Alex Urdea (Deep Ocean Partners)
Let’s kick things off with a simple question about your company names and the ethos behind them. The venture capital world has a lot of intriguing names, and I believe they often reflect deeper meanings that aren’t always discussed.
Gabriela Estrada (Vexi)
Hi, I’m Gabriela Estrada, CEO and co-founder of Vexi, a neobank focused on providing credit cards to underserved Mexicans. The name "Vexi" is a clever play on words in Spanish, meaning "look after yourself." It embodies our mission to empower customers to take control of their financial futures. We have over a million approved credit cards in the market, and the ethos behind our name is central to our approach—encouraging financial independence and self-care.
Angel S. Fernandez (Albo)
I’m Angel, CEO and founder of Albo. The name "Albo," which means "white" in Spanish, symbolizes clarity, innovation, and transparency. These values are essential to us as we strive to improve the financial lives of SMEs and individuals. We offer a range of products, and our name's simplicity makes it easier for customers to remember and engage with us. In a landscape dominated by traditional banks with red, blue, and green logos, our unique branding helps us stand out.
Luis j. Sanchez (Kredfeed)
Hi, I’m Luis, CEO and co-founder of Kredfeed. We specialize in factoring for the manufacturing industry in Mexico. My background as a former CFO made me aware of the cash flow challenges businesses face, especially with long payment terms. Kredfeed was born out of a need to address these issues, helping companies access credit and sustain their operations. The name reflects our mission to "feed" businesses with the financial resources they need to thrive.
Idriss Al Ri (Flow48)
I’m Idriss, founder and CEO of Flow48. We provide revenue-based financing for SMEs in the UAE and soon in South Africa. My journey to fintech is unconventional; I started as a professional basketball player and then served in special forces. Flow48 aims to address the significant gap in SME funding. Our name signifies our commitment to delivering quick answers—initially within 48 hours, but we’re now aiming for just 48 minutes for underwriting, reflecting our drive to be efficient and responsive.
Roberto Salcedo (Baubap)
Hello, I’m Roberto Salcedo, CEO and co-founder of Baubap, the leading mobile lending app in Mexico. My co-founder and I both come from low-income backgrounds, which deeply informs our mission to provide access to financial services for those traditionally excluded. We chose the name "Baubap" to evoke resilience and growth, inspired by the baobab tree—a symbol of strength and resourcefulness. It’s crucial for us to build a brand that feels inclusive and genuine rather than condescending.
Alex Urdea (Deep Ocean Partners)
Now, let’s dive into your growth strategies. Are you focusing on your local markets, or do you have aspirations for regional or global expansion? What factors influence those decisions?
Angel S. Fernandez (Albo)
In our case, expanding to other countries is definitely on the horizon.
However, from the beginning, our priority has been to establish a solid foothold in Mexico. This means achieving profitability at scale and becoming the primary financial account for our customers.
We’re close to that goal, and once we solidify our presence, we will look to other markets. Understanding regulations and customer behaviors in potential new markets is vital for our expansion strategy.
Idriss Al Ri (Flow48)
At Flow48, we’ve found that going deep into specific markets is more effective than broad expansion. During my time at Glovo, rapid growth was essential, but in fintech, the landscape is unique. Regulations and operational capacity often dictate a more focused approach. We plan to solidify our presence in the UAE before considering broader expansion into new territories. This allows us to build strong partnerships and establish a reliable operational framework.
Roberto Salcedo (Baubap)
I share similar sentiments. While we’re ambitious and want to make our mark, I believe expansion is a gradual process. For us, the first step is to dominate our current market in Mexico, where we already see ourselves as a leader. The complexities of operating in different Latin American countries require a nuanced understanding of various cultures and regulations. Once we’re established as a regulated institution in Mexico, we can consider venturing into other regions without losing focus on our core operations.
Gabriela Estrada (Vexi)
Building on what my colleagues have said, Mexico represents a vast opportunity. With 90% of adults underbanked, approximately 70 million people, there’s a significant market for us to tap into. If we can convert even a small percentage of cash transactions to digital services, it could yield billions in revenue. While we certainly aspire to expand across Latin America, the potential for growth within Mexico alone is immense, and we want to make the most of it before looking outward.
Alex Urdea (Deep Ocean Partners)
I see a significant opportunity in emerging markets.
When considering business models, I believe there’s potential for deeper market penetration in smaller economies. Being a "bigger fish" in a smaller pond can lead to unique advantages, especially when competition is less intense.
This raises the question of whether we can create a more defensible business by focusing on these markets.
Gabriela Estrada (Vexi)
I completely agree, but I also want to highlight that there isn't enough competition targeting the underserved population in Mexico. Companies like Nubank and Rappi focus on demographics already served by traditional banks. They might be doing it more effectively, but they’re still chasing the same targets. We have a significant portion of the population, around 50 to 70 percent, that remains largely unaddressed. When people say there's a lot of competition, I think they're missing this critical point.
Roberto Salcedo (Baubap)
I concur with Gabriela. The market in Mexico is larger than most people realize. The youthful demographic means we have many young adults entering the financial landscape each year, which expands our opportunities. This growth indicates a promising horizon for fintech initiatives targeting these emerging consumers.
Alex Urdea (Deep Ocean Partners)
As we talk about scaling your businesses, I'm curious how you've seen customer acquisition costs evolve. How sensitive is your approach to ad spending, and if partnerships are your strategy, how do you effectively navigate customer acquisition in a market with less competition?
Angel S. Fernandez (Albo)
In our experience, as we scale, our customer acquisition costs have increased. While I agree that competition isn’t as fierce as in the U.S., we still need to find innovative ways to acquire customers. In 2021, when capital was cheap, we shifted our strategy and began researching new acquisition methods. This led us to launch products specifically targeting SMEs, which has become one of our main channels. By offering business accounts to owners, we’re effectively tapping into their networks, creating a B2B2C model that has proven successful. This not only lowers our customer acquisition costs but also improves retention because we have become the primary account for these business owners.
Alex Urdea (Deep Ocean Partners)
Let's pivot to a more introspective question. What are the primary challenges that keep you awake at night? Is it related to marketing expenses, customer acquisition, credit losses, or perhaps upcoming funding rounds?
Luis j. Sanchez (Kredfeed)
For me, the major concern is ensuring a continuous supply of capital. To sustain growth and meet rising demand, we need to secure quality debt facilities.
It's a constant balancing act to raise the necessary funds while managing the expectations of our investors.
Roberto Salcedo (Baubap)
My focus shifts frequently based on the challenges we face at any given moment. Sometimes it's about customer acquisition costs; other times, it's about building a strong team or securing funding. The landscape is ever-changing, and I rely heavily on my team to help navigate these various challenges.
Idriss Al Ri (Flow48)
I have three main worries: debt management, data integrity, and collections.
Negotiating favorable debt conditions is a challenge, especially when capital markets fluctuate. Additionally, if we don’t have robust data to inform our decisions, we risk making poor lending choices. Collections are a persistent headache as well; if we can’t manage this effectively, it can lead to significant losses.
Alex Urdea (Deep Ocean Partners)
Let’s discuss your relationships with lenders. What do you look for in a lending partner, and how do you view those partnerships?
Roberto Salcedo (Baubap)
I have high expectations of my lenders because I see them as partners in our journey. Flexibility is crucial. I’ve seen many businesses struggle in emerging markets due to rigid terms imposed by lenders. If they can't adapt when challenges arise, it can lead to failure.
I believe it's essential for our funding partners to understand our operational realities and be willing to adjust as needed.
Gabriela Estrada (Vexi)
I echo Roberto’s sentiments.
When we were selecting our senior partner, experience in Latin America was a key factor for us. We had several term sheets that were similar in terms of pricing and structure, but we ultimately chose a partner based on their flexibility during challenging times—like those we faced during the pandemic.
This understanding of our context can make a significant difference.
Alex Urdea (Deep Ocean Partners)
Moving on, how has your collaboration with equity investors been? Have they provided support beyond just capital, and how have they lived up to the promises made during the funding process?
Angel S. Fernandez (Albo)
My experience with venture capitalists has been quite positive. I believe it’s my responsibility to choose the right partners, and I spend a lot of time conducting due diligence before committing. My relationship with my main investors has been beneficial; they've helped us with hiring key personnel, including our CFO, and have facilitated introductions to other potential investors. The open lines of communication have been invaluable, especially during difficult times when we’ve needed their advice and support.
Idriss Al Ri (Flow48)
I can relate to that experience. The collaboration with my VCs has been exceptional. They’ve maintained open lines of communication, allowing me to discuss challenges freely. Their insights and connections have proven invaluable, particularly in understanding revenue-based financing, which is crucial for our business model.
Gabriela Estrada (Vexi)
I also believe in the importance of choosing the right partners for the right stage of our companies. While the journey can be lonely at the top, I find comfort in the fact that I can have candid conversations with my investors. Although we don’t meet often, these discussions are critical for addressing the challenges we face.
Alex Urdea (Deep Ocean Partners)
Let’s discuss the balance between providing credit to underserved segments and managing the risks associated with it, particularly regarding charge-offs. How do you navigate this conflict?
Roberto Salcedo (Baubap)
I think it’s essential to experiment and identify customer profiles we can trust. Lending to underserved segments is challenging, and we need to take responsibility for the money we lend. This responsibility shouldn’t fall solely on the customer. By developing robust underwriting processes and scoring models, we can mitigate risks effectively.
Gabriela Estrada (Vexi)
Reflecting on my experience, I’ve found that lending to underserved populations can be rewarding. Contrary to common perceptions, they often exhibit loyalty and stability. It’s crucial to understand their unique characteristics and ensure that our lending practices create a positive impact without leading to financial exclusion.
Alex Urdea (Deep Ocean Partners)
Finally, let’s explore investment opportunities. If you were to start a company today, what would you focus on in your markets?
Angel S. Fernandez (Albo)
I see a blend of digital and physical services aimed at low-income populations. There’s a huge opportunity to create new financial services through innovative distribution channels, not just traditional branches. We’ve digitized existing products, but real innovation has been limited. With technologies like AI and crypto, we can develop entirely new financial products. We’re at a tipping point where these technologies could revolutionize our financial systems.
Roberto Salcedo (Baubap)
For me, the focus is on helping people generate more income. I’d invest in initiatives that enhance formal or informal economic activities and provide knowledge. The fintech landscape is still in its infancy regarding product penetration, and we need to better understand how to assist individuals in improving their livelihoods to foster digital adoption.
Question from the audience:
What’s your perspective on some Mexican firms offering exceptionally high returns on deposits? What does the future hold for this? Also, what do you think is missing in Mexico for market advancement—regulation, or something else?
Angel S. Fernandez (Albo)
Regarding high returns, I don’t think it’s sustainable. Many of these companies are losing money and can’t maintain these rates long-term. The core issue is trust; half of Mexico’s population lacks bank accounts due to distrust in institutions. Our challenge is to create value that makes using our products more appealing than cash.
Roberto Salcedo (Baubap)
I find it frustrating that high interest rates represent a lack of true innovation. We need to focus on creating better products rather than just competing on rates. It’s a superficial strategy that doesn’t add real value.
Gabriela Estrada (Vexi)
It's interesting to see the competitive landscape shift. While these high rates attract attention, they’re not sustainable for customer acquisition or funding. However, they force traditional banks to reconsider how they treat savers, which could ultimately benefit consumers.
AJ Davidson (SixPoint)
I want to extend my gratitude on behalf of the team. It’s impressive to see so many of you here from early morning to now. This ecosystem is growing, and we’re just at the beginning of this journey. We aim to be a supportive partner, so please reach out to us.
Moderator:
Alex Urdea – Managing partner at Deep Ocean Partners
Panelists:
Idriss Al Rifai – Co-Founder and CEO at Flow48
Angel S. Fernandez – Founder and CEO at Albo
Gabriela Estrada - Co-Founder and CEO at VEXI
Roberto Salcedo - Co-Founder and CEO at BAUBAP
Luis j. Sanchez - Co-Founder and CEO at KredFeed
AJ Davidson – Co-Founder and CEO at SixPoint Capital
