​​Read full issue online​

Hello everyone,

Boy, do we have un excelente issue for you today.

We just wrapped up our inaugural investor field trip to Mexico, where we took 15 Alts community members and speakers on a unique adventure into the heart of Tequila country.

This was life-changing for all of us. We arrived as Mexico noobs; eager to learn about everything from hot LATAM startups, to mezcal production, to the nuances of mortgage financing.

We left as tequila experts; ready to deploy capital and possibly even co-invest together on an Alts vacation rental in Puerto Vallarta (!)

Deals were made, lifelong friendships were forged, brain cells grew, and some brain cells died (blame tequila and Lucha Libre). In today’s issue I'll tell you all about it.

This issue is packed to the gills with info. It’s free for everyone, but probably too long for your email. Read the full issue on our site.

Investor retreats like this are a huge part of why we started Altea, our new private community for accredited investors.

This is where we share the best alternative investing deals from around the globe. It’s where opportunities are found, discussed and vetted. It's where the magic happens.

We also host fireside chats with expert speakers. In fact, next week we're hosting an event with Miguel Ortiz, founder of the tequila investment company House of Rare.

There's nothing else like Altea. If you’re accredited, this is for you. Apply here.

We gathered in the heart of Mexico

Our trip began in Guadalajara, a rapidly-developing metro area of 5 million, and Mexico's 2nd largest city.

Guadalajara is the capital city of the state of Jalisco, where the town of Tequila is located, and where the vast majority of the world’s tequila is produced.

But this trip was about more than just Tequila.

Mexico is the world's tenth most populated country, and it's experiencing rapid middle-class growth, high GDP growth, and a reduction in inequality.

Mexico seems to be de-coupling from the rest of LATAM. With an expected annual GDP growth of 8.7% over the next five years, the macroeconomic outlook is bright.

At heart, our trip was about understanding investment angles related to the rise of Mexico’s middle-class.

The ABCs of investing in LATAM

Our first speaker of the week was Luis Enriquez Arias, cofounder and managing partner of Bridge LATAM (and all-around wonderful guy).

With Bridge LATAM, Luis invests in startups across the Latin America; an enormous, 670 million person market that has terrific internet infrastructure (78% internet penetration) and yet is massively underserved by existing technology firms.

To illustrate this point: Tech companies in LATAM make up just 2% of GDP. (In the US it’s 32x higher.)

Critically, Bridge LATAM firm only invests in pre-seed and seed rounds.

Why?

Because unicorn exits in LATAM are still extremely rare.

See, the ecosystem is still lacking big exits. There are only 26 unicorns across LATAM, so you can't just "copy & paste" the US model.

Investing in seed/pre-seed and exiting at series B and C is a better strategy here.

That said, big LATAM exits certainly do happen.

What LATAM startups you should know about?

Learn about Latin America's first "delivery SuperApp," the region's largest neobank, and auction juggernaut Mercado Libre.

→ Read this section online​

Where do LATAM’s best startup opportunities lie?

Nearshoring

In contrast with offshoring, which seeks to take advantage of lower production costs in another country (no matter how far away the country is), nearshoring is the practice of moving offshore operations to a nearby country, to take advantage of cheaper delivery, more favorable time zones, closer cultural ties, and lower import taxes.

While this movement began well before Covid, disrupted supply chains during the pandemic kicked nearshoring into high gear.

The passage of NAFTA (North American Free Trade Agreement) eliminated tariffs on imported Mexican goods, and significantly boosted Mexico's exports to the US.

Tariffs that President Trump introduced on trade with China have led to Chinese companies avoid taxes by shifting their final assembly to Mexico:

Yes, lots of Mexican production is essentially Chinese goods with a "Mexican rubber stamp."

But exports to the US have risen far more than imports from China. So while rubber-stamping goods to avoid taxes plays a part, it's not black & white.

→ Read the rest of this section online.

Banking the unbanked

If there’s one thing I’ve learned in my travels, it’s that so much of the developing world simply doesn’t have access to credit. LATAM is no exception.

Alternative credit for first-time homeowners

To learn more, we invited a founder to the event named Cristian Villamizar.

Mexico is the largest housing market in LATAM, and it suffers the biggest housing deficit (9m homes).

Unlike in the US where the problems are mostly regulation and NIMBYism, in LATAM the biggest obstacle is simply access to credit.

Mortgages are a rare commodity in Mexico. In fact, Mexico’s mortgage penetration is one of the lowest in the region.

• Inflexible requirements for informal workers. Banks demand job/income stability and high credit scores. This means that "informal workers" (which make up 29.4% of Mexico's GDP) have trouble getting credit.
• Credit scores are borderline-non existent. Only 18.3% of Mexicans has good credit history, greatly restricting people's access to loans from Infonavit, Mexico's national housing fund. The problem cannot be fixed with government programs alone.
• Down payments are very high. In Mexico, a 20% down payment is a standard, intractable requirement. (In Colombia it's 30%!) Families must save for 10-12 years.

Interestingly, things aren't much better on the supply side. Residential housing has historically been a poor investment in Mexico.

→ Find out why​

The solution: Duppla’s "rent-to-own model."

The model allows investors and families to buy an apartment together. It aligns everyone's incentives, gets people into homes, and turns real estate into a viable option for institutional investors.

Cristian is from Bogotá, where the company was founded. But he plans to open the Mexican market in Q4 2024.

→ Learn why Brazil is a totally different beast in LATAM.

Alternative credit for Mexico’s Uber drivers

Homes are the biggest purchase most citizens will ever make. But a similar dynamic is playing out in the auto industry — specifically with Uber drivers.

​Javier Serrano is the GM of Asaak, a Guadalajara-based financing company which has applied the rent-to-buy model to automobiles.

It’s the same story: Citizens want to become Uber drivers to supplement their income, but they can’t get credit because the infrastructure isn't in place.

Uber struggles with driver supply In places where vehicle financing is challenging. They collaborate with partners like Asaak to get drivers into cars and on the road.

→ Learn how Asaak manages risk & reposessions.

Mexican real estate

You cannot have a Mexican investing discussion without talking real estate.

In the old days, the term "investing in Mexico" conjured up images of Cancún timeshare presentations.

But in recent years, the real estate industry in Mexico has experienced an unprecedented boom. Today there are a wide variety of excellent RE opportunities nationwide.

To make sense of it all, we invited Pablo Errejón to break things down for us, city by city.

Guadalajara

Pablo is based in & bullish on Guadalajara.

Economic diversity

As Mexico's second-largest city, Guadalajara has a diverse and robust economy. It's a hub for tech innovation, along with electronics, manufacturing, and services.

Known as the Silicon Valley of Mexico, Guadalajara has a thriving technology sector & entrepreneurial community.

Industrial growth

But the real story in Guadalajara is industrial growth.

More industrial space is getting scooped up than ever — mainly from logistics companies like Amazon and UPS.

→ Read why Monterrey is the real nearshoring winner, Cancún is becoming much more than a resort town​ and the city which Pablo thinks has Mexico's best vacation rental market.

Mexican arbitrage

Under-developed markets create opportunities for arbitrage, which two of our speakers are taking advantage of.

Biotech arbitrage

​Martha Laura Lopez is the former Regional Director at Mexican Association of PE & VC Funds (AMEXCAP), and currently serves as Mexico's Operational Partner for Zentynel.

​Zentynel is a Chile-based deeptech VC fund investing in high-growth biotech companies across LATAM.

So where are the arbitrage opportunities here?

They're related to talent cost, innovation cost, and valuations:

Large talent pool

LATAM (and especially in Mexico) graduates more engineers per capita than the US.

Students are increasingly shifting away from companies like IBM and HP, and migrating towards startups.

Cheaper innovation cycles

Deeptech R&D is labor-intensive, and it's not exactly conducive to remote work. It takes lots of time & physical space to bring a drug to market.

LATAM biotech startup employees cost much less than they do in developed markets. We're talking 10-15x lower. And the quality of engineering is the same.

The cost of laboratories and infrastructure is lower too. This means biotech startups are able to validate locally, get traction, and expand to the US when they're ready.

→ Learn about Zentynel's valuation arbitrage​

Cross-border arbitrage

Another fascinating speaker who joined was Alan Burke, co-founder of Condor Trading, LLC.

In the aughts, when High Frequency Trading Firms (HFTs) became dominant in the US, Alan discovered that Mexico had both a local market and an International market, called the SIC.

SIC was created to facilitate the listing of US equities and ETFs in the Mexican markets (and allow local pension funds to trade foreign equities without the money leaving Mexico.

The shares traded in Mexico are 100% fungible with their US counterparts. The only difference being that the shares listed in Mexico are traded in Mexican Pesos.

When you have the same equities traded in different currencies, you have a natural arbitrage opportunity.

→ Learn how Alan's cross-border arbitrage strategy works (hint: it's genius)

Wealth embedded in the forests

One of the most fascinating speakers of the week was Fatima Montiel, founder of Eco Forest.

​Eco Forest, connects landowners in Mexico with the global market for carbon credits.

They effectively empower Mexican landowners to profit off their land not by developing it, but by not developing it for 100 years.

What I find fascinating about the carbon credits market is how poorly understood it is. And that's because it's complicated! But it's also necessary to fight the climate crisis. (Even Elon thinks so)

Mexico certainly has it's fair share of forests. According to the UN, 33% of Mexico is forested. Of this 53% is classified as primary forest, the most biodiverse and carbon-dense form.

It used to be tough to "put a price" on a forest. But the global carbon market changes the value equation.

At its core, Fatima's business is all about cultivating trusting relationships with rural communities who want to understand this value.

→ Learn how selling carbon credits works​

A journey into Tequila country

After three days in Guadalajara, we set off 40 kms northwest towards the agave fields and timeless distilleries of Tequila.

Tequila itself is a gorgeous town, with character oozing from its cobblestone streets. It's an odd mix of quaint architecture and industrial-grade tequila production, with 20 registered distilleries in a town of just 40,000 people

The Jose Curevo company sort of put the town on the map in the 1940s when, along with Sauza, it established (and began to dominate) the tequila industry.

To this day, the Cuervo family owns much of the town's real estate, including Fábrica La Rojeña (their gigantic distillery), the lovely Hotel Solar de las Animas (where we stayed) and the Cholula Restaurant.

Our first stop was Cascahuin, a 4th generation distillery which began producing tequila in 1904, and whose current distillery was built in 1955.

After that, we visited Arette (one of my favorites) and skipped across the street to the cellar which holds the actual barrels we bought for our ALTS 1 Fund through our friend Miguel at House of Rare.

We've written about tequila production in the past. But there were a few things that surprised me after experiencing this world up close & personal:

White-labeling is huge

It seems like every celebrity has their own tequila brand. But what people don't realize is how much white-labeling is happening. The 3,000+ Tequila brands on the market come from just 150 registered distilleries.

Even many of the premium brands are really just white-labeled tequila in disguise. It's not necessarily a bad thing, one isn't necessarily better than the other. It's just fascinating.

And for all the bandwagon-jumping, there is plenty of legitimacy in the market. For example, mezcal brand La Leyenda has owned their land for generations, and have just recently decided to create a new "end-to-end" brand from scratch.

Alts readers can enter password martini to ​get a discount on their delicious bottles​. (I'm drinking one as I write this)

Tequila gets surprisingly complex

Boy, tequila starts to get interesting after a few years.

At 4 years, extra añejo tequila becomes sweeter; exuding notes of oak, caramel, and toffee.

At 7 years, it's more akin to a fine cognac than anything resembling tequila. A lip-smacking infusion of enchanting nuts and chocolate.

And the 35-year old mezcal we tried? Well, that tasted like nothing else I've ever had in my life. Full of decades' worth of complex, deep, earthy delights.

Where to next?

This was truly the trip of a lifetime. But it won't be the last one.

If you want to join our next trip, apply to Altea.

We'll keep you posted.

That's all for today!

A special thanks to everyone who joined our inaugural trip, to all the speakers who made it work, and to Miguel Ortiz for helping organize such a great experience.

If you'd like an introduction to any of the speakers, reply back.

And to invest in tequila barrels yourself, go with House of Rare. Reply back and I'll introduce you to our good friend Miguel. 🤝

Hasta luego!
Stefan