Cristobal Perdomo, Wollef Ventures Co-Founder and General Partner, Semilla.VC Podcast

Tripp Gorman interviews Cristóbal Perdomo, co-founder of Wallop Ventures, discussing the firm's strategic investments in Latin America, including early successes with unicorns like Klavac and Nubank. Perdomo shares insights into Wallop's investment approach amid the tech downturn, emphasizing steady criteria and cautious fund allocation. He reflects on the challenges of raising Wallop's first fund, highlighting the reliance on family offices due to limited local VC investors. Perdomo advises U.S. VCs to partner with local experts when investing in Latin America, stressing the importance of understanding market dynamics and building strong teams for successful ventures.

• Cristóbal Perdomo pursued law to complement business aspirations and completed an MBA to enter the venture capital industry.
• Initially faced challenges breaking into VC, reaching out to over 400 firms with limited success.
• Entrepreneurial background from a young age, including selling vacuum cleaners and operating video game machines in pharmacies.
• Inspired by venture capital during the internet boom to help entrepreneurs, having lacked support himself.
• Worked in consulting and corporate strategy before joining an internet startup in Argentina, rekindling his interest in entrepreneurship and VC.
• Co-founded Wallop Ventures in 2013, aiming to establish a regional fund in Latin America, focusing on Mexico as a strategic anchor.

"I went to law school with the idea of using it as a compliment for going to business, and I did an MBA trying to get into the VC industry."

• Highlights the initial academic and strategic steps taken by Cristóbal to enter the venture capital field.

"When I discovered during the internet boom that there was this thing called venture capital that helped entrepreneurs, I thought I want to help people because that's neither had any help."

• Reflects Cristóbal's motivation to support entrepreneurs through venture capital, driven by his own experiences of lacking assistance.

• Wallop Ventures was founded due to the lack of venture capital presence in Latin America, with a focus on Mexico.
• Emphasized regional investment strategy, leveraging Mexican roots to build a fund with a broader Latin American scope.
• Encountered few local VCs; most focused on Brazil, highlighting an opportunity in Spanish-speaking Latin America.

"Our idea was Mexico was very, very important for Spanish-speaking Latin. We're Mexican, so we can build a fund that does regional stuff with Mexicans and anchor."

• Illustrates the strategic decision to focus on Mexico and Spanish-speaking Latin America in Wallop's investment approach.

• Wallop's notable investment in Chiefs yielded nearly 100x returns, marking it as their best financial success.
• Despite high returns, Cristóbal values investments with complex challenges, such as Foodology, for their long-term potential.
• Foodology operates in multiple countries, facing diverse regulations and local tastes, embodying a challenging yet rewarding venture.

"If you talk about return, our best investment so far has been Chiefs, right? Chiefs has been a juggernaut, a lot of it fueled by the last couple of crazy years."

• Highlights Chiefs as Wallop's most successful investment in terms of financial return, emphasizing the impact of recent market conditions.

"Foodology is another company that I really like because it's a very hard business...and it's a business that's being built for the long run."

• Describes Cristóbal's appreciation for Foodology's resilience and long-term growth strategy, despite its operational challenges.

• Acknowledges that individual venture capitalists often make mistakes, but the broader financing system is robust.
• Emphasizes the inevitability of missing successful companies, a common occurrence among VCs.
• The collective system of venture capital tends to correct individual errors over time.

"If you ever hear an EC saying they have no misses, you're talking to a liar. We've all missed great companies and will miss a lot more."

• Underlines the fallibility of individual decision-making in venture capital, stressing the honesty required in acknowledging misses.

"Individually, we're very bad decision-making, but I think there's so much ca—"

• Suggests that while individual decisions may falter, the collective venture capital system compensates for these errors effectively.

• Wallop has maintained a steady investment approach regardless of economic conditions, focusing on long-term value rather than short-term trends.
• The firm remains committed to investing even when other investors hesitate, but now waits for rounds to close before funding to ensure investment success.
• Caution is exercised by waiting for full investment rounds to close before disbursing funds to mitigate risk.

"We've never stopped investing; we never changed our criteria for investing. We've tried to make it better, but we haven't started investing because someone was very cool and offering us an automated revelation."

• Wallop maintains a consistent investment philosophy, focusing on substantial criteria rather than trends or superficial opportunities.

"Nowadays, unfortunately, we do commit early and we don't care about if the rounds are closed or not, but we won't fund that investment until we know the round is full."

• The firm now ensures that investment rounds are fully closed before disbursing funds to minimize risk and ensure the viability of investments.

• Lack of natural investors in Latin America, such as endowments or large asset managers, made fundraising challenging.
• The primary sources of investment were family offices and multi-lateral agencies, with Wallop struggling with the latter due to the political and lobbying aspects involved.
• Initial investors were hesitant due to poor returns from previous VC investments in the region, requiring Wallop to attract first-time VC investors.

"There's no natural investors for VC; there's no endowments, there's no trust, there's no large asset managers, there's no insurance companies that need to invest in targets."

• The absence of traditional institutional investors in Latin America posed a significant obstacle in raising the initial fund.

"The first thing is finding those investors. The second problem was that there had been very few investors in VC, and the ones that had invested had very bad returns."

• Identifying and convincing investors was challenging due to the lack of successful precedents and skepticism about venture capital returns.

• Entering venture capital is compared to pursuing a career in acting or professional sports due to the low odds of success.
• Passion and a strong internal drive are necessary for those looking to enter the VC industry, as financial success is not immediate and may take years to realize.
• The speaker advises against entering VC unless it is a deeply held ambition, highlighting the long-term commitment and uncertainty involved.

"Don't do it. This is like wanting to go to be an actor in Hollywood or want to be a professional football player; the odds of making it are really, really small."

• The speaker emphasizes the difficulty and uncertainty of succeeding in venture capital, likening it to other high-risk careers.

"It's not a great economic setup, and you make much more money doing something else, at least in the short term, and you won't know if you're doing it correctly maybe five, seven years into it."

• Financial success in venture capital is uncertain and delayed, requiring a long-term commitment and acceptance of potential failure.

• Investment in early-stage companies like Castia focuses on trust in founders and sector knowledge.
• The approach is to minimize business risk while accepting reputational or sector risk.
• Castia's investment was driven by the strong reputation of its founding team and the clear understanding of the problem they aimed to solve, which was financing the chain of buying and selling homes.

"Castia is a team of three founders which we thought were amazing. They had some of the best reference we've ever heard from many partners we've spoken with."

• Highlights the importance of a strong founding team with a good reputation as a critical investment criterion.

"The problem itself is basically how do you finance the chain of buying and selling homes."

• The investment was driven by a clear and understandable problem, which is crucial for evaluating potential success.

• Being a lead investor can attract additional investors by leveraging reputation.
• There is a herd mentality among investors, where many prefer to follow rather than lead.

"It was an opportunity for us to prove that our name can bring in other investors."

• Demonstrates the strategic use of reputation to attract more investment.

"Investors are very reluctant to commit without someone else being first."

• Highlights the common behavior in investment circles to wait for others to validate an investment.

• The firm maintains consistent criteria: strong teams, large markets, good product-market fit, and reasonable valuations.
• Avoids companies with poor unit economics, such as those selling products at a loss.

"All the companies they share the same things about being investing in great teams, investing in very big markets, investing in companies with great product market fit, and investing at good valuations."

• Emphasizes the uniform criteria applied across all investments.

"We don't invest in companies that sell dollars at 80 cents."

• Illustrates a focus on sustainable business models with sound economics.

• Investment in Liftit was based on its focus on commercial last-mile delivery, which offered more stable revenues and higher ticket sizes.
• The decision was made after passing on other companies with less favorable economics.

"Liftit had this difference in that they were doing commercial last mile right so you had much more steady revenues, much more higher tickets."

• Highlights the strategic selection of companies with more reliable revenue streams.

• Market dynamics in Latin America are slower, with longer sales cycles and less capital compared to the U.S.
• U.S. investors often fail by not understanding local markets and dynamics.

"The most important thing is the market dynamics here are much slower than the U.S."

• Points out the critical differences in market behavior between regions.

"I would never invest in a region that I haven't been to physically."

• Stresses the importance of local knowledge and presence in making informed investment decisions.

• Partnering with local investors can provide valuable insights and mitigate risks when investing in foreign markets.
• U.S. investors often overlook this collaboration, leading to less informed decisions.

"It makes a lot of sense to tag along some local investors."

• Advocates for leveraging local expertise to enhance investment decisions.

"You saw a lot of U.S. investors not doing that."

• Critiques the oversight of not engaging with local partners, which can lead to investment failures.

• The goal is to find individuals who can continue the work long after the founders are gone.
• Emphasis is on identifying people with potential to develop necessary skills over time.
• The challenge lies in transitioning employees to partners, especially given the firm's recent team-building efforts.

"We try to find people that are going to be able to do this long after my partner and I are gone."

• The focus is on sustainability and longevity in team building, ensuring continuity beyond the current leadership.

"We have yet to make a partner of our employees and that's gonna happen at some point but we haven't gotten there."

• Indicates the ongoing process and challenges of promoting employees to partners within the firm.

• Spend approximately 8% of the evaluation time on assessing a company's team.
• Critical to determine if the team can attract and retain talent better or equal to themselves.
• Successful companies are those that can build teams with multiple talented individuals, not just one great leader.

"Are they gonna be able to bring in people that are equally or better talented than they are?"

• Highlights the importance of a team's ability to attract and integrate high-level talent for company growth.

"One mistake we did in fund one which we've tried to stay away from is this a business where you don't win for being the smartest person."

• Emphasizes the need for collaborative intelligence over individual brilliance in building successful investment returns.

• The strategy is not about finding the best company but finding a company that others will also recognize as a valuable investment.
• Success in venture capital requires alignment with multiple investors and rounds of financing.
• The analogy used is investing in a company perceived as a winner by many, rather than being the sole believer.

"If I see a great company and no one else sees a great company, their character is more money."

• Underlines the importance of consensus and shared belief among investors to ensure sufficient funding and support.

"Don't invest in the prettiest girl that's going to be winning this universe; invest in the prettiest girl that more people think is going to be able to win this universe."

• Illustrates the strategy of investing in widely recognized potential rather than personal conviction alone.

• Critiques the notion that everyone should be able to break into venture capital or raise a fund.
• Asserts that the field requires significant effort and not everyone is suited for it.
• Emphasizes the need for quality over quantity in the investor community.

"It's not that smart to have a unique thought about these things... it takes a lot of effort, and not everyone should be making it."

• Challenges the idea of democratizing access to venture capital, stressing the importance of merit and capability.

"The world doesn't need more investors; the world needs a lot of great investors."

• Highlights the need for excellence and expertise in the investment community rather than merely increasing the number of participants.