So I'd like to keep this reform because I'm sure all of you have things you want to talk about yourself. I'm sure we have plenty of audience here, but everyone here has had the opportunity to hear all of these individuals speak. Most of them spoke about financing and the financial sustainability of special economic zones. And now it's kind of an opportunity to synthesize it, to have an engaging conversation with best principles on how to monetize this. So actually, a good way to start would be based on what you all have seen of the other speakers. What were some interesting things you've learned about how to monetize and to invest, especially in economic zones?
Yeah, if I may, because I'm not sure everyone knows I'm also an investor. I have a VC fund and I'm a solo GP. And my idea was to invest in the apps that can use Prospera to succeed, like a Mini Circle for example, or an AAL Loop. And I was really surprised by and struck by, or amazed by, was Dave's talk in describing the kind of fund he's building, which feels like it's basically a bigger version of what I built with my first Infinite Duck. But sort of the idea that you can have a whole startup community and capture part of the real estate, that was very inspiring to me. Sorry, I forgot your name, Alex. I was looking at Alex's numbers with all the multipliers on it, and then he said the multipliers are multiplying, and then I got very excited. But I think just listening and hearing the interplay between venture capital and real estate is a common theme today. I'm sure there's also some regulatory issues that are still challenging. And again, just something that's been puzzling me that I've been trying to learn more about is, you know, why does mortgage finance not, why is it not so prevalent? I mean, in Africa I think I can understand why there are structural challenges, but in countries like Mexico and Brazil which are fairly developed, it's still problematic and not very existent. And so just what did the US, what did Europe, what did other places like Japan do that actually worked? And are there any commonalities there that can, and if possible, done on small scale? Like I don't really want to wait for governments to figure that out. It'd be much easier if you can get smaller entities to be able to do that, and hopefully private corporations take note.
I think for me, probably the most interesting thing was, I think something many of us intuitively know, but the failure rate of venture capital investments is, I mean to me I just think, you know, Dave speaking on that really hits home. Just these will fail, and that's why it's so important that we have not just Prospera, but we have tens or 50, 100 plus companies trying to do this. And they're all versions on the business model that I talked about, but they're all going to have their slight nuances to it. And I think that's really something important to keep in mind. Maybe not put all of our eggs in the same basket, but try to replicate this model with other countries, other locations. So island here, maybe mainland elsewhere, so on and so forth.
Yeah, it's interesting to talk about benefits of diversification, which are real, because we had a conversation last night about the benefits of concentration. So there's another idea, which is like Prospera's success so far and success in the future really unlocks a lot of possibility because it proves the model and it assuages doubts. And like having this one work, it would have a huge effect. And like not everybody wants to help a company this size. Like people just us are like founders, we just have to build something and own it ourselves, and there's room for doing that as well. Let me, I found the talk really interesting. This interplay between, you know, investing in people, investing in their companies, investing in the real estate that they live in. These are each kind of, you know, or the model of with the charter city of like building real estate and collecting taxes, which is like taking a share of the GDP that's created. It's like these are all different ways of creating economic activity and then capturing some of it. And I think it's really cool that we have this menu of things to use.
Time for the conference question. And obviously everyone here has a little bit of a bias, but there are some unique elements of this industry that may not be as easily transposable as let's say a SaaS company or other tech startups. Do you think that venture capital is actually an idea for financing for these types of projects? Or because the long hold periods, are there parts of it that might be difficult? And if you do think that it makes sense, what are some elements or some strategies that VCs and other private equity investors can employ in order to make it more realistic with these types of projects?
Well, so it is, I think investing really early stage in these, especially before they have land, is venture-like in that it has very high risk and a potential for very high returns. Right? If you're investing in early stage software at a valuation of two to 20 million, and a company that eventually manages tens of billions of dollars of real estate, that's a great return. That's just like that particular area though. Like you don't want to be funding real estate with equity mostly, you want to be funding it with debt. And so I think that, you know, venture capital may apply well to one part of it, but it's not the best for much of it.
Yeah, I would agree that, like I said in the slide, venture capital is rocket fuel, and sometimes rockets blow up. In fact, a lot of times the rockets blow up. So it's not really a panacea for everything. I think there has to be an interplay of debt capital as well. But the challenge with debt capital is usually that those companies have to be of some scale and they have to have had profitability for two or three years. So if you're trying to create something from scratch, it's difficult to use debt capital to get that off the ground unless you have people supporting it. Whereas with venture, you know, it's going to fail a lot, but if you have enough critical mass, enough experiments, some things will work. And then as some of those companies sort of stop or fall off the venture trajectory, you do want debt capital available for small 20-person companies that don't get to 100, or even the small medium-sized 100-person companies that don't get to IPO. The biggest challenge I think is outside large tech urban metros where there's a history of success and success at the largest levels, IPOs, liquidity is usually a challenge. So even if you're investing in these smaller startups or just normal businesses, getting a return on that investment isn't easy. Even if the business does well and on paper the value increases, unless you're looking at secondary markets or other type of interesting buyout private equity activity on small scale, it's difficult to generate returns. And then if you don't get those returns, you're going to have a tough time getting people to play ball with those experiments.
I think what you're getting at at the end there was where I was going with this, is the liquidity constraint for VCs. That's very difficult. And so the time horizon for an investment in a company that doesn't yet have land or a law is always longer than you think. Unfortunately, I've been on the receiving side of that. So I think that's one challenge. So probably the most successful company that I would say is roughly in this field is actually financed by some family office capital and some ultra high net worth folks that are interested in the space. And it is about a return, they think they can get that over time, especially with that real estate appreciation. But it is an ideological-driven battle as much as anything because they don't have to show what sort of returns they are to raise their next fund in short order. So I think that's another huge component. Is I think one thing to be pretty specific about is traditional venture capital investment was looking for a return that's probably 500 to 1,000 basis points above stock market performance. So assuming people think that that is 8 to 10%, which might be unrealistic, venture capital should perform at least at 12 to 15%, ideally more like 15 to 20%. And that's very difficult, particularly in maybe a non-tech market. If on the other hand that you got real estate stakeholders or banks and governments to be kind of like, hey, we're not just looking for the venture capital return, we're looking for the return on the real estate, on job creation, on residential housing, then their return on investment requirement might only be 5 to 7% or potentially even lower. Right? So you just have to not lose money while you're creating economic value in other areas. That really changes the dynamic for what the expectations are for investors in small startup companies and others.
So that kind of begets a question that's fairly fundamental, and that's about valuation. So as you were mentioning about, you know, traditional startups, you're able to determine valuation fairly easily because there is a big market for IPOs and secondary markets and you can measure those fairly easily. But it seems a lot in the startup society space there's not a lot of analogs. There's a lot of pointing to a lot of public projects and looking at government studies, but there's not an IPO startup society at this point. If that's the case, how do you approach the question of valuation when making an investment?
I make heavy use of this part of my body right here. I mean, that's just the state of things. I mean, we totally make it up and it doesn't feel like it's on a very good basis at this point. Now I've seen enough different valuations that we start to have a relative sense of things. Right? Like a super early stage company in Africa, probably in the low millions. A project that's coming in with a great team, with something much more solid, I've seen valuations in the 10 to 20 million range. And that's kind of that 2 to 20 is what I've mostly seen. But you know, this is a brand new, opaque field that we're just figuring out. And like, I don't believe in spreadsheets and stuff like that for stuff that's super early and super unknown. I think that these multiple numbers are meaningful. Right? We don't know what the hit rate is, but I think showing that it is possible if it succeeds to get those huge multiples, I think that's real. But put a number on it...
Yeah, I think like Pascal said, it's extremely hard. I think mostly it's kind of made up at this point. Where I guess if you've been in the space for, I don't know, five plus years for me and much longer Pascal, you start to see the sort of numbers that he's suggesting as well. One thing that didn't work, I can tell you, is trying to stage it out. We achieve this and then the value goes to that. And we in fact tried to do this at multiple phases and that wasn't well received by the market. Hard to know if that was because of the valuation or the complication. But I think largely you just sort of know what others in the industry are doing, what's the going rate, and you have to play off that.
Maybe a question to the panel. It seemed to be just from my impression, and I don't want to brag, but with Italia we were able to raise the fund raising round really quick, which made me think that there is a tremendous appetite to projects like that with that kind of ambition in the market. We're even in a bear market. So what is it? I think Pascal and I talked about this before, that there's more of a gap with founders willing to take on these projects. So how can we think of how to attract more founders to these kinds of projects? What do you think the universe is out there of what they could do or should do?
I think this is why I was trying to emphasize our stage. Yeah, well, I think it's easier at the earlier stage to attract people because all you really need is funding and people will come to funding. But I think to keep those people around, you need to create an environment that's vibrant, that has, you know, food, culture, people, other things that are not just technology. And that's not so easy, especially for a bunch of nerds and VCs. We can be a little bit narrow-minded about what our views of society should be. And you want musicians and teachers and doctors and lots of other parts of society that aren't just a bunch of nerds. And so we probably need to think outside the box and have a more diverse community. And I noticed that right now it's like four or five white guys up on stage. We should probably have more voices and experiences in putting those communities together. You know, again, I'm sort of reminded that I've spent a lot of time in crypto communities and they are great for passion and motivation, but sometimes it can be a monoculture. And again, unless we're coming up with new ways to have babies, probably we need to have a more diverse set of people if we want to create societies that are going to have more people around.
On what's the question again? I want to make it more concrete. What do you look for, you think is a good start?
Well, I think someone that's probably put some of their own capital at risk is a very important thing. I want some skin in the game. That could be their own financial capital, it also could be them taking a major pay cut for working on the project out of a sense of duty and inspiration and wanting to make something bigger than themselves. I certainly think, unfortunately, the answer is you do have to have a team that has the right connections to the right places if you want to have a project somewhere. I haven't been able to, some people tell stories of it, you know, work your way right up to the top people in the country like that. So I actually think that it does make sense to have a wide network. People with the right access is in fact required.
Yeah, when I was making my list for founder attributes early on, that, you know, kind of close connections to a country or region was like one of the things on the list. But I've actually found after these years and for years now of not following up on those offers to intro me to an interested country, I follow up once or twice a year because I don't have any founders to put on them. So now I kind of don't care because I can make the interest for them. But mainly I look for the same things as every other investor looks for and every other founder. And then the sort of more domain-specific skills, to me it's real estate development and community building. And that community building includes like having a compelling vision for a community, being able to communicate it, herd the cats, and work with people that cultivate that over time. It's kind of stuff that makes things work. But yeah, that's my list.
Yeah, put out an idea for founders or insight based on limited data, right? So space, go that long. But what seems to me to be encouraging for any founder who wants to do a startup society to get involved in the country and create is technology and technology communities. I experienced this here in Honduras and also in Zanzibar, and I'm pretty sure these technology communities exist almost anywhere in the world at a certain stage of development. Right? So there is a technology community here in Honduras. They're the ones who have very high upside from this. They're the ones that are relatively enculturated to me, right? Understand, they're techno-optimists, they get crypto, right? They're working on their own startups. So there's a lot of, and most of the time they also speak English. So there's a lot of similarity there to build on, which makes this kind of natural allies. And then that opens you, that makes it easier for you to build momentum, involve them in what you're doing, into your future project, and get connections in the country. So I think, and that has to do, and I think that's happened relatively recently, that venture capital and the startup playbooks that were created in Silicon Valley are increasingly more accessible around the world. Maybe that's a very good moment for us building startup societies.
I mean, I think it's kind of weird because in emerging or developing markets oftentimes you don't need much more than capital to attract entrepreneur attention. I think in more competitive environments, it's not just the money, you actually have to do a lot more things to attract founders. So I don't think the real question is sort of like what do you look for in founders, but to me it's kind of basic. It's make stuff, sell stuff, encourage people to be awesome. That sounds like sort of simple, but like that cruise ship director component is a really important part of it. But ultimately it's making things and selling things. What I think is challenging is if you're trying to create an interesting community that's not in the middle of an already large, dense tech metro, you really have to do something different. You have to sort of create a lot with a little. So usually you want to try and do one thing different and well. Like you're not going to try and recreate all of Silicon Valley or all of Singapore, all of Dubai. One thing you could do is, sounds stupid, but hire a really amazing chef or hire 10 really amazing chefs. Right? Like that's actually something that seems very basic, but if you feed people great food and really well, they might hang out with you. And so you kind of got to find your niche. And that's an obvious one, but if you're trying to build a community in genetics or life sciences, then you probably want some really smart doctors, researchers, physicians. Or maybe there's a tax act that you're pushing, or maybe you're helping solve a particular part of the process for, I don't know, FDA approval or something. So like you really have to pick your spots. But you have to be as excellent as you possibly can relative to whatever else is out there. You don't have to be amazing across the board. You do need to be sort of T-shaped, I think what people say, is deep in at least one area, really interesting and attractive.
