UNCOVERING PERU'S TECH REVOLUTION: FINTECH BOOMS AND GLOBAL AMBITIONS

Welcome everyone to another episode of the Nearshore Cafe podcast. I'm Brian Samson, your host. And if you're interested in Peru and the VC tech ecosystem, wow, this is going to be a great show for you. Before we introduce our guest, I'd like to thank our sponsor Plug Technologies, plugg.tech. Great way to connect talent from all over Latin America with growing US companies. Let's welcome Jaime Sotomayor to the program. Jaime, great to have you.

Hey, thank you, Brian, for having me on your podcast. This is awesome being now on the other side, you know, not being the host, be invited.

So for those that, that, um, don't, let's, let's give a quick plug to your podcast. Tell us, tell us about about, uh, what it is, what people can expect if they listen to it.

Awesome, thank you. Well, Innovación Sin Barreras, as you can see, is in Spanish, um, and we interview founders, investors, tech experts from all Latin America to understand more of what they're doing, how technology is evolving, how businesses are going to change. So it's a great way to keep up on tech trends and help transform digitally your company.

Excellent. All right, thank you. So let's start with kind of a broad question that will lead us a lot of this way. As someone who invests, who studies the trends of Latin America and Peru, are you optimistic for the next couple years, pessimistic, not sure?

I'm super optimistic. Latin America is a space where so much is still, you know, needs to be done. And as technology evolves, we are, and you've probably seen it or heard from it in other parts of the world, like in Africa, we just leapfrog a lot of the tech technologies onto one actually is more affordable, attractive, and actually solves problems. So that's why in the past you've seen or you've heard in Latin America fintech companies have done amazing things. And it's because, yeah, there's so many unbanked people in the region. So we've seen a boom of that, but there's so much else to be done.

Now, Jaime, are you working across the continent or spending most of your time focused on Peru?

So I am based out of Peru. I love Peru. Afterwards, we can discuss, you know, why. It's just an amazing place to be. But my focus of investment for Worthit, which is the fund that I'm managing partner, we do investments all across Latin America, even Latin American founders in the US. We find that, you know, the Latino founder is just amazing. So they Even though they might be in the US, they're going to be operating still and having Latin American customers, but we want to work with all of them. And having a foot in Peru, it does help me to find those that probably would have been missed by VCs from other parts of the world. So yeah, all Latin America. And our specialty is B2B SaaS. So we found that that's the space that we now see has a huge advantage to grow.

Okay, cool. We'll definitely get into that in a minute. Um, let's just start big picture, you know, uh, uh, for our audience that is just kind of interested in the ecosystem at large. What does it look like, you know, in terms of volume of capital invested, check, like average check sizes, how it might compare to the US, incubators, talent, you know, just kind of give us like a broad sense and we'll dive a little deeper.

I mean, I don't have the exact figures or so, but I can tell you that we're still very far in size But when you see the whole Latin America, including Brazil, it is quite large. Um, there are some different key differences between, you know, investors in Latin America and the US, or even founders from Latin America and the US. There's a lot of sort of mindsets, uh, from a mindset standpoint, where investors in Latin America might might not be so inclined of doing way riskier investments that you might find very normal in Silicon Valley or Israel. Founders might not have this vision of wanna eat the whole world. They might be like, oh yeah, I wanna be the top number one company in Peru. So it's that mindset that we're trying to work to change. And say, hey, you can be a Peruvian founder, but that doesn't mean you're limited to your country. You can sell to the whole Latin American region. You can, uh, go and sell to U.S. companies. There's no real limitation. It's just your energy and ability to do so. So there's that, that part. And then capital, um, most of the capital that we've seen in coming into Latin America has been from abroad. There is from Latin America, and it started to grow more Latin America being invested within Latin America. But it's been big money coming from outside, which has helped to fuel the startup ecosystem, but at the same time wake us up that if this big, you know, SoftBank and Tiger are interested in Latin America, why aren't we doing so the same. So we've started to see a little bit more inside of Latin America, started betting on ourselves.

That's really interesting. And I wanted to actually ask you about the cultural aspect of that. I've spent some time in Asia and, you know, there's kind of family pressure often to take a conservative job, a safe job, a big company type job. How might that apply to Latin America and then maybe from a microscope with Peru?

That's a great question because the, the risk, like the Peruvians or, or Latin Americans, they might be very risk-averse, especially because many of our countries have had a series of, of bad economical and political moments through all their history. We've had dictatorships, we've had really bad presidents with bad policies and terrorism and you name it. There's been a lot of hardships. So many of the older generations, they didn't want to see their kids suffer and have them do entrepreneurship when they can go for a more stable job, go to banks, go to consulting firms, construction companies, mining. Which is one of the main engines of the Peruvian economy. So there's a lot of push from certain generations to not be an entrepreneur and go to somewhere safe because those generations had to suffer through all those hardships. At the same time, many of these Peruvians, they didn't decide to be entrepreneurs in the past because it was like a passion project. It was because there was no other option. So when you see like the ranking in Latin America of which is the most entrepreneurial country, Peru lists like really high up, but it's not because these people wanted to be entrepreneurs, like a startup founder or something like that. It was because there was no other alternative. So we are, we wanna shift more on having opportunistic entrepreneurs more than because they need to for survival.

Interesting. And you know, if you could even, talk about the Peruvian mentality? Like, are there, um, you know, it doesn't always have to be tech. Sometimes, sometimes in tech we think we're the only entrepreneurs, but there are people that own, you know, uh, clothing stores and they're, you know, uh, single, uh, firm accountant accounting shops and graphic design and all sorts of stuff. Um, yeah, what, what is that, uh, kind of risk tolerance look like in Peru? Are there a lot of mom-and-pop entrepreneur-type companies?

So I'll tell you a bit like the main economical drivers of Peru, and then we can probably go to then what's like the most abundant small businesses. So like the largest, uh, best economical driver is, it's mining. We're like number one exporter of copper in the world, and we, we have such huge reserves of different sort of minerals that thanks to that we have a very strong economy. Thanks to the good management of the central bank, which is independent from all the powers, we have like a very good control of the currency. So we're sort of in a good place economically. But there's a lot of more social problems around the mining industry. So it's hard to combine, like, let's grow as much as we can. But then you have the things that go against that is the social problems involved and communities. And most of them want to get a share of the of the profits. So there's a lot of that tension between economical and social. And then the same happens in agriculture and fishing. They're all like one of the strongest ones. But then when you see companies, like, what's the average? It's like you have 100,000 restaurants all around, small ones in Peru. Small cevicherías, which is like more like the seafood one, or chifa, which is like the Chinese Peruvian one. There's, uh, or the chicken rosticcerías. There's so many small entrepreneurial, uh, activities going everywhere. Textile, printing, like there's someone doing some entrepreneurial work, but again, it's more like for sort of for survival. And there's, I would say that just as you mentioned, like we don't have to think always entrepreneurial as tech, tech, tech driven. I think that even Peru has a great advantage now, at least that we are now being recognized as one of the best places in the world for our food. So we have like the top restaurants in the world. We have such a diversity of food. We have so many different types of potatoes. Like, we have more things that we know how to actually use, and our gastronomy is really amazing. One of the reasons why I love living here in Peru— we have amazing food, amazing restaurants. So why not? Why aren't we like the leader in the world of food tech, of the most impressive snacks, meals, whatever? Well, you see in other parts of the world that, uh, that maybe they don't have those same resources are, are excelling in that space.

Interesting, interesting. Um, let's, uh, let's dive a little more into the, the tech world. Um, so it was really interesting what you said earlier, Jaime, about the, um, you know, maybe like the initial mentality of not trying to eat the world I'm not trying to grow a $100 billion crazy company, just, you know, conquer Peru, like be the fintech app for Peru, right? So what does that mean in terms of maybe like, we'll start with check sizes, and then how, how some of these founders are even thinking about the allocation of those checks?

So I would say that first, It takes also like having someone having done it in the past that you can see, oh, someone already did this, they built a unicorn out of Verru. So it means like, oh yeah, I can do it myself. That has been a huge driver, for example, in other countries in Latin America. For example, as soon as Rappi became unicorn status, Bogotá became like this big epicenter of technology and entrepreneurship, and you can feel it when you go there. The same with Mexico, Brazil, Argentina, Chile. So we're like lacking that, you know, we need that, that unicorn. It helps, it helps because it shows other people that you can do this. So I would say that now at least from the companies that we're, you know, we're sourcing, we're checking, we're looking at, a lot of them when they're in the early stage, very early stage, they have, uh, in the past they probably wouldn't need to do much traction to get funding because there was excessive amounts of capital. Now that I think there's like a really healthy amount of capital, I wouldn't say there's little Because if you have a really good company, you'll get funded for sure. We're seeing that. So if you now want to raise capital and you haven't exited a company in the past, you know, and you can brag about that, you might need to have some traction in order to raise that capital. And pre-seed, which is the stage where we're investing in, We are seeing rounds that are going between $300K and $1 million. That's like the range for pre-seed. And then on valuation side, they might go between 3 to 7 post-money. And you would say, well, that's a really small round compared to the ones in the US where they're, you know, they're just starting out, they're raising $1.5M or they're raising $5M, you know, out of the bat. and valuations are way higher. So in Latin America, because it's riskier, if you want to see it, to do business, maybe less liquidity compared to the US, all those different factors, that's already priced in the valuation. So it's really quite an advantage for us to be able to go into a company with a lower valuation, and we're expecting them to grow Latin America, eventually go to the US, and then you'll see like a really bump in the valuation and have a better return than if I would have invested in a really high valuation all the way from the beginning. So that's a bit of what's happening in Latin America. Latin American investors were like really worried about that initial valuation, while I've seen in the US, I've been an entrepreneur in the past and in the US and valuations were way higher than, than here.

Let's talk about the allocation a little bit. Maybe I'll state the obvious that the reason you don't meet, you probably don't need to raise as much as the cost of talent is a lot less. Can you, can you comment on that a little bit? And then also as a, as a derivative question, Now that software services are so big and the US is starting to go after all this technical talent in Latin America, there's competition for talent too, and like how that's driving up the price. And if you're a great engineer, you know, now you've got choices, right? You could work domestic company, a domestic startup or some international company? So a lot to digest there. So sorry for the 15 questions, but would love your take.

Yeah, it's a great, good question because talent is something that we've started to see that Latin America has a lot. Like, I think after Brazil, probably Mexico has the most amount of developers in Latin America. But it's like just one of the universities out of Monterrey. I think it's like one-third of all Mexican developers. It's a huge amount here in Peru. Um, surprisingly, like, not everything is, um, concentrated in Lima. There's some really good talent coming from Arequipa, which like is the second city after Lima. Uh, Lima is one-third of the population, so we're very We're very centralized in the capital, but Arequipa, which is just 1 million, around 1 million if I'm not mistaken, of citizens, they have a lot of developers. So a lot of companies from abroad have started recruiting, opening shop in Arequipa to hire the talent so that they can develop applications in Germany, in the US, and in other places. One of the challenges for hiring that talent, even though it's remote, is do they speak English and how fluent they are, how their soft skills are. So we've started to see in the past 5, 6 years a lot of companies developing solutions to help developers get those jobs abroad. Because if you don't have soft skills, if you don't speak English, then you are limited to developing for development jobs only in Peru, which wouldn't pay that much. But as soon as you have a good domain of English, you have really good soft skills, then you can work remote for a tech company in the US or for Amazon or Google. And I know a lot of people, friends that actually decided to go and live in the US because they came here They found talent and you're going to start earning like 5 to 10 more times than what you would have done around here. Even though that you might say, oh yeah, we're in Peru, so it's cheaper, you're still competing for talent worldwide. But the cost of living in Latin America is definitely lower than in the US. It also depends on the quality you want. Lima is a nice place to live. Mexico City is a nice place to live. So people also want to prioritize places where they are going to be happy living.

I want to lean a little bit into maybe the arbitrage opportunities, right? And, you know, what are you, what are you seeing more as foreign capital comes into Latin America? Are they looking for like investment arbitrage? Is it Maybe more talent arbitrage? Do they just want access to markets that they think are, you know, they can take learning lessons somewhere else and replicate it? Maybe there's something else. I'd love your thoughts there.

You know, I think international investors are always looking for great opportunities and markets like the US, Europe, you know, you have a lot of already existing investors. The level of competition is just, it's huge, it's high. Finding the best company is very competitive. You have to fight for getting that allocation in that company. It's quite complicated. But in Latin America, because there hasn't been that much capital in, there hasn't been that level of competitiveness, at least in the past. As soon as we start getting more, yeah, it gets way more competitive. But there's so much talent, there's so many good opportunities that we're not getting enough funding. So I think that investors see this like a blue ocean. There's so much room for more capital to go in and start funding these companies that they can be huge and they can— yes, valuations are lower, that's great. But for them, it's like, let's find amazing companies where right now, uh, there is an untapped market where there's just not enough capital pursuing amazing ideas.

Interesting, interesting. Let's get it more into, uh, your specialty, Jaime, of B2B SaaS. Uh, what, what should we know about the, the market there?

Well, one of the things is that companies in Latin America, that's what my perception is. They've been lagging on adopting technology. So a lot of people, companies still depend a lot of Excel spreadsheets for most of the things, something that I wouldn't dream to see in the US. Anybody over there uses, even the smaller companies use QuickBooks or some equivalent. Here we don't. Big corporates, they might use some ERP or just like SAP or use Salesforce and stuff like that. But then for every single additional activity, they'll go back to their Excel sheet or homemade crappy solution. Sorry. And all those things, they're all prone to error. They're outdated. There's so many legacy systems, but they don't do the jump because the investment required to do that is just too, too insane, too big, you know, too complicated. And what we are seeing now is that technology is becoming more accessible. We needed to do this, you know, leapfrog that I mentioned earlier. And I think AI, no-code, and all those different technologies are actually now becoming one of those solutions. Like everybody in, in Latin America uses WhatsApp. So now most companies have jumped from not having like physical stores, having no e-commerce presence, to jumping the web, you know, experience straight to the WhatsApp experience. You don't need a web page, fancy thing, you know, Amazon style, when right now like the easiest, smartest, most cheap is an AI-driven bot through WhatsApp that is doing the selling and you're getting way more conversions, better results. So we're leapfrogging all the things that you would have thought in the US. There's like a step, you know, you go from physical, you open your website, your e-commerce on Shopify, and then da da da. Here's like, nope, jumping straight to mobile-first approach. And we're starting to see that in different other aspects. So B2B SaaS for me is one of the ways to bet on this transformation of Latin America because I am very positive that the entrepreneurs are the ones that are gonna be building those solutions. They're creative, they're smart, they're gonna bring something that is easy for corporates and small and medium companies to implement. And they don't have to ditch their existing solutions. They can just connect and now have additional possibilities available for them. And we can see it from small companies that have a very basic operation, and now they are enabled by this technology, and the solution pays for itself just on improving the margins, or because now they're selling way more. All the way to big corporates where they have legacy systems and they're not going to rewrite everything, but there's so many other companies that are connecting to them. Like for example, in banking, you want to connect with some fintech that can give you some new functionalities, open up new markets. So we're seeing that Something that wasn't happening in the past, I think now because the right technologies are here, we'll see a transformation.

That's awesome. I can't let you go, Jaime, before we talk a little more about Lima. I had the chance to go there. It's been too long, but grocery store chicken that I had there is still the best chicken I've ever had in my life. It was Incredible. Um, love Miraflores. It felt like I was in Los Angeles, and, um, you know, the changing of the guard and the cool stuff. But that— I'm just scratching the surface, you know. What, what, what should people know about, uh, Lima and then Peru if they ever visit?

Yeah, well, I definitely encourage everyone to come and visit Peru and Lima. Um, I live in Miraflores. I moved to Miraflores because it's just It's the center of Lima. So I always tell everyone, like, this is different than when you visit a US city or a European city. You don't stay in the city center, which here in Lima would be the Lima city center or historical center. That's like the old town where you got the change of the guards and the and the government palace and all the old buildings, which is nice. I do go off into that area and it's beautiful and it's actually being improved. But the new city center, which I call it, the modern city center is Miraflores and it's just in front of the ocean. You got so many nice views. We have amazing restaurants, as I mentioned earlier, top of the world, with really amazing culinary experiences, a fusion of different cultures. So I don't know if many of you are aware, but Peru had a huge immigration of African, Chinese, Asian, Japanese. So we have a lot of that in our food. So that if you go around the city, you'll see so many Chinese Peruvian restaurants. That's why we call them chifas. That's our name for that. But also the best restaurants here in Lima, at least for me, are the Japanese Peruvians, the nikkei. And this just combination of the Peruvian Japanese is just amazing. So just coming to Lima itself, it's a gastronomical experience. There's so many places. Some of them are really hard to get reservations. You have to do it with way months ahead, so plan ahead. But just walking around is very nice. Miraflores is actually very safe because we try to take care a lot of tourists because that's, you know, what moves a lot this area. Larcomar is this mall which is just in the front of the cliff, so you see the whole ocean. It's just amazing. And of course, if you're going to come all the way down to Peru and visit Lima, you definitely have to do Cusco, which is one of the most beautiful and energetic cities in the whole world. You'll do Machu Picchu, take the train. It's a once-in-a-lifetime experience. Oh, I've done it several times, but I would definitely recommend people to do it. If they can. It's very nice down here. And if you like surfing, it's also a very nice place to come and surf. A lot of people say that— I don't surf, but they're like, "You're wasting your good location." I'm just a few blocks away from the stairs that take you to the ocean, and I'm in a really good place to go and do surfing, but I don't do it. But I see a lot of people do it and they have fun.

This is my favorite part of the show, you know, is where we really get to hear the locals' perspective and entice tourism, hopefully. Everything you said, I agree with. It's fantastic. I also love Machu Picchu. It was amazing. I'm glad I got to do it once in my life. Yeah. Great. Jaime, what a blast. Thank you so much for being a guest on the show. Before you go, Tell us again about your company, where people can find you.

Perfect. So the fund first, it's called Worth It. You can go to worthit.vc. You can see our portfolio, my contact. You want to reach out if you have a— if you're a Latin American founder, you have a company that you want to pitch to us, we're more than happy to listen. If you want to invest in Latin America, I suggest we talk. And if you do understand Spanish and you want to get to know more about the Latin America ecosystem, I invite you to listen to our podcast. It's called Innovación Sin Barreras. You can find it everywhere you listen to your favorite podcast.

Amazing. Thank you so much, Jaime. And another thanks to our sponsor, Plug Technologies, plugg.tech. Great way to connect talent. All over Latin America. I'm Brian Samson, host of Nearshore Cafe podcast. Thanks again for listening. We'll see you next time.