“I want to start a movement that would help people understand the power of skin in the game. Most of the problems that are created in the world are from people who don’t have skin in the game making decisions that harm people who do. From Wall Street bankers who profited on the way but then were bailed out when they failed, to government officials who make policies that harm the public good but are affected personally. If more people understood misaligned incentives and listened to people who have skin in the game, the world would be a better place.”
I had the pleasure of interviewing Nathan Lustig, a serial entrepreneur and Managing Partner at Magma Partners. Magma Partners is an early-stage venture capital firm with offices in the United States, Latin America, and China.
Thank you so much for doing this with us! What is your “backstory”?
Thanks for having me! I’m currently an entrepreneur and investor splitting my time between Chile, Mexico and Colombia; however, I was born in Wisconsin and attended the University of Wisconsin. While I was at university, I started two different companies, Exchangehut.com and Entrustet, both of which were acquired. I moved to Chile and participated in the Start-Up Chile accelerator program in 2010 while working on Entrustet. After the program, I decided to move there permanently, and started Magma Partners, the fund I’d wished I’d been able to meet while I was a founder.
Magma Partners invests primarily in startups with technology and sales teams in Latin America, but that target the US market, and fintech companies that operate in Latin America. We recently launched Magma Fund II, which will invest in 60 pre-seed and seed-stage companies over the next three years in the Latin American region. I love working with entrepreneurs and I also have a podcast called Crossing Borders, where I share their stories and advice for doing business across borders.
Can you share an interesting story about a challenge that you faced, and how you overcame it?
Luckily, I have a great business partner in China, Jie Hao, who has been instrumental in opening our office and getting the Magma business off the ground. The hardest part has been the cultural differences. I had to relearn the cultural differences between the US and Latin America when I moved there in 2010, and have been working to understand them in a business context since starting to do business in China.
Are you working on any new or exciting projects now?
We’re very focused on deploying capital from Magma Fund II and helping our current portfolio companies achieve their goals. We’ve already invested in 8 new businesses since January and are in the process of closing three more. We’ve now invested in 38 startups with more than 500 employees and more than US$25M in annual revenue between them.
What advice would you give to other business owners to help their employees to thrive?
The first piece of advice I have for anyone who wants to do business in China is find a great local partner to work with you. Secondly, if you are working with team members in China but you are located in the US or elsewhere, finding the right communication software and setting a firm time to communicate on a daily or weekly basis is crucial because of the time difference. Finally, another important thing to take into account is cultural differences. Being aware of the cultural differences makes communication and project management much more efficient.
What do you think are the new untapped markets in China that may become the next “big thing”?
Similar to how fintech companies are targeting the “unbanked” population that still exists around the world, such as in Latin America, small cities in China are one of the largest untapped consumer markets. Beijing, Shanghai, Guangzhou, and Shenzhen (China’s “Tier 1”), contain 7% of the country’s population, and they contribute over 13% of its GDP. “Tier 2” and “Tier 3” cities contain about one-third of the country’s population, but aren’t usually targeted because people aren’t as wealthy and areas are less densely populated. This means there is plenty of room for new entrants and growth.
I would also say there is a lot that the rest of the world can learn from China and its successes over the past few years. One of the biggest opportunities is to look at what China has done over the past few years and apply similar initiatives in other developing markets.
We keep hearing about the “Trade War”. What are your thoughts about it? Given the unknowns, how do you plan to pivot?
Under the Trump Administration, economic relationships between China and the United States are more uncertain than ever. However, we can focus on other regions around the world that are expanding rapidly, such as Latin America. Since our focus is on Latin America, we think that China’s pledge to increase trade with Latin America by half a trillion dollars, to increase foreign investment by $250 billion, and the strengthening economic ties between the two regions present a great opportunity for investment.
What are your “5 Things You Need To Know To Successfully Do Business In China.” (Please share a story or example for each.)
Can you please give us your favorite “Life Lesson Quote”? Can you share how that was relevant to you in your life?
Never pretend that you know something when you don’t. A mentor in my first business taught me this and I’ve used ever since as a lens on how to view the world. If you pretend and you get away with it, you lose an opportunity to learn. If you get caught, you risk your reputation.
You are a person of great influence. If you could inspire a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger.
I would start a movement that would help people understand the power of skin in the game. Most of the problems that are created in the world are from people who don’t have skin in the game making decisions that harm people who do. From Wall Street bankers who profited on the way but then were bailed out when they failed, to government officials who make policies that harm the public good but are affected personally. If more people understood misaligned incentives and listened to people who have skin in the game, the world would be a better place.
Originally published at medium.com