The J Curve with Doug Storf, CEO at SWAP: Five Big Ideas

Hi everyone,

Welcome to the Five Big Ideas newsletter in which we deconstruct main practical ideas from our The J Curve conversations with the best entrepreneurs and investors in Latin America.

My guest this week is Doug Storf, founder and CEO at Sao Paulo-based payment infrastructure company ⁠Swap⁠ that has raised ~$30M from the likes of Tiger Global, Endeavor, Global Founders Capital, ONEVC and Flourish Ventures.

Prior to starting Swap, Doug was Head of Corporate Strategy at 99, Brazil's first known tech unicorn that was acquired by Chinese Didi in 2018.

Before we get to Five Big Ideas, here are some interesting facts financial services market in Brazil:

✅ Brazil’s banking sector is highly concentrated and has an enormous potential to grow

Brazil’s banking system is small relative to the size of the country and it’s (still) heavily dominated by just a few banks. Five largest banks in Brazil have ~80% market share. Bank concentration in the US is ~50%

✅ Vast majority of Brazilian population is digital and mobile. That represents an attractive distribution opportunity for fintechs

~210.3m cellular mobile connections were active in Brazil in early 2024, the equivalence to ~96.9% of the total population 🤯

✅ Brazilian instant payments system Pix operated by the Central Bank is likely the world’s most successful fintech startup

It allowed 40m+ people to make their first ever bank transfer. In November 2020 - March 2022, the number of Pix users skyrocketed from 41m to 124m+. Pix not only broadens the access to financial services for previously unbanked / underbanked population but also pulls traditional brick and mortar businesses into digital transactions

✅ Well-ingrained culture of installment payments is crucial for e-commerce / digital transactions growth in Brazil

~80% of Brazilians resort to installments payments. In fact, the option to pay in installments is a huge driver of payments via credit card in the country. The habit of splitting up the payment of purchases in Brazil began in the 50’s with the popularization of the “crediários”. As back then many people didn’t have enough money to pay for high-ticket items, the solution encountered by Brazilian retailers was creating this new method which consisted of the consumer registering at the store, buying items and paying for them through the next few months. This strategy was a hit for both consumers and retailers. Consumers gained more purchasing power and didn’t have to worry about interest; retailers ensured a new way of motivating customers to return to their stores and shop more often

FIVE big ideas from our conversation with Doug are 🧐💡👇🏻:

1️⃣ Fundraising is sales

Securing investments requires building sales funnel, maintaining relationships, communicating effectively and ultimately, closing the deal. It also required understanding the ’signaling value’ of momentum and term sheet on the table

2️⃣ Strong corporate culture is the engine of startup growth

It is defined by rules and values that comprise work environment both in person and remote. In Swap, the culture system is called DRIVE and consists of five dimensions of what’s expected from employees: deployer of solutions, researcher that pushes boundaries, impact-oriented decisions maker, valuable colleague and empathetic stakeholder influencer

3️⃣ The main challenges of managing fast growth startup is cash flow management and expense control

Another important aspect of managing growth is communication / scaling the culture. To do that founders need to first establish and then reinforce value system through very clear line of communication

4️⃣ Swap’s go-to-market playbook: go small at first, then iterate, dominate and expand to adjacent markets 

As an early stage scrappy startup, you have to be very strategic with resource allocation. That’s why focus on specific use cases might make better sense than horizontal approach. It helps build an edge in terms of product and customer knowledge 

5️⃣ Fintech founders in Brazil have to understand regulator’s agenda or else they face the risk of becoming obsolete

Today Central Bank has two agendas - reduce the burden on the society and increase access (think Pix, Drex and Open Finance) and protect the financial system (thus increased oversight and scrutiny of market players). If your business is solely P2P transfers or providing access to financial system, you are at risk of becoming obsolete. On the other hand, infrastructure startups that serve as distribution partners for Central Bank, or build solutions in lending / credit based on user behavior analysis will be more protected from the changes in regulations

Doug’s book recommendation is Getting to Yes: Negotiating Agreement Without Giving In by Roger Fisher

Doug’s fundraising advice to startup founders: “Get as much money as you can while you can because the market changes and you cannot predict that.”

You can watch the full interview with Doug on Youtube 👇🏻

Or listen / watch the episode on Spotify 🎧

Thanks for reading,

Olga