Podcast: Supporting SMBs in LatAm

In this episode of Fintech Thought Leaders by QED Investors, QED Managing Partner Nigel Morris is joined by Nuvocargo CEO Deepak Chhugani, Coru CEO Igor Senra and Covalto CEO David Poritz to discuss the businesses that support SMBs across Latin America.

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Show Notes

Tune in to learn:

[3:20] Why Covalto rebranded from Credijusto
[12:55] How to fill the gap between large banks and microfinance companies
[19:01] How Nuvocargo tackles the complexity of cross-border trucking logistics
[24:30] Why Cora can out-maneuver the incumbent banks in Brazil
[31:55] Maintaining focus as you scale a company
[35:40] Taking a product from 0>1
[45:01] Why we're only in the second inning of fintech innovation in LatAm

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Nigel Morris is the co-founder and managing partner of QED Investors, a fintech venture capital platform focused on disruptive, high-growth financial services companies. QED has made numerous unicorn investments, including Credit Karma, Nubank, Avant, SoFi, Klarna, GreenSky and AvidXchange.Nigel is the Chairman of ClearScore and Mission Lane and serves on the boards of Red Ventures, AvidXchange and Zopa.  He also serves on the board of ideas42, and Scotia’s Digital Advisory Council, and he works in an advisory capacity with General Atlantic and Oliver Wyman.

Prior to QED, Nigel co-founded Capital One Financial Services in 1994. Under Nigel’s leadership as President and Chief Operating Officer, Capital One pioneered an information-based strategy that transformed the consumer lending industry.Nigel grew up mostly in England and takes immense pride in the fact that he is at least half Welsh. He has an MBA with distinction from London Business School, where he is also a Fellow. He is an avid cyclist, but is happiest when he is at home in Virginia with his wife, four children, and three grandchildren.

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Deepak Chhugani is the founder and CEO of Nuvocargo. Since its inception in March 2019, he’s led the company to over $37m in venture funding from some of the world’s best investors such as Y Combinator, Tiger Global, QED Investors, NFX, and the founders of Nubank ($50B), Rappi ($5B), Loft ($3B), Ramp ($8B), and many more. Deepak is the first Ecuadorian native to be funded by Y Combinator and got in as a solo nontechnical founder at age 24. Before Nuvocargo, he helped lead $3B+ worth of deals in the Latin America M&A team at BofA Merrill Lynch. Deepak is an Endeavor Entrepreneur and has been recognized as a Top 50 LatinX Tech Leader. He grew up around a small family business in international logistics in Ecuador, was born in Kenya, and his parents are from India.

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Igor Senra is the founder and CEO of Cora, the Brazilian digital bank for SMEs. He graduated in OPM from Harvard Business School and has an MBA in Financial Executive from Ibmec Business School. Igor believes that entrepreneurs can be the driving force of our society and encouraging and supporting entrepreneurship has become his life mission. He has been an entrepreneur since he was 12 years old and has worked in several industries, such as fashion, telecom, civil construction and payments/fintech.

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David Poritz is the founder and CEO of Covalto.

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Full Transcript

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Nigel Morris:

Hello and welcome. I'm Nigel Morris and I'm the managing partner of QED Investors. We are a fintech specialist, venture capital firm, focused on disruptive companies across the globe that are making a difference in the lives of our communities. We invest all the way from pre-seed and help our companies all the way to IPO.

And in today's Thought Leaders series, I am joined by three incredible CEOs whose fintech companies are empowering small businesses across Latin America. And today we have with us Cora CEO Igor Senra there wearing his shirt. Hello, Igor. And we have Covalto CEO David Poritz, previously known as Credijusto. We're going to ask about the name change in a second, David. And then last but not least, we have a Deepak Chhugani from Nuvocargo, and we're really interested in hearing their thoughts about small business in the LatAm ecosystem.

Gentlemen, thank you all for joining me today. A special shoutout to Ash Marshall, who looks after PR at QED for helping organize this in such an incredible way. But let's start by learning a little bit more about your companies if we can. And if I might, David, let's kick off with Covalto and tell us a little bit about the name change and talk to me about the business, would you?

David Poritz:

Excellent. Hi Nigel. Good morning, everyone. It's great to be here. As Nigel mentioned, I'm David Poritz. I'm the co-founder and co-CEO of Covalto, formerly known as Credijusto. We're still in the process of building name recognition. So it's great to participate on a forum like this. But just as some background, so Covalto was started at the very end of 2014, early 2015. And we always had the vision of building the leading small-business, digital banking and services platform for the Mexican market.

And right as we were launching our business, something very, very important happened in the context of the Mexican market, which was the introduction of the e-invoice and digital tax code. Which I think is a theme that we'll probably touch on today over the course of our conversation. And that really served as a powerful catalyst for us to really transform the way that small businesses traditionally access financial services in the context of Mexico, but also subsequently really across the Latin American region. So that's just, again, a little intro about ourselves. We're about 400 people all based in Mexico City. And we're pleased to say that we've had QED as a very early partner over many, many years.

Nigel Morris:

David, you're very kind. Tell us about the name change. Credijusto to Covalto.

David Poritz:

So when we launched Credijusto, we were focused initially on more of a micro market segment. Meaning really small, traditionally more informal businesses. And as we grew Covalto, and as we expanded our reach, we realized that the market segment that we felt really most needed our goods and services and our products was actually the 'M' in SME. So the medium size and middle-market businesses.

And as a result of that, we've really over the past few years focused on servicing larger, small businesses, medium size businesses, and middle -arket businesses. And not to get too into the weeds, but the Credijusto or the Credi before a descriptor is often associated in the Mexican market with a microfinance space. And because of that, we thought it made much more sense as we continue to evolve and as we became the first fintech to acquire a bank, we thought it made sense to position ourselves so that we would resonate with a larger, more appropriate market segment to what we were focused on.

Nigel Morris:

Fascinating. Look, we just went through a similar thing with a company that QED helped build out of the ground that was in the business of refinancing autos in the US. And we called it MotoRefi because that's what it did. And they built that business. It was doing really, really well. And then they looked to expand their product range and they no longer just did MotoRefi. So they renamed themselves Caribou. And that was something that happened this year. I think something a lot of companies do as they see a bigger vista, a bigger opportunity. The name that they started with, appropriate as it was, no longer seems to capture where the company is going. Thanks for that. Let me go to you, Igor. If I can introduce you wearing your colors there, are you planning to change the name of Cora, Igor? What do you do?

Igor Senra:

No. Cora was quite nice. I can also tell you a story about the name, because the name Cora here in Brazil has some special meaning because the word courage in Portuguese starts exactly with this radical with Cora. And it's the same as heart, who's also coração. So what we notice is really hard to build a business. And Cora, it's a tribute for our customers that they have to be brave in order to...

Nigel Morris:

Be brave?

Igor Senra:

So Cora is part of this. And we know that companies that are run with passion, with heart, they are better run. So this is also part of the story. And in Brazil, in Portuguese, we have gender for words and all the banks, they have male gender. So here we have Itaú, Bradesco and all of the other banks, all of them are males.

Nigel Morris:

Is that right?

Igor Senra:

And we position Cora as a male.

Nigel Morris:

Well done.

Igor Senra:

We are pretty much like them, but completely different.

Nigel Morris:

Well done. So tell us what Cora does, Igor.

Igor Senra:

Cora is digital bank for modern media companies. We have started with just digital account. And one year after we launched our credit card, who's our very first credit product. And since then we are building up other solutions. We are about to launch a new loan product also. So this is just the beginning of very few shelf of products. But right now we have just these two.

Nigel Morris:

The last CEO summit we did in October, last year, I did a fireside chat with Ken Chenault, who used to run... A legend and ran American Express. And I asked the question, "What would you say now to the 25 year old Ken Chenault, if you could talk to him?" And it's very interesting, Igor, he said, "I would tell him to have more courage." So back to that word, I think that's just a powerful word when you're trying to build companies out of the ground, because the world is shouting at you that it can't be done. And if it can be done, you can't do it. So the odds are so stacked against you. It requires that Promethean leap of faith and courage. So I love the story around Cora. I'm going to go to Deepak at Nuvocargo also in Mexico City. Deepak, where did Nuvocargo come from? And do you think that name is going to last?

Deepak Chhugani:

Yeah, that's actually a fun place to start. That's not a question we get often. So first of all, Nuvocargo is a digital logistics platform aiming to make trade simpler. That's part of our mission is to simplify trade for businesses across the Americas. So with the theme in the panel, we have customers that are very large, but also many customers that are small and medium who are engaging in trade and commerce, actually moving physical products from where they're manufactured to where they're going to be distributed and sold. So we always like to say everything in the room you're sitting in, or I'm sitting in, the clothes on our back, absolutely everything around us, all the gadgets, all the clothes, the food, these things go through supply chains. So it's a less well known industry, I would say, freight and freight forwarding. And what we do is we are reinventing a very old school business model called freight forwarding, which is essentially an asset light broker that helps companies move their goods from country A to country B.

And we focus on U.S. Mexico trucking, which is the world's biggest trade lane today. And it's only growing. It's only becoming more prominent. We are about three years old. We're about 170 people. Very proud that QED has been a very important investor and serves on our board as well with Lauren Morton, shout out to Lauren. And the company seeks to evolve and offer multiple products, financial products and services that help our customers because they need to engage in ensuring their products, moving them, financing them, importing, exporting. And so the vision of the business is today we mainly help companies move the goods. Eventually we are already layering on multiple products and services. I don't know if you want me to dive deeper.

Nigel Morris:

Well, we'll have time to, I think, to drill down a little bit more, but is it true that you originated the term trucktech, Deepak, to describe your business? Is this true?

Deepak Chhugani:

I think you originated it at a cocktail where you were trying to talk about how we talk about embedded fintech and then I stole it from you. So yeah.

Nigel Morris:

Trucktech. We're trucktech. So I want to just drill down a little bit. Small businesses, certainly in the U.K. and the developed countries has historically been what...

Deepak Chhugani:

I want to tell you about the name though, as well. Whenever you let me.

Nigel Morris:

Okay. No, no, no. Please do, Nuvocargo. Go ahead.

Deepak Chhugani:

Yeah, because we never get that question. All the others we get a lot. So first of all, we are very, I would say bicultural as a company. So I grew up in Ecuador. My parents are Indian. Our business is in New York and Mexico. Everyone on the leadership team, except for one person maybe speaks fluent English and Spanish. And so we're really looking for something that would appeal to both cultures and would make sense and would represent what we're trying to do. So at first it was actually called Savvy Cargo because we wanted to be the smarter way to move cargo.

And then classic startup issue, four months in, there was some company that had the exact name, had a patent, the trademark. We were early enough that we could just change it. And we were really thinking through, we had these crazy whiteboarding sessions. We wanted the word cargo in there, not freight, not logistics, because cargo in Spanish cargo, carga, easy rolls off the tongue and people understand it's about logistics. And Nuvo, we wanted something four letters, simple. And signal a new way to move cargo. And a lot of people call us Nuvo, even though that wasn't my intention. So a lot of people say Nuvo, maybe one day we'll drop it. But I think today Nuvocargo is the name.

Nigel Morris:

I love it. I'll reciprocate with a story about Capital One when we were getting ready to go public. And we thought that you could just choose a name and you could have the name and you could put that on the S1 and that was what you'd be. And then all the names that we liked were taken by people. And Capital One was one of the names. Global One was another one. I was very focused on globalizing the franchise and right up until the last moment we had actually printed the S1 with OakStone bank. And the idea was that what promotes strength and stability and solidness? And we had oak and stone and we just smushed them together, but nobody liked the name, but it was the default name if we couldn't get Capital One. And right at the last minute, we were able to get Capital One, but we were nearly OakStone bank, which doesn't sound anywhere near as exciting as Capital One, I think. But yeah, OakStone, it could have been.

So let's talk about small business. Historically, the banks to some extent, have lent and have serviced small businesses. They have done it through their fixed distribution systems in developed countries in particular, but they tended to want to move up market and move to bigger small businesses if you like. The middle market, David, perhaps. And when we've seen some fintechs, certainly in the U.S., I'm thinking of On Deck and Kabbage, who struggled to crack the code in the space. So let me start with you, David. You're financing companies in Mexico, primarily those ones that the banks aren't serving rather than competing with the banks and doing something that the banks do do.

Large corporates at the top of the pyramid are served largely by the banks I think. And a large number of the micro businesses at the bottom of the pyramid are served by microfinance companies. So here you are in the middle space. Talk a little bit about what the needs are of that middle market and how you are meeting those needs. And are you moving up market too? And a little bit about the products that you think are the most relevant?

David Poritz:

Yeah, no, it's an excellent question and something that we think a lot about Nigel, because we really want to become a solution where we can grow with a business as it matures. So it may be when we initially engage with them a smaller enterprise, but we want to be able to scale with them because I think there's a classic predicament in much of the fintech world, where a company may acquire a client when they're early and maybe they're higher risk, but as they mature then they migrate or they mature to a bank. And if you think about that, you're really going through all the work of acquiring a client, building trust with them, and then you lose them. And our whole view was through the acquisition of a bank, we could offer the agility and the speed and the flexibility to small businesses that are above the micro segment because those micro businesses are traditionally very informal.

And they're actually quite well served in Mexico. Microfinance as an industry really began in India and in Mexico. So there's a lot of players there. So we come in right above microfinance with slightly larger businesses. Our smallest loan sizes are around $10,000 and they go up almost to a few million dollars. So we like to be able to offer a flexible product that is able to meet the needs because traditionally these businesses are really hard to acquire. They're expensive to acquire. They're difficult to engage and they're difficult to underwrite. So our view is through technology, we've really been able to get in early, build those relationships, but then maintain those relationships by being able to roll out banking solutions and also lower cost capital products so that as they mature and as they become lower risk, we do not lose them. So we refer to that. I think we've spoken about this as the missing middle. It's that segment between above microfinance and below large corporates, which we think on a risk adjusted basis is the most compelling market segment. It's also difficult to go after.

Nigel Morris:

Oh, thank you. That's really articulately put there, David. Two things strike me. And I just want to underscore one is you led with solutions. We are going to help you solve your problem. Middle market SMB. Not "We have technology and we're looking for somewhere to apply it." And that's so critical, I think, in getting product market fits and something we see all the time in working with our fintech port cos how important product market fit is and working backwards from solution and not falling in love with technology.

The second notion is this notion of matriculation or graduation. That where you start with a customer and you build that relationship, you build the rapport, you get the great net promoter scores, you develop proprietary data sets, and that puts you in poll position to be able to grow with that customer and be able to head them off at the pass, if you like if they were going to go to a more traditional player. So the spade work that you put in the early days with the company goes a long way in keeping them on your books for ad infinitum. Tell me a bit about though, as you go after the middle, what is it that you bring to the table that others don't? Is it that you are one of the only games in town? Is it your speed to deliver solutions? Is it your pricing? Is it the size of the loans that you can offer? What is the secret sauce here?

David Poritz:

Yeah, so I think you've articulated many of the values that we bring to the table. I think the first thing is we try to become... Our goal is to really become a one stop solution. So one of the learnings that we had is a lot of small and even medium size businesses, they work with five or six different financial institutions because they're not able to get all their needs met by one group. So they maybe have a working capital loan from one group and then they have a credit card from another and they have business analytics tools from another. What we've done is really create that ecosystem, we like to refer to as an operating system where you have a multi-product credit solution ranging from term loans to credit lines and leases and credit cards. Then you combine that with banking solutions, so that really you can keep the capital within the ecosystem.

And then finally we offer analytics tools and financial planning tools that enable these businesses to make more informed decisions in terms of where they invest and how they invest and how they manage cash flow. So I think value proposition for us is about bringing that together in a really holistic way. Then on top of that, I think we layer on speed and agility, customer service. We're willing to take larger exposures on individual clients because of the data that we have. And I think those are all just additional value ads that we offer. And then finally is we are able to compete head to head with a traditional bank on cost. This is not something that we were able to do before, but now we can offer that, call it fintech value prop, with the cost benefit that traditionally a bank would come to the table with.

Nigel Morris:

Because of course banks can gather deposits at a really, really low rate. Well, you can see Igor and Deepak, why we invested in David and Covalto. Look, there's a lot of people talk a lot about bundling and cross selling. And a lot of banks have bought other banks with the motivation that they can do cross selling. And by and large, it fails. By and large, it doesn't work. It does work though where you have a great value proposition, where the pricing is really good, you leverage off your proprietary data. You're making a one stop shop work by just click and get. And that the consumer really leans in and trusts the provider. So we've seen that at New Bank in Brazil. We've seen SoFi in the U.S. and a number of other fintechs that are beginning to crack the code now on being able to cross sell and bundle and provide a gestalt of services and products that they have earned permission to be able to offer. Makes sense.

Deepak, I'm going to go to you. What you do is you attack this very complicated problem of lots of moving pieces, two different languages as you move from Mexico to California. Two sets of laws, two sets of currencies, and two different cultures. And on top of that, people are moving a truck and laden goods and insurance issues and immigration issues and various constituencies at the border that all want to authorize and give permission for the truck to move across the border. Now, last year you saw amazing growth. I think you grew five X last year, and I know that you are continuing to grow this year. Tell us a little bit about how you crack the code in terms of digitalizing that complexity and what comes next.

Deepak Chhugani:

Yes. Thank you for that, Nigel. I think you articulated a lot of the challenges, but I would say also the opportunities for us. We found that there two sides of the same coin. So really to simplify because we find that most people, especially in the startup world are just learning a lot about freight and logistics. It's not the sexiest space so I think maybe it's becoming more interesting now. But once again, I'll just say there are... The connective tissue, let's say, of the global economy is the ability to move goods from the country where they're manufactured to the country where they're distributed or sold.

So simple examples we give to people is you all know your tequila is made in Mexico if you're drinking them in the U.S. Your iPhones are made in China. But the actual process of moving the goods from country A in the manufacturing facility, where it's produced, getting it trucked over to the port, whether it's going over ocean or getting it to the border in our case, because we're doing cross border trucking. Then doing the paperwork to export it out of one country, import it to the next. You have insurance issues. You have everyone's on net 30, net 60, net 90 day payment terms and the supply chain... So to your point, Nigel, there's a lot of complexity. We felt that the most interesting entry point into the market was the model of the freight forwarder, because you get to see that entire experience end to end, but you don't need to own the assets.

You don't need to own trucks, warehouses. You don't need to have anything physical warehouses or anything like that. You can, if you think it's strategic. And so we saw the success of other businesses, whether it's Flexboard or others and other geographies. And we said, someone is going to bring this innovation to the market that touches Latin America. And the biggest piece of that between the U.S. and Latin America is U.S. Mexico. And so we decided to focus there and rebuilding that freight forwarding model, where we go into customers and we tell them, "You're already working with very traditional old school brokers and freight forwarders to move your goods, work with us. It's going to cost you something very similar or less and we're going to provide a modern customer experience. We're going to build software. We're going to give you visibility and structured data for all of your shipments that today lives in faxes, spreadsheets, emails, et cetera. And then with the creation of that structured data, you can then start offering multiple other products and services, analytics, insights to help the businesses."

Our customers have to hire less people for their logistics department and to have to deal with less vendors. I don't have to deal with a financing company, an insurance company, customs broker in Mexico, in the U.S., import export. Someone who finds me the truck in Mexico, in the U.S.. So the vision is very large. And even though we've grown a lot, we're still tiny, tiny, tiny in a massive market because it's complex. And because we're in the process of vertically integrating and adding more so that our customers can just have one partner and it's really simple and it makes our life easier with better data.

Nigel Morris:

Making their lives better with better data, being able to bundle products together that make sense. And they can click to get and that you can promote and leverage. Just as in David's business, the proprietary data sets that you have. And the term's been coined, embedded finance, where insurance and payments and lending of various kinds, wraparound a traditional business, often that is transformed from a manual clunky friction based system into something much more digital with transparency and able to capture the data flows. As you look forward, Deepak, how much of the future of your business is going to be the embedded finance insurance payments lending?

Deepak Chhugani:

Yeah, I think if you think about it on a net revenue basis, we believe it's going to be a very significant portion of our business and what drives retention and increases the addressable market, it's hard to know because we're so early in the process but we believe that it will be more than half of our net revenue at scale probably. We could be wrong. We're not exactly sure. And freight itself, like I said, just our first revenue stream, first business model has companies that have 2, 3% market share and are worth in the public markets, 50 billion, $30 billion. So I don't know that you have to go too crazy thinking about how the business can reach to those levels with the other products. But we really do believe that those other products can add a lot of value and be more than half or a very meaningful proportion of our net revenue at scale.

Nigel Morris:

Fantastic. Look, I hear that theme a lot. Where in the longer run the revenue subscription or by the drink revenue you get from the digitalization of the process will come under more siege and the margins will diminish. The leverage is going to be in the embedded finance wraparounds that you can build. I think that I see that theme quite a lot, actually all around the world. To you Igor, you've been very patient there. Thank you. Talk a little bit if you would about Cora's positioning in Brazil and maybe compare it a little bit to what David's doing in Mexico, but tell us about how courage and bravery is working with Cora.

Igor Senra:

It's pretty much like this. I guess we have business quite similar to David in multiple ways. We are trying to find exactly that missing piece between the individuals and companies. Because here in Brazil, the traditional banks, they have cracked the code, how to deal with individuals and how to deal with the corporations. But with the small media companies, it's completely other game. They really don't know how to deal with this type of companies. Just to give a sense, the biggest private bank here is Itau, the small-medium companies in the last seven years, every two years they change from the VP of individuals banking to VP of corporations, because they really don't know how to tag this into their systems internally.

And it goes for everything. They don't know how to deal with them. They don't know how to treat them. They don't know how to underscore credit for them. Just to give you a sense, with QED's help, we are underwriting credit for our customers since last year and nowadays 40% of our customers that we underwrite credit, they have credit only with us. They have no other way to get access to credit. And 70% of our customers, they are using credit only with us. So even if they have credit in the traditional banks, they decided to use just us as credit source for their credit card.

So we are seeing that we are in a way to offer, to tap their needs in a better way than the traditional banks were doing. And I guess it's just because we have this narrow focus, we only do as mobile media companies. And this is trickier is because nowadays we know that 70% of the limits for companies that has been used for companies today are used by the credit card of individuals, the owners of those companies. And for the bigger banks, they really doesn't care because it's in the same structure. Just question of each package you decided to use. So for us, as we are trying to do is exactly what they need because when I used... And just to be clear, I used my personal card in the beginning of quarantine.

Nigel Morris:

To fund your business.

Igor Senra:

Imagine we have 40 million reais in our banking account, we apply for credit card and we got a limit of 4,000 reais. And then they have no shame to tell this type of things to use. And then we saw the opportunity was huge, was in front of us. And as we need to move on with Cora and we didn't have the right credit there, I was using my personal credit. And for the bank, it was pretty much the same. But for us in terms of accounting or in terms of everything was a mess. So this is when you are seated in... When we are using the entrepreneur shoes you can see all of this problem. You can tag them in a better way.

Nigel Morris:

It sounds like you're playing a huge role in catalyzing entrepreneurism in Brazil. And that's really powerful to see. I just want to underscore one thing you said, and that was about focus. And one of the things I'm constantly counseling the CEOs in the QED portfolio is "Look, don't try and do too much too soon. Focus on with a core product and that you think there's a huge problem to solve. Get the wheels spinning there, get the net promoter scores good, understand the unit economics obsessionally before you start dreaming of product two, three, or four."

And we've got two people from Mexico here, and we've got one person from Brazil before you start to go and conquer new geographies. And that doesn't mean that you shouldn't go and try and conquer new geographies. It doesn't mean that you shouldn't have a whole product suite, but get your feet underneath you first and have a business that you know can work. And then that will give you permission to be able to do the other things. And so I always love the term of focus, particularly early on with companies. Because very seldom will somebody take the opportunity away from you if you do it a bit more slowly and build a really strong edifice. And that makes sense, I think.

Igor Senra:

Just building on top of this, I guess it came with time because we are in our second right as entrepreneur and this lack of focus in the other company cost us a lot, obviously. Now it's completely different game, I can tell you. And I am the one, the gatekeeper of the focus. I am always trying to keep everybody focusing well.

Nigel Morris:

Yeah. And it's hard isn't it, Deepak and David, because your team wants to expand. They feel the energy. They want to do the right thing. But you've got to corral it in sometimes. Deepak, do you find that?

Deepak Chhugani:

Yeah. If I can comment on... Sometimes when people hear the things we want to do, they say, "Wow, that's very ambitious." But just resonating with Igor, if you look at Nuvocargo's business today, we're moving over a thousand loads a month, but they're all cross border U.S. Mexico drive in 53-foot only through Laredo, Texas, which is 40% of US Mexico trade. And we don't do reefer. We don't do other sizes. There's all sorts of things we've had to say no to. Geographic expansion, customer segments, types of commodities. That couldn't resonate more with what Igor said.

And it's been one of the biggest challenges for me where I've been just been saying no to absolutely everything. And just now year three, where with partnering with QED's, now we feel ready to start adding on other products. And even then you start seeing some of the challenges with the lack of focus. Like what is your sales team selling? How do you cross sell? How do you organize the teams and resources? And I do think it's something that generational businesses have to figure out, but I resonate with what Igor said where complexity can just compound. And so we've tried to be very focused and even then it's super hard in our market because of all the complexity and logistics.

Nigel Morris:

Totally. David, you've been at this a bit longer with your company. You've been at it in nine, 10 years now. How hard did you have to work to maintain focus in the early years? And presumably now you feel like you're playing on a much broader tableau at this point.

David Poritz:

Yeah. I think it's a question that is a question as you start a business, but it's also, I think I'm sure you could attest to, Nigel, it's a question that stays with you throughout the different phases of growth. And I think for us, I think probably similar to Igor and Deepak, you're constantly being pushed and pulled in different directions to do different things.

What I always come back to is the size of the markets that we're operating in. So Mexico, it fluctuates between the first and second largest trading partner with the United States. There's 130 million people in Mexico. These are big, big, big powerhouse economies, Brazil being even larger. So I think we can talk about going to Peru or going to Columbia and what the conclusion that we've often come to is it is in the short to medium term, it continues to be more strategic to dominate the Mexican space where we're operating and begin to expand horizontally, to begin to offer new products, to begin to become more profitable and really, really own this market. Because each of these markets, although perhaps they speak the same language in the context of Spanish speaking Latin America, they have different regulatory schemes, they have different dynamics, they have different political environments.

So we've come back to the theme that you have to be exceptionally disciplined in terms of when it makes sense to leave the core geography that we're working within. So I think where we're at as a business is we started off by being very focused on really one or two credit products. I actually think the biggest error that we made is we were too focused for too long. And then in the last... Call it two and a half years, we've definitely played catch up where we now truly have an ecosystem. And so I think we're getting to the point where we've built really through focus and through discipline a multi-product multi-solution oriented platform. And now we need to figure out when's the right moment to then go beyond Mexico. But again, my two cents is I think it generally is the right decision to stay focused even if you maybe do it for a little bit longer than you wanted to.

Nigel Morris:

A fascinating discussion. It's kind of... There's a Goldilocks moment though isn't there? Because I think you point to it. If you stay singularly focused and monoline in one geo ad infinitum or for too long, that business as it scales becomes much more about Six Sigma and driving down the scale curve and expanding margins and running the machine better. And if the culture of a company starts to be dominated by that mindset, it can lose the ability to innovate and be scrappy because the reason why your companies came out of the ground is because you were intensely entrepreneurial, intensely scrappy. And if the culture starts to shift toward production, manufacturing mindsets, that doesn't lend itself to the DNA of creation. And then you have to fire up creation at the side in order to get these new things out the ground. So there's a kind of Goldilocks time. When if you go too soon, you can mess it up. And if you go too late, you mess it up. Gosh, your job is hard, isn't it gentlemen? Isn't it hard?

David Poritz:

It's walking a tight rope is really what it is. It's this balancing act between different stakeholders telling you to do different things and really needing to stay grounded. So anyway, this is the day to day reality that we live.

Deepak Chhugani:

If I can...?

Nigel Morris:

Yeah, go ahead. Go on.

Deepak Chhugani:

Just piggyback one comment is there was someone, I can't remember who, that said... That we really respect and advise us... Something just similar to what you said, Nigel, which is if you can build the muscle early on of getting a second or third product and what that actually looks like, taking it from an idea to something that has legs and MVP, then actually getting traction, then scaling and productizing it, we've done that with our first product QuickPay because it felt like the easiest product. It's something we pay our truckers and then we advance it. And it's still hard.

But I agree with you. I think one of the coolest things about that, even though it is, you could say, less focused, but I really think it adds value to the truckers in our marketplace. And it fuels the core business as a flywheel. I think it's the DNA of what you just said where now there's people in the company that know, "Hey, one of the things I could do at Nuvocargo is launch a new product, take it from zero to one." And then there's people that will take it one to five and five to 10. And I don't know if it's going to work, but it seems that's a valuable part of our culture.

Nigel Morris:

I was just saying it sets a real cultural stake in the ground where we're not just going to be a logistics company for freight moving across through one port. We are going to do embedded finance. We are going to front the money, a form of lending. We are going to offer insurance and that's part of our destiny. So getting the R&D muscle going early, even if you're not scaling it points to the fence of what the future is because people join companies because they want to be part of something bigger and grander than themselves.

They don't just want a single point solution, particularly when there's so much friction and so much opportunity. All three of you in your own way have said, we're just scraping the surface here. We're making a small dent in a massive opportunity. One of the questions I get all the time about fintech, particularly with some of the perturbations that have happened in the market, particularly the equity markets around fintechs and tech in general is, is fintech reaching the end of its life? And I say, "Look, we're in chapter two here. And there's at least eight chapters that are going to be going to be in this book because the friction is horrific. The incumbent struggle to provide digital services. The there's so much opportunity that people like you... You could easily spend the rest of your life building these things and will only make a small dent in it." Am I being too Pollyannaish here? Am I being too much a salesman?

Igor Senra:

Not at all. I guess when you told that we are in the second chapter, I was thinking, I feel that we are in the second paragraph. Everything is... It's ahead of us. We are just beginning. Especially for us here in Cora, we really feel that we are in the very early days. We have built customer base of more than 200,000 active customers in less than two years. And when we look to the future, we feel that we did nothing. We are about to start. So this is the right feeling at least, I guess, put mildly.

Nigel Morris:

Yeah, so this is what keeps me going and keeps me excited. I just see so much opportunity to be part of helping people build cracker Jack disruptive businesses. I'm watching the clock and we're almost coming to the end of the time we had, and I've only got two pages into the questions that I wanted to frame up. Can we go to some rapid fire questions where you have to answer in a few seconds? But I want to try and cover some other ground. David, you have the first banking license in Mexico. How does it advantage you and will others follow?

David Poritz:

Absolutely. So it was the biggest risk and the best decision that we ever made. And it's given us a huge protective moat. Folks underestimate the complexity, but others will do it because of the same fundamental reasons that we made the decision to.

Nigel Morris:

And you have a regulatory climate that's relatively benign?

David Poritz:

Yes, it's a benign regulatory environment. However, there's a lot of companies trying to do something quite similar. And because of that, it creates bottlenecks, which slows things down.

Nigel Morris:

Very good. Igor, you are in the business of lending money. And if you haven't noticed, everybody's concerned about a recession hitting everywhere on the planet and inflation is surging and there's a lot of finger pointing going on. But you are in the lending business and a conventional wisdom is in the lending business during a recession, things go haywire. How do you see that?

Igor Senra:

Nigel, I feel that we are graced one more time. We are blessed to be here. It's just because we, in the beginning, we don't have all of this huge portfolio to take care and we can do the tests in the very bad periods as we are doing. And once, because we know this is cycle, when it hit back, we'll be ready to speed it up as fast as we can.

Nigel Morris:

Are you seeing your customers showing more signs of distress, delinquency problems?

Igor Senra:

Nowadays our delinquency rate is around two thirds of the market. So the market is going down, but we are still getting better than them. But we expect to have some heat from now on. But as I told you, our portfolio is still quite small. We don't have the exposure that others are really concerned to on the right, because they are concerned about the portfolio, not about the new accounts.

Nigel Morris:

And if you've done a really good job on people coming in and you can ride this out, particularly if your margins are strong. I think people underestimate the margins that exist in lending if you do it well, even though risk can move up on you. Deepak, how is the changes in the economy that you might expect for the next six or 12 months going to impact your business?

Deepak Chhugani:

Yeah, so I think in general... I think we're still moving low tens of thousands of shipments a year and there's about eight to 10 million just between the US and Mexico. So it's very, very large. I don't think it's going to impact us in any meaningful way outside of startup fundraising, Nuvocargo's in a fortunate position, we have ample cash. We have a very clear roadmap. And so I think we made some decisions in the past few months. And you know what, Nigel that really put us on a position I believe for success and to press on our market leadership. And so I think we just are just going to be more prudent on margins, unit economics on managing cash burn more than we would have last year in this crazy go go environment where every three months someone was reaching out to see if we would do another investment round. We think that's going to change a lot.

And then in terms of serving our customers, the nice thing about us, our core business being logistics, and maybe not the financing piece yet is that we really... The customers, they only need our help when they need to move their goods and everyone's trying to grow their business. And even in the bad times, I think that you might see a drop 10, 20%, but it doesn't impact overall volumes. And you can be there for your customers, solve their problems, have a strong balance sheet, which is one strong part of freight forwarding. And you'll get on the other side with more trust and brand recognition. And I think deeper customer relationships.

Nigel Morris:

I think that's right. And so much of the advice we're giving is this too will pass. We've had other recessions and this one might have a slightly different shape than others, but the inexorable trend toward digitalization and fintech is very palpable and it might slow down a little bit, but it's going to come roaring back at the other side of this. So last question for you guys, then I'll give you a moment to close. Crypto and tokens and Web 3.0 and DAOs... All three of you, start with you, David Poritz. Does it make any difference to your business?

David Poritz:

It's not core to our business today, but it's something that's very much on our radar. In our case, I think I would say perhaps the use case that's most exciting is relating to the structuring of credit as well as cross border transactions. So I think those are the two areas that we're tracking very closely and that we think could evolve into very relevant elements to our business, either to support efficiency in terms of how we're doing underwriting, how we're doing structuring, and how we're dealing as Deepak knows with cross border trade and cross border trade finance.

Nigel Morris:

Yeah. Interesting and exciting trying to get your arms around that. Igor, will it make a difference in your business?

Igor Senra:

I guess this is something like this. This is now also not our core right now, but we must keep paying attention in everything that is going outside. This is one of these things, but for right now we have too much in our plate. We are just keeping it in a safe distance, but we are focusing what really matters for our SMB customers.

Nigel Morris:

All right, Deepak. Truck token, I think. Yeah. Truck tech coin. Yeah.

Yeah, yeah. Look, we're spending a lot of time thinking about it. My co-founder Frank Rotman Adams and Matt Burton doing a lot of thinking about how it can impact the future. A lot of uncertainty, but a lot of opportunity too I think. So we're going to wind down now here. I'm just going to give you a minute to close. Hopefully this has been entertaining for viewers and hopefully there's some nuggets in here that other budding entrepreneurs can take away. David, let me start with you. Any final thoughts here for younger entrepreneurs thinking about building their fintechs out of the ground, any advice you would give them?

David Poritz:

Well, look, Nigel, you made the comment that we're in the second inning. So as it relates to fintech, I would also emphasize, I think we're in the second or third inning in terms of Latin America. And I also think we're in the second or third inning in terms of small business and SME. I think that consumer was very much the focus of fintech and it was mostly focused in more developed markets and it feels to me like we're in the decade of small businesses and it also feels to me like the trajectory of Latin America, obviously it's going to have its bumps because there's going to be bumps in the road. However, the fundamental trajectory clearly in an upward trend. And I think all of the businesses that we've been speaking about today are really scratching the surface. So I guess my advice to entrepreneurs is I think fintech Latin America and I also think the SME space are going to become really important long term trends that I think is extremely exciting. And I would encourage people to study them and look at them closely.

Nigel Morris:

Very good, David. Igor, what would you say?

Igor Senra:

I feel that I could simply write down, put my signature in everything that David just said, because I'm truly believe in what he's telling. Not only because we are in the beginning, but there is so much opportunity, not only exactly what we are doing, but when we look around, we only see opportunities. And if somebody's trying to find the right time to enter, for sure is now. And something that I would also add, Nigel, is I'm coming from another company, as I told you before. And sometimes we used to think that this time is not the right time because the environment is not in a good mood or something like this. But my friend 10 years ago, 15 years ago here in Latin America, this was really, really hard times. This is just a wave. So I can tell you if you have idea, if you have something, please go after this because the moment is now.

Nigel Morris:

Okay. The moment is now, Igor. Deepak, is the moment now?

Deepak Chhugani:

The moment is now. My only message is... One thing that I've learned because lucky to have a lot of peer founders and communities. And I do think that a lot of entrepreneurs end up tackling very similar ideas and they shy away from more complex problems. I think it's fair to say Nuvocargo is tackling a quite complex problem. And I think that the only message would be, I would encourage other entrepreneurs and friends that even if it's daunting in the early days, if you are one of the few that's willing to do it, I think a few years in like we are now, you start seeing how powerful it is to have put in that work and the advantages it can give you.

Whereas I think we were living in this two year world where everyone was thinking about what's the simplest idea I can do that just gets me to raise a lot of money. And I think that there's a lot of exciting and difficult problems to solve globally, and specifically in Latin America. And we are just getting started with digitizing some of these really massive industries, logistics, transportation, real estate, healthcare. There's so much on all of those. Luckily for QED, can also be fintechs.

Nigel Morris:

In the end everything's fintech, right? I've really enjoyed this conversation with the three of you. Deepak, David, Igor. This to me is just a complete manifestation of why I do what I do. Being able to mix it up with people like you, who are pursuing such ambitious dreams in such a cogent and thoughtful, intentional way. I feel very blessed to have the opportunity to be able to work with you guys. So keep up the great work. I hope listeners and viewers enjoyed this and we'll talk to you all soon. Thank you so much for your time. Much appreciated.

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