Complexity Investing & Semiconductors with NZS Capital (Extended Cut)

1. BGBen Gilbert0:00

   excitement, fun, brevity. [laughing]

2. DRDavid Rosenthal0:06

   [upbeat music] I love it.

3. BGBen Gilbert0:09

   For brevity is the soul of wit.

4. SPSpeaker0:12

   Who got the truth? Is it you? Is it you? Is it you? Who got the truth now? Is it you? Is it you? Is it you? Sit me down, say it straight. Another story on the way. Who got the truth?

5. BGBen Gilbert0:29

   Welcome to this special episode of Acquired, the podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert, and I'm the co-founder and managing director of Seattle-based Pioneer Square Labs, and our venture fund, PSL Ventures.

6. DRDavid Rosenthal0:43

   And I'm David Rosenthal, and I am an angel investor based in San Francisco.

7. BGBen Gilbert0:48

   And we are your hosts. On our TSMC episode, one of the sixty-five sources that we used was an episode of The Knowledge Project with Brinton Johns and Jon Bathgate. Brinton and Jon are public equities investors at a hedge fund called NZS Capital, and they spend a lot of their time researching semis. It was packed so full of great content that I actually watched it twice to make sure that I understood everything.

8. DRDavid Rosenthal1:14

   It was so good.

9. BGBen Gilbert1:15

   It was awesome. And then, in a wild coincidence, the very next week, even before we shipped the TSMC episode, David and I were at Capital Camp, great event organized by Patrick O'Shaughnessy and Brent Beshore, and we ran into Brinton in person, and I was like: "I recognize that guy. Where do I recognize him from?"

10. DRDavid Rosenthal1:32

    It's like the Spider-Man, uh, gif. It's like, "You! No, wait, you!" [chuckles]

11. BGBen Gilbert1:36

    [chuckles] V- very, very much so. So after, like, nerding out the whole rest of the event on TSMC, geopolitics, semis, we decided to have Brinton and Jon on Acquired. And on this episode, we actually didn't even get into semiconductors for the first hour, since it was so fascinating to hear about their investment principles at NZS, which are just a real treat to learn about and, uh, and think through. And, uh, I've said this many times on the show, but yet again, new frameworks that have totally changed the way-

12. DRDavid Rosenthal2:04

    Yeah

13. BGBen Gilbert2:04

    ... that I think about the world.

14. DRDavid Rosenthal2:05

    It's frameworks all the way down, Ben.

15. BGBen Gilbert2:07

    It is. Well, for our presenting sponsorship on this special episode, we have the SoftBank Latin America Fund. As many of you know from other specials this year, SoftBank LatAm is deploying huge amounts of capital into the burgeoning Latin America start-up ecosystem, and they just announced they have another three billion to invest in addition to their initial five billion.

16. DRDavid Rosenthal2:29

    Ooh.

17. BGBen Gilbert2:29

    We are talking today with the CEO of one of their portfolio companies, João Menin, CEO of Banco Inter, which is now a publicly traded digital bank based in Brazil.

18. DRDavid Rosenthal2:43

    João, welcome to Acquired. You have taken a publicly traded traditional bank and wholesale transformed it first into a digital bank and now into one of Brazil and Latin America's leading super apps. We're so excited to have you here, and tell a little bit about the story. And the bank, it was a traditional bank when you stepped in as CEO?

19. SPSpeaker3:08

    Yes, that's a very good question. Banco Inter was founded back in nineteen ninety-four. We like to say that we are everything but a start-up. We're not a start-up. And I also like to say that we're not a fintech. We changed the course of the business when I stepped in, because from nineteen ninety-four until two thousand and fourteen, fifteen, we're just a local commercial bank just doing some SME business. We didn't have retail, just wholesale. We're very focused in one big city in Brazil, at Belo Horizonte, where we're still headquartered today. I decided to really try to launch a retail banking unit from scratch, and I realized that in order to at least have a chance to succeed, we need to do something different. In Brazil, we have five big banks that control maybe eighty-five percent of the market, and in order to compete with them, they still have, like, twenty, twenty-five thousand plus bank branches. We need to took a different approach, and that's what we did. We decided to say: "Look, let's launch a hundred percent digital, free, and full-service checking account within the smartphones, and let's try to get as many clients as possible." So this is what the change in the mindset, and if you fast-forward to two thousand and twenty-one, it really happened. We actually just achieved fourteen million clients yesterday, so, I mean, from zero to fourteen million in, I would say, in a short period of time. So after that, we also decided: "Look, we already have a retail bank. Why not to put some non-banking products as well?" The first one we launched was our marketplace, and today we have many other products, non-financial products. And then I would say that we transformed ourselves into a super app here in Brazil.

20. DRDavid Rosenthal4:57

    That's amazing. Do you look to folks in China, like Meituan or like Grab in Southeast Asia, as inspiration, or was this a vision that came homegrown in Brazil?

21. SPSpeaker5:07

    Yes, I would say that we don't have these guys as a benchmark for us, but we started to say: "Look, let's build the digital banking unit," and to say, "Yes, what else can we add? So let's add some investments. Okay, and what else? Let's add insurance. And what else? Let's add shopping. What else? Let's add effects." And so we start just to keep evolving the business, but, I mean, we're really trying to see, what else can we put in order to help our clients? How can we make their lives easier? And we like to say that everything ends up with banking, which stands for payment and credit. Everything you do in your life, if you want to travel, if you want to give a call to your girlfriend, whatever, it's always about banking.

22. BGBen Gilbert5:53

    ... Our thanks to the SoftBank Latin America Fund, to João and Banco Inter. If you wanna get in touch with SoftBank, you can do so at latinamericafund.com. Or if you wanna learn about Inter, there are ways to do that in the show notes, too. Now, as always, this is not investment advice. We almost certainly hold, uh, stocks-

23. DRDavid Rosenthal6:12

    Something discussed in this episode. [chuckles]

24. BGBen Gilbert6:13

    We talk about a lot, uh.

25. DRDavid Rosenthal6:15

    [chuckles]

26. BGBen Gilbert6:15

    So do your own research, make your own decisions, but, uh, love the frameworks that, uh, we dive into with Brinton and Jon. So without further ado, onto our conversation. All right, well, listeners, we initially thought that this was going to be purely a semiconductors follow-up, but we decided after digging in further with Brinton and Jon, that we wanna introduce you to NZS Capital, their investing philosophy, and partially because, uh, we think they're a fascinating firm, similar to Ho Nam of Altos or Hamilton Helmer of Strategy Capital. Uh, but also, uh, the deeper David and I have, have dove down the rabbit hole the last week of, of reading all the papers they've published, like, we feel like we've gotten a lot smarter. And so we basically just wanna expose the world to, uh, um, more and more of that. So Brinton and Jon, welcome.

27. BJBrinton Johns7:06

    Thank you.

28. SPSpeaker7:07

    Thanks for having us.

29. BJBrinton Johns7:08

    Thanks for having us.

30. BGBen Gilbert7:10

    Well, I think f-first, let's start with complexity theory, which is a concept that your whole firm is based on, and you've published a forty-seven-page paper on that, uh, it is just like, A, full of fun little graphics, but, but, B, I think probably has five to eight kinda mind-blowing concepts in them. And the first one is, you, you you come right out and admit that you don't know the future. What's going on with that?

Episode duration: 1:59:57