When Marcos Galperín went to Stanford Graduate School of Business in the US, he was an entrepreneurially minded specialist in structuring sophisticated financing deals for YPF, Argentina’s then state oil company.
By the time he finished his MBA, Mr Galperín had quit his job and launched MercadoLibre (“Free Market”), which he turned into the Ebay of Latin America, hiring classmates to help and using connections fostered while at the business school in California to raise millions of dollars in a matter of months.
The online shopping site is specially tailored to a Latin American audience used to bargaining but reticent about sending money to people they have never seen. It is now the biggest e-commerce network in the region and went public in August last year in a highly successful initial public offering, raising almost $300m. Its shares, trading on the Nasdaq stock exchange, have since more than doubled in price to $43.22 from their $18 debut.
“I could not have done this without the MBA,” Mr Galperín says. “I could perhaps have done something in Argentina – I was very entrepreneurial and I liked the internet from [the] very early days. But the possibility of raising funds, contacting investors, building a network across Latin America would have been impossible in such a short time.”
MercadoLibre’s president and chief executive studied for his MBA in the late 1990s and was able to bask in the climate of innovation and technology emanating from Silicon Valley.
“We learnt a lot from that period,” says Nicolás Szekasy, chief finance officer. “The philosophy at Stanford is so focused on entrepreneurship and technology. It had a very significant impact on all of us.”
Mr Galperín recalls how Mike Spence, then dean of Stanford and now a board member of MercadoLibre, exhorted departing students in his graduation speech: “Make sure you’re not afraid of doing something where you could fail.”
Mr Galperín took the advice to heart. He spent the last two terms of his MBA in the library, researching the best model for an internet company and drafting a business plan. Still, “in early 1999, people told me ‘you’re crazy, this will never work in Latin America’”, he says.
Indeed, Hernán Kazah, a classmate of Mr Galperín’s and co-founder of the company, says the market was crowded and competitive: “When we started, there were another 60 online auction companies in the region. Most went out of business.”
Mr Galperín’s breakthrough came with the help of Jack McDonald, a Stanford professor in the habit of inviting prominent businessmen to address students. “I asked if he could put me in touch with people who could be interested in financing my project,” Mr Galperín says.
Prof McDonald went further, asking Mr Galperín to drive a guest lecturer – John Muse, a founder of the private equity firm Hicks, Muse, Tate & Furst (now known as HM Capital Partners) – to the airport after a class. En route, Mr Galperín outlined his business plan.
“As he (Mr Muse) was going to get on the plane, he stopped and said: ‘I think I want to invest in your venture.’”
That was in March 1999, three months before the end of the MBA programme. Two rounds of institutional financing followed in short succession, the first of which, in October 1999, raised $7.6m, mostly from investors including JPMorgan, Hicks, Muse, Tate & Furst and Flatiron Fund. The second, in May 2000, raised $46.7m from, among others, Goldman Sachs, Capital Riesgo Internet, GE Capital Equity Investments, JPMorgan and Hicks, Muse, Tate & Furst.
“When we were deploying the business plan, we used Stanford connections and networks. Today, most of the key executives are [Stanford MBA] postgraduates,” Mr Kazah notes.
The plan was to roll out MercadoLibre quickly in all key regional markets. “Stanford was very useful. In each country, we hired a classmate, such as a Mexican for Mexico and a Brazilian for Brazil. Most were contemporaries,” Mr Galperín says.
Mr Szekasy was not a contemporary, having graduated from Stanford in 1991. After working in the US and Mexico, he returned to Buenos Aires and met Mr Galperín and Mr Kazah through a Stanford network designed to put students about to embark on an MBA in touch with recent graduates.
By 1999, with e-business prospects booming, Mr Szekasy was considering his own internet venture, selling surplus government supplies, such as car fleets, online. “I went to see Marcos and Hernán, who had just gone through their first round of financing. I wanted to seek advice on how they got started, how they contacted investors, how they viewed internet growth in the region,” he says.
“Towards the end of the conversation, Marcos said they were looking for someone with my background and if the project I was thinking of didn’t materialise, they’d like to have me join the company ... though it made much more sense to join MercadoLibre than to try to start another project from scratch and the business model for MercadoLibre was better, more robust than mine.”
Mr Kazah, the company’s vice-president and chief operating officer, says MercadoLibre had always had a bold, regional vision. However, what set it apart from competitors such as the Argentine shopping and auction site DeRemate, which was founded by Harvard graduates, was its long-term vision and focus on the product and the technology. It is the region’s biggest internet e-commerce platform and owns MercadoPago, the biggest online payment platform.
MercadoLibre has benefited from a five-year commercial alliance with Ebay, which is now a shareholder with an 18.5 per cent stake. The partnership taught MercadoLibre a great deal about the business and about building regional scope.
Mr Galperín says Ebay has gained insights into how to adapt its model to developing countries. Yet, MercadoLibre is no carbon copy of Ebay. Almost 80 per cent of sales are new merchandise and about 90 per cent of products are sold at fixed prices, often through small businesses. There is also a search engine that sorts items by relevance.
MercadoLibre has operations in 12 countries and continues to expand and develop. “We’d like – in a few years –to see MercadoLibre with many more times revenues,” Mr Kazah says.
He does not rule out acquisitions but says that most growth in the future is expected to come from developments to the business. “The biggest lessons we’ve learnt are that you have to be consistent and patient and focus on the long term,” he says.