Federico Gomez Romero (Seaya Cathay) on empathy, the importance of the founding team in deal selection and Seaya Cathay’s new Latam fund
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On this episode Pat sat down with Federico Gómez Romero, Principal at Seaya Cathay Latam, Seaya and Cathay's new joint venture for investing collectively in LatAm. We explore Fede's own journey into venture, the motives behind Seaya and Cathay joining forces and how to make the most out of cross-pollination for your international portfolio.
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From Polo to Portfolio
From the side of his family, everything had already been set up for Federico to become a professional polo player. However, he was not as gifted at polo as the rest of his family and decided to study engineering instead. After 3 years in investment banking, he decided to jump into entrepreneurship and built startups in several different industries in Argentina over the next 7 years. “It was kind of a mix of good and not so good decisions - and made me a better investor in the end”
In 2019, after being the CEO and Co-founder of an SME lending platform, the macro situation in Argentina got so bad that he eventually decided that it was time to move towards a different chapter in his career.
“Looking back, that bumpy road suddenly made a lot of sense. I was putting together all my technical knowledge as an engineer and a banker, with that unique experience as an operator - which is great for investors. And I suddenly realized this is what I always wanted to do."
This is how Federico moved to the US and entered venture capital by joining the impact fund Accion.
Empathy is everything
Putting it into one word, the most valuable skill that Federico learned as an entrepreneur and is applying now as an investor is empathy.
“Having empathy with our entrepreneurs makes a huge difference in how I see our team and business and more importantly how the entrepreneurs see me as an investor.”
Being an early-stage investor, Federico cannot stress enough the importance of a solid funding team to the company’s success. This is why he spends a lot of time talking to entrepreneurs and building a connection with them. He was himself always thankful for investors taking the time to give him advice even though his business might not have been in the best shape at that moment. “If anybody reaches out to me on LinkedIn or at an event, I at least want to give them one call. Let's give them my two cents.“
As this little gesture was what he valued most when he was still on the other side of the game, Federico now wants to give back to the entrepreneurs reaching out to him.
Succeeding on a purpose
Federico predicts a bright future for impact investing in emerging markets such as Latin America.
“In my opinion impact investing is going to become mainstream in emerging markets just like laptops.”
This is due to several factors: First of all, in emerging markets, a huge part of the population is underserved and not being targeted by incumbents. Fintechs manage to target 90% of the population that has been poorly understood by conventional banks. This is how they are going to have an impact, even though they might not necessarily plan to do so.
“If you're able to lend money to a client with no credit history, and to keep a healthy portfolio, that means that you're doing something exceptionally well.”
Secondly, at Seaya Cathay, the team strongly believes that impact startups build stronger and more resilient products over incumbents. Finally, due to being built on a strong mission, impact startups manage to attract better talent which translates into company success over time.
“We look for returns with purpose.”
However, as Federico explains, Seaya Cathay is not exactly positioned as an impact investing fund, but focuses on purpose-driven startups.
A behind the scenes look into the JV between Cathay and Seaya
Just recently Cathay teamed up with Seaya Ventures and launched their Seaya Cathay Latam fund. It is still rather uncommon for funds to form joint ventures and team up to build a regional fund, but, as Federico explains, both firms bring a unique skillset to the table that will help them on their mission of becoming one of the leading early-stage VCs in the region.
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“We want to invest in those entrepreneurs, who want to have a lasting positive impact in Latin America. And we want to do that by giving founders the access to the worldwide resources that we have and that they need to become regional or even global leaders.”
Seaya and Cathay have been working together for some time and already jointly invested in nine companies that they subsequently helped to scale from early-stage all the way up to unicorns or even going public.
“We have realized this was the right moment to double down on the region. And that together, we can offer a unique proposition both for founders and for co-investors in Latin America.”
The Seaya Cathay Latam fund is currently the only global early-stage fund with a local office in the region. Besides investing mainly in seed and Series A rounds, they are also making use of their large network of corporates.
“We think that for the first time large corporations are willing to work together with startups. And we think that we can boost the relationship with this platform.”
Cathay already has a strong track record of accelerating startup growth through corporates and Federico is convinced that they will be able to replicate this success in the region. Within the partnership, both Seaya and Cathay take all the decisions together, and also both hold 50% of the joint venture and the GP level.
“For me, as an investor in the region, it's amazing because I suddenly have 150 people supporting all my investment decisions.”
On the investment side, all new early-stage funding is going to be done via the new joint fund. However, both companies maintain their existing portfolios.
Repeating History - Parallels between SEA and LatAm
Southeast Asia and Latin America have many different elements in common, especially how infrastructure inefficiencies can be solved only with technology. This is why the decision to open a fund in LATAM was very well thought out.
“It’s not just like the FOMO. We have been seeing this in other places previously.”
Federico sees various similarities between the current dynamics in Latin America and those in Southeast Asia some years ago:
The mix of these fundamentals is the driving force behind the partnership of the two funds.
Some thoughts on current markets
Being questioned about the current uncertainty in the market, Federico admits that they might see some corrections in the market. However, he still sees the opportunity that lies in the region, as inefficiencies have not been exploited by technology yet.
“Even with some market corrections, we have a bunch of great years ahead of us.”
For Federico, great companies will always receive solid valuations and adequate funding - even though 2022 might not be such a successful year for the startup ecosystem as was 2021.
Rigor in due diligence is key
When entering into due diligence processes in the early stages, Federico stresses that you cannot spend enough time with the founding team. However, other key success factors do matter such as the size of the market and the opportunity, as well as the product-market fit. This is when he draws from his investment banking experience. Fede performs technical analysis with the same rigor as he used to for big financial transactions: Digging as deep into the numbers as possible (even though he knows that not every entrepreneur likes that).
“I really like companies that have their numbers in order. Even if it doesn’t seem as important in early-stage - once the company grows the chaos grows with it. You really need to start with a foundation.”
Federico compares the due diligence with a family visit to the apartment: make sure that everything is clean and tidy - if the house is already in order the due diligence is going to be smoother.
On Cross-Pollination
How to leverage such an international network? Federico sees that happening in two ways. On the one hand, the investors can draw from their previous experience as they have already seen models work and fail in other parts of the world and therefore have a strong sense of what might also work in LATAM. From the perspective of the entrepreneur, Federico sees them being more ambitious than ever before and Seaya Cathay’s network can help them to scale internationally.
“We have people in our team that are solely focused on connecting corporates and startups to find business development opportunities — not only business opportunities.”
In practical terms, that also means that Cathay is bringing in portfolio companies and corporates from their network to look at the new opportunities. This proactive approach is what really makes the Seaya Cathay fund stand out from other players.
If you want to learn more about who Federico admires as a founder and what’s the best piece of advice that he has ever gotten, then listen to the podcast…
Dive into the full episode on:
👉 Spotify
SaaS CEO. Empowering +1 Million Entrepreneurs via the leading SMB financial management platform in Latin America.
2yAnother amazing PodCast Patrick (Pat) Alex !!! Looking forward to listening!!!!
Head of Cathay Latam
2yThanks Patrick (Pat) Alex for inviting me!