Interview with Carlos Torres de la Cuba, Managing Partner of AMG Block - ATLalts

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Interview with Carlos Torres de la Cuba, Managing Partner of AMG Block

Episode 1 • 7th May 2021 • ATLalts • Andres Sandate

Andres Sandate 0:11

Welcome to the ATLalts Podcast. I am your host, Andres Sandate and I have designed a podcast to interview founders, fund managers, investors, allocators, CEOs, entrepreneurs and executives, whose stories I believe will inspire, educate and inform. All of our guests are investing capital, raising funds, executing transactions, closing deals, and serving clients. And many, perhaps like you, have overcome long odds, setbacks, adversity, difficult circumstances, and more. Through all of this, a story emerges. And it's typically the source and inspiration for why they're pursuing what they're doing today. Join us on ATLalts where our guests will take you on a personal and professional journey that will inspire, educate and inform. This week on the ATLalts podcast, I will be interviewing Carlos Torres de la Cuba, Managing Partner of AMG Block, a seed stage VC fund headquartered in Mexico City, focused on the FinTech sector in Mexico and Spanish speaking LatAm. Our discussion covered Carlos's upbringing in Mexico, his education, what it was like living in Madison, Wisconsin and Boston, his corporate banking career, a FinTech startup, working at a family office, and eventually the launch of AMG Block. We will break down the dynamic FinTech space in Mexico and LatAm and where Carlos sees the most compelling investment opportunities today. This discussion will be interesting to anyone who wants to bridge their own educational gap as it relates to FinTech investing, emerging markets venture capital, and to gain a better understanding of how roughly half of Latin America's population doesn't have access to financial services, particularly among lower income segments. The lack of seed and early stage capital in Mexico and Latin America is a major bottleneck of innovation, where technology solves structural issues rather than convenience. Many experts see Latin America where Southeast Asia was 10 years ago. Both regions have young populations where the median age is less than 30, consumers are tech savvy, you have a high smartphone penetration - however, financial inclusion has been a challenge. Tune in to this episode of ATLalts if you're curious to understand the market dynamics for FinTech investing in Mexico, and to hear perspectives from an early stage VC founder. If you'd like to learn more, email us at info@atlalts.com or find us on social media @ATLalts on Twitter, Instagram, Facebook, and LinkedIn. Please enjoy my interview with Carlos Torres de la Cuba, Managing Partner of AMG Block. Carlos Torres de la Cuba. Welcome to ATLalts.

Carlos Torres 3:10

Thanks. Thanks for having me.

Andres Sandate 3:13

It's been fascinating to dive into your firm, your background, and all the things you're working on. But let's begin with where you're from.

Carlos Torres 3:21

I was born in Mexico City but both my parents are from Peru actually. So they got married in Peru, but they moved to Mexico over 40 years ago. So I was born and raised here in Mexico, but have had, you know, the opportunity to travel to Peru as often as I can. Most of my family still resides in Peru. So I have strong LatAm roots in across the region, I'd say. And yeah, I mean a little bit about myself. I'm married. I have a two year old daughter. I'm expecting my second son in a little over a month. And yeah, man, right now we're focused on, you know, building this seed stage VC fund focusing on FinTech in Mexico and LatAm.

Andres Sandate 4:09

What role, if any, did your family play in your decision to launch AMG Block?

Carlos Torres 4:15

There are a big part of why I'm doing what I'm doing trying to build, I'd say a legacy and something to leave behind for future generations as well.

Andres Sandate 4:25

Tell us a little bit about your education.

Carlos Torres 4:27

Yeah, for sure. So as I said, I mean, I grew up here in Mexico, but when I was little, so my dad used to work for a big construction company. And he was we were moved to Argentina. So we lived in Buenos Aires for about a year, and initially we were supposed to stay there for about four but at the end of the day, we ended up just staying for about a year. And then continuing my education career in Mexico. In seventh grade my parents sent me to study to Wisconsin. So I spent a year in in Wisconsin, at a legionary school near Madison and continued obviously here, after a year, here in Mexico. I was always keen on math subjects, the one that I had never really liked was history. So I sort of knew where my path was going to go?

Andres Sandate 5:21

How did you decide what degree to pursue in university?

Carlos Torres 5:25

I was looking into what sort of field I wanted to tap into, I looked at, you know, applied mathematics, something in that regards - but too much math wasn't really gonna be it. So I decided to study industrial engineering, which I thought, and I still think it's a great combination of different stuff, you're able to dive into physics, chemistry, math, even the operational side of business, you're even, you even have classes where you're able to use your hand. So it's a great career to sort of enable a wider career.

So you studied industrial engineering. What did you do after you graduated from university?

To be honest, I didn't know I was going to be a banker. So I started working with my dad on a construction projects. And I realized, it want, it really wasn't a fit for me. So I did that for a brief period of time. And then I had the opportunity to join HSBC, at what was called the IBC, which is the International Business Center, which was a way for to connect, you know, international companies that wanted to operate in Mexico, we were the first point of contact for corporate clients. And then I had the opportunity to continue as a corporate relationship manager, but handling the bank's products and services for corporate clients, across Mexico and across different industries. And that's I'd say the first time I realized that the traditional banking system is focused on the 1% of the entire landscape of SMEs in at least in Mexico. I mean, the number of clients that we had that to comply with a specific characteristics at the time they were, they had to be corporate clients that sold a specific amount yearly. So if a company that was looking to hire certain products or services from them at HSBC, the first question we have to ask is, what's your annual revenue? And if it didn't fall within our corporate banking tunnel, we have to send them to other divisions. And obviously, the the attention was a little bit different.

Andres Sandate 7:39

Despite some of the challenges, what were some of the positive takeaways from your banking experience?

Carlos Torres 7:45

using market. And in, back in: 2012

So you had a couple of stints at banks - at what point did you decide 'I might want to do something different' - and consider some different career options?

You know, I decided I wanted to do maybe something different or explore different career pathway. So I decided to study my MBA, and I studied in Boston for a one year MBA. And after my program, I worked for the venture arm of a family office that wanted to tap into the startup community, in the Boston region. And that's when I, you know, started delving into the venture landscape. I had done angel investing before but hadn't really, you know, looked at, like you said, the alternative investments space in detail, right?

Andres Sandate 9:30

What was your experience, Carlos with trying to secure paperwork or a visa or sponsorship to continue working in the US?

Carlos Torres 9:38

You have an OPT, which allows you to work for about a year but if you're not eligible for a working visa, or you don't have you don't have a sponsor, you don't have the opportunity to work in the US, right.

FinTech right now in Mexico is a regulated market. I mean, there was a new FinTech law that was passed around three years ago. It only regulates right now - two business models - its payments and the crowdfunding. Initially it considered regulating virtual assets but unfortunately, the central authorities decided that blockchain was too complicated for them to regulate at the time. So virtual assets are right now in the sandbox environment.

But other FinTech verticals represent a huge opportunity as well. I mean, you have an industry verticals like prop tech, right, insurtech wealth management, Enterprise Resource Management, you know, blockchain applications in - across different industries, as well. So the opportunity to invest in FinTech spans across all these business verticals, and how we came into developing our investment thesis and what we're focused on right now,

Andres Sandate: 12:39

Before we go forward, I got to ask you, what was it like, as a young teenager from Mexico City living in Madison, Wisconsin?

Carlos Torres: 12:47

It was the first time that I was you know, separated from my parents for such a long period of time, you know, living in another country, speaking a different language, a different culture, that sort of exposure really was life changing. And it's one of the reasons why I love travel, right? I mean, traveling is a great way to experience you know, different cultures, different languages, food, I'm a big foodie - so I love to try different food from different parts of the world. And that, I'd say, experience, really taught me I'd say benefits of enjoying different cultures as well.

Andres Sandate: 13:24

And then you did your MBA back in the US?

Carlos Torres: 13:27

So I did my MBA at Hult International Business School. It's a lot of international students. And this this particular sort of focus on the international experience and being able to get to know and network and lead the MBA experience with over 100 nationalities was something that really caught my attention. And that's why I decided to do it outside Mexico. I was considering like you, doing as sort of an executive MBA while still working because obviously the cost of the MBA the opportunity cost, its a lot to handle. That experience of being able to again, live outside your comfort zone and building relationships with people from Nigeria, Venezuela, India, all parts of Europe. I mean, that experience, I wasn't going to be able to get that if I did my MBA local. Yeah, I would have been able to network with, if I did it in Mexico, with, you know, people in the Mexican ecosystems, but I wanted to sort of get this international experience - and that's a big reason why I did that. And I still have contacts with, you know, a lot of my MBA friends, or, you know, people living in Norway in like I said, Egypt, Nigeria, India, I pretty much have an Airbnb, you know, anywhere in the world. And that was through my MBA experience.

Andres Sandate: 14:55

How did the experiences you'd had up to now inform how you decided to setup your firm and your new fund.

Carlos Torres: 16:09

Right now LatAm is being compared to what Southeast Asia was probably 10 years ago. And you're seeing that investment dynamics in Asia, how they developed over the years. And it's, I'd say, the right timing to - being a FinTech obviously, represents a huge opportunity. When you look at sort of the statistics in the region, I mean, the the number of unbanked population is still upwards of 50%. But you have a lot of overseas 60% of towards more 70% of smartphone penetration. So obviously, technology plays a huge role in, you know, financial inclusion.

Andres Sandate: 16:48

What role if any, does blockchain technology play in your investment thesis?

Carlos Torres: 16:54

For us technologies, like blockchain are poised to disrupt, you know, the traditional financial industry and it's a core part of our thesis.

Andres Sandate: 17:02

What have been some of the growing pains out of the gate?

Carlos Torres: 17:05

When you look at the VC landscape in other parts of Latin America, say Peru, I mean, there's probably less than ten VCs in Peru. Argentina is a little bit more developed. Colombia is some other tech hub that's growing. Brazil is a completely different monster in terms of, you know, VC funding, and obviously, the cultural and language barriers, represents an additional entry barrier.

Andres Sandate: 18:40

Maybe you could spend a little bit of time telling us about the market dynamics that Mexico and Spanish speaking LatAm.

Carlos Torres: 18:47

Yeah, I mean, in terms of the investment dynamics and it's completely different than other more developed markets. When you when you talk about a $250,000 investment here in Mexico or Latin America, that amount of money could give a startup, runway up to couple years, and in more developed markets, that probably lasts less than six months. And it's still considered, you know, sometimes friends and family, but it represents a huge upside opportunity in terms of the of the investment dynamics here in the region.

Andres Sandate: 22:07

What are some of the hallmarks that you like to see in founders and in their business plans?

Carlos Torres: 23:18

What we look for, you know, in founders is, I'd say their passion, and perseverance on what they're building. Once you get to know them a little bit better, you'll understand, or you'll try to, we try to look for, other characteristics, as their ability to learn, their their thoughtfulness, their work ethic. These are some non-traditional means of looking at an opportunit.

Once you go, you know, a little bit past the team and what you look for in an entrapreneur or in a team, I mean, you do have to look at the problem solutions, market dynamics, go to market strategies, sort of the competitive landscape, who their target customers are, and that's something that that we can also help you in. Understanding a little bit of what you're building, who you're trying to build it for, and what the best way to go at it might be.

You know, going back to what this this passion and perseverance that we cannot teach. So all I'd say founders out there and entrapreneurs you need to really convey that for others to understand that your in it for the long term and that you're able to build whatever you're trying to build and despite the ups and downs, because there will be ups and downs along the way.

Andres Sandate: 24:42

I love what you said about thoughtfulness and passion and perseverance and work ethic. I think those are characteristics and qualities about founders and managers that can easily be overlooked in due diligence and oftentimes, where people worked, where they went to school, what networks they have, plays a greater role in due diligence than someone may want to admit. Let's transition to several of the sectors you find most interesting right now.

Carlos Torres: 25:13

Some of the I'd say business verticals that we're most most excited about. For one, obviously payments and remittances - crypto adoption in within that specific space. When you look at how right now the remittance market works, the time and the commissions for, you know, a Latino in the US to send money back home, it's a broken process - and crypto solves that. The only problem with crypto adoption right now is the ability for the receiving person in the LatAm country, for instance, to use that crypto or to turn turn that into their local currency. And there are solutions being built around that. Insurance, insurtech represents also a exciting opportunity. I mean, the number of insured people in Mexico is probably less than 10%. So there's opportunities across auto, health, life insurance - and the educational gap of people understanding the benefits of having insurance, that's something to bridge also. Wealth management another business vertical. Right now investment solutions in the region are scarce and they are mostly tailored to, I'd say, investment savvy, whether it's millennial or Gen Z. There is, I'd say, opportunity there as well.

Lending, believe it or not, its opportunity as well. I mean in the SME market and this is something that we experienced firsthand. The number of SMEs that are overlooked by the traditional banking system is overwhelming. The requisites for them to get any type of loans are also overwhelming. It's an inefficient process, and it's a bottleneck of growth in at least in Mexico. Here in Mexico represents over 98% of the GDP. And it's also an overlooked opportunity as well. So when we say FinTech, we try to look at all these, I'd say financial innovations being built through technology that provide a means for whether it's the B2B, or the B2C market, to dive into the financial ecosystem.

Andres Sandate: 27:22

Just to provide our listeners with some context around the length of time it takes to do financial service transactions, and why the opportunity for AMG Block to invest in early stage FinTech and blockchain companies is pretty compelling. Can you explain the process for opening a bank account in Mexico?

Carlos Torres: 27:46

You have to go in person to your whatever bank you want to work with at least five times before they even open the account. You have to deal with obviously KYC and AML, which is a required process. But the amount of time, the amount of papers that they require, it's a broken process. And it hinders also new business. If it takes me four months to open an account, I can pretty much issue an invoice for four months. So how are you supposed to continue operating the business? So yeah, it's definitely a broken process. There are solutions like Oyster here in Mexico that are focused on, you know, being the digital bank for SMEs. There are other solutions for new banks targeting the the more the B2C ecosystem, and providing an entryway into the financial ecosystem for the unbanked. And they're trying to simplify the process right. I mean, that it's still a pain point here, believe it or not, to open an account and trying to deal with any type of banking. It's a process. It's completely inefficient.

Andres Sandate: 31:36

Before we transition to our final segment Carlos, let's talk a little bit about Mexico and Mexico City. You were raised there, you live there. What do you want our listeners to know about coming to visit and traveling and business opportunities?

I haven't travelled for a year Carlos - so consider your invite to be accepted and I look forward to having a local guide show me around the wonderful city.

Carlos Torres: 32:43

One book that I'm reading and that I would recommend is called Moonshot.

Andres Sandate: 32:48

What's a good show or series that you've watched recently?

Yeah. I've watched a little bit of that. It's a good one. What are some tools you use every day for your work, Carlos?

Carlos Torres: 34:02

For business believe it or not, I recently started to use Twitter. I mean, the VC Twitter landscape is something that really struck my attention and started to use Twitter a little bit more. Slack is a huge use for me. I mean, that the different Slack channels for either, you know, some LatAm ecosystem or emerging fund manager ecosystem. Slack represents a huge I'd say gateway into these types of closed networks. Right. And those are, you know, the the ones that come to mind mostly.

Andres Sandate: 34:48

Carlos, your family's growing, your firm is growing. You have a new fund. What are some of the big lessons learned from the past year?

Carlos Torres de la Cuba, Managing Partner at AMG Block, an early stage VC fund focused on the FinTech and blockchain opportunity in Mexico and Spanish speaking LatAM, thank you for joining me.

Carlos Torres 9:50

So after my work permit expired, I returned to Mexico and joined as Investor and Director of Finance for a FinTech startup that provides loan to the underserved SME market in in Mexico.

There are different, I'd say financial institutions here in Mexico that target different sectors. So the goal of the startup was to turn it into a regulated company within the financial industry here in Mexico that, you know, providing loans to pretty much the underserved market here. And obviously, as Director of Finance, we were always looking for funding, whether it's debt or equity instruments, and that's when we sort of realized that there's a huge gap, you know, in early stage funding, not only in FinTech companies across different industries, but in the region as a whole.

The number of VCs is still being developed. I mean, there's probably less than 50 VCs in in Mexico investing across the entire nation, industries and stages. The startup was founded with senior executives that had more than 40 years in banking and despite the fact that we had such a, you know, a great founding team, we had a really tough time, you know, getting a funding to continue, obviously, the operations.

So that's when, you know, I decided to look into the the venture landscape and focus on bridging this gap, right - in early stage funding. One of my my venture partners, that was the Legal Director at the FinTech startup. So he's been a great add on providing obviously, regulatory and legal clearance around the space.

When I say that, you know, I appreciate you taking the time to this podcast. I mean, this educational material out there is something that I'd say is needed. And why I say this is that when we started out, you know, the building the firm, we found this educational gap, right, in terms for our case, understanding on the asset class, , sometimes the industry, the technology. I mean, I personally had friends that when I said, 'blockchain', they were like, 'I have no idea what you're talking about, right?' When I say the, when I said 'venture', 'I haven't heard that before.' So this educational gap is something challenge for building our firm. And that's why part of our strategy was to target international investors, where the asset class, industry and the technology were better understood. And they understand the potential and the returns of venture as an asset class, the opportunity within FinTech and I've used the the the underserved Latin American opportunity.

And Mexico, I mean, it's an ecosystem that started to grow, we started to attract also international investors into the region, you know, big unicorn was born, called Kavak, which started out as a marketplace to buy and sell cars. When you think about it I mean, you're talking about an industry probably that thrived 10-20 years ago, but they found a problem. They made it easy for anyone to go and buy or sell a car through a legitimate system. And they've started to expand their offerings, particularly within FinTech and started to provide loans to all these customers that, you know, want to buy and sell cars. And right now, it's valued at $4 billion - the company is not even five years old. So these type of opportunities, being able to identify the problems in the region, and being able to build that solution. That's what we're looking for. And you know, why we're exciting of being in the space, right?

Your valuations are something that's also very different. I mean, $500,000 investment could, you know, give you 10 20% equity allocation within a growing startup. And that's something that wouldn't happen in you know, the US. Why, because - and I've seen this from other VCs in the in the US publicly saying - you get an offer for less than $3 million valuation at the seed stage, 'Don't consider it.' Why? Because the market is completely different. That sort of investment dynamics in the region is I'd say an opportunity, but also something to bridge in terms of educating not only the investors, but only they also the entrepreneur.

It's important for entrepreneurs to understand what they're getting, not because of the lack of capital, you're going to accept an investor into your cap table. You need to understand other terms, when considering an investment. The valuations, the control terms, board dynamics; this type of resources, like what you're doing, and what's being built in, other parts of the ecosystem, are definitely something required within the ecosystem.

And that's why we will try to also take sort of a human approach into investing not only provide a term sheet, here's what we're valuing the company, based on this different methodology. We try to look past the traditional I'd say due diligence and take more of a, I'd say, a subjective investment decision. And whenever we can't invest, you know, we will try to provide value in other way, whether it's reviewing it back and providing feedback, or introducing to other potential investors that might be interested in the opportunity, or provide feedback on why it's not a good fit for us. Maybe this stage we've seen, you know, pre-seed deals, that right now wouldn't be a good fit, because, you know, where the the companies at right now, or because pretty much the industry doesn't fall within our investment theses. But we are able to connect with, you know, investors within that specific industry or target geography. There are a lot of reasons to say no, and most I'd say investors don't provide this type of value add or educational support, that enables, I'd say entrapreneurs to continue their journey.

My first and best advice would be I mean, 'don't be afraid to reach out.' I remember one time I was at an event in Guadalajara, which is sort of the Silicon Valley of Mexico. And I was talking to an entrepreneur, and I was telling him, you know, what we're doing and, our focus. And the moment he realized, you know, I'm talking to an investor, he started to hyperventilate. I mean, honestly, I was like, I my person, too. I mean, you don't have to look up at us. I mean, we're no different than you. I mean, we as fund managers are entrepreneurs as well. I mean, we pretty much have to go through the entire process of what we're selling is a different strategy. But we're, we also go through that same process, right. So don't be afraid to reach out to, you know, potential investors, angel investors, accelerators. And what I would say is, everyone's, once you ask for it, I mean, everyone's pretty open to collaborate and help in any way.

Andres Sandate: 29:09

How do CEOs that you're meeting with think about market expansion beyond their borders to other LatAm countries, and potentially the United States?

Carlos Torres: 29:18

This closeness, I'd say, and this, like you said, trading partnership between Mexico and the US represents an even bigger opportunity. It's an entryway for LatAm startups into these markets, which represents a huge opportunity. And it goes both ways, again, for Mexican startups that want to expand, and they're looking outside of the US, LatAm countries represents a huge opportunity as well. You're able to replicate a lot of your business models from across different countries. Brazil being a little bit different, but also within that type of market dynamics as well. I mean, Brazil, the population, I think it's upwards of 300 million. So yeah, the the opportunities in Brazil as well are open for business. And so you'll see a lot of these market dynamics within startups across the region.

Andres Sandate: 30:15

What do you think are some of the catalysts that create additional foreign investment into you know, firms like yourself, but but just overall the region?

Carlos Torres: 30:23

Having boots on the ground and partner with you know locally with someone. The understanding or living through some of these pain points within or across different industries, is something that you have to experience. The way we say it, you know, a lot of the innovation going on and other more developed markets, particularly within FinTech is that they tell to solve convenience issues. You want to transact faster, or you want to send money faster to your friends - that's convenience. The innovations being built in emerging markets are around solving structural problems. And unless you've been able to at least experience it firsthand or see it firsthand, you won't get a good, I'd say understanding on the opportunity, you know, across emerging markets. And that's something that we're always looking for, you know, in terms of partnerships or collaborations, for not only international investors or startups, you know, that want to tap into the ecosystem and being able to provide this, I'd say local overview on the market dynamics.

Andres Sandate: 31:54

Mexico's known for some of these famous tourist destinations like Los Cabos, Cancun, Tulum is growing across the European tourism industry. But Mexico City is often overlooked. There's a lot to do, I'd say culturally gastronomically, in the city. And we're always, you know, encouraging people to come visit and let us know when they're here. So hopefully, Andres, you're able to come visit town.

Carlos, I'd like to wrap up with some rapid fire. So with no further ado, what are some of your favorite books?

Carlos Torres: 32:51

Some series that I tend to, you know, put on the background and do other stuff are the Office I'm a big fan of the Office. Parks and Recreation. How I Met Your Mother. This type of comedy like a short episode series i'm a big fan. But, one that I recently saw, that I enjoy, it's a Mexican, it's on Netflix, its a Mexican series called Who killed Sara? There are couple of Spanish ones as well. One is called in Spanish La casa papel. Which translates to a what would. It's paper house, but I think the name on Netflix is Money Heist.

Yeah, I mean, for me, the biggest I'd say takeaways, more on the family side. I mean, being able to spend more time with my kid, my wife, it's I'd say priceless, right. And I think it's gonna change the way we used to look at, you know, work dynamics. Being able to work from home and provide the same value that you used to, you know, by going to the office. It's interesting, I mean, here in Mexico, and it's crazy, I mean, the average person used to spend daily, at least two hours in transit. So those that's two hours out of everyday that you could, you know, provide additional value if you work from home. So those so this changes in the work dynamics, and how companies realize that they don't need their employees sitting, you know, 24-7, providing this I'd say personal advantages of, you know, spending time with family, is something that COVID will definitely change - and something that I personally, am grateful for. I've been able to spend the last year more time obviously seeing my, because my daughter is two years, so she's been, you know, one year in COVID. So for her, it's pretty normal to see me on a daily basis in the morning and I go to eat, go to lunch every day, and in the afternoons. Right, which before COVID was a little bit different. I'd say you have to look at the positives that, you know, COVID brought in some way.

Andres Sandate: 37:08

I'd like to thank Carlos Torres of AMG Block for joining this week's podcast. You can follow Carlos Torres on twitter at @AMG block, and you can learn more about his company, AMG block at the company's website, AMGBlock.com.

You can find links and show notes on our website, ATalts.com which we'll be launching very soon, and please sign up for our mailing list. If you enjoyed this conversation, please subscribe to our podcast ATLalts wherever you enjoy your favorite podcasts and tell a friend.

Please join us for our next show, which will feature an interview with Antonio Luck and Adrianna Suarez of MatterScale Ventures. MatterScale Ventures invests in early stage technology startups, offering high quality and accessible services for the majority founded by overlooked entrepreneurs located in the US and Latin America.

Thank you very much for tuning in. We always welcome your questions, feedback and guests ideas. Please email us at info@ATLalts.com or engage with us on social media at ATLalts on Twitter, Instagram, Facebook, and our company LinkedIn page.