are interacting with the companies you invested in? Is it a mobile phone? It is. Now, like, you know, the Turkey's, the Russia, the Brazil, is you do get some desktop, some laptop. But realistically, it's north of 50% is mobile first. You go to India, it's 80, 90% mobile first. So the more frontier's market, the more it is cheap smartphones being purchased from China are the device upon which a lot of these companies' success has been built. So, yeah, think smartphone first, and that's where these countries are.

Is there any higher percentage of personal interaction or other interfaces people are interacting with the companies you invested in? Look, on a person, the person, there's some call center support in some markets, there's some agents, agency networks like Confio and small business, Minu, which is wage advance. And so, Zerpa and Brazil and Mexico, they're working with HR departments. so some outbound sales teams but do any of our companies have branches no physical locations no but they do have people that may be even call centers or maybe outbound sales but it's digital first across the board then thank you very much for this great insights into your company and for your time thank you thank you till one and bye bye to the viewers and listeners bye-bye As in every video, also here is the disclaimer.

You can find a link to the disclaimer below in the show notes. The disclaimer says, always do your own work. What we're doing here is no recommendation and no advice. So please always do your own work. Thank you very much.