Culture as Capital: What Peso Pluma Can Teach Us About The Latino Investable Opportunity
Last year, I introduced The Latino Investable Opportunity — the intersection of demographic changes in the United States, rise in Latino entrepreneurship, and the potential of investing capital in early-stage U.S. Latino businesses.
Since then, I’ve been thinking about what the rise of Peso Pluma can teach us about Latinos and business. Below, I provide quick context before diving into parallels between Peso Pluma’s ascent and considerations for customer acquisition, customer retention, and market sizing for U.S. Latino-focused consumer brands.
Introduction to Latin, Mexican, and Peso Pluma’s Music
Despite Latin music’s ubiquity (Spanish is now the second most steamed music language globally), the rise of Música Mexicana is noteworthy, given the challenges the genre has faced from broader audiences and Latino music institutions.
The genre, which includes norteño, corridos, and mariachi, has been historically underrepresented in Spanish language award shows such as the Latin Grammy’s despite making up 60% of U.S. music sales. According to Billboard, the genre had been considered by the music industry as “unsophisticated music for the masses and, therefore, unworthy of a win in the Big Four categories.”
Despite institutional disdain, the genre has grown 430% increase over the past five years. Last year, three regional Mexican songs became #1 global hits on the Top 50 — Global Spotify playlist. As I write this in February 2024, La Diabla by 19-year-old Mexican-American Xavi is #1 on the Top 50 — Global chart.
Today’s artists are often young, Mexican-American, managed by LA-based music agencies like Rancho Humilde, and already collaborating with artists like Kali Uchis, Shakira, Karol G, Bizarrap, Steve Aoki, and Bad Bunny.
Gen Z’s rendition on Música Mexicana blends traditional and contemporary styles, deviating from the genre’s “100% Mexican” roots. Peso Pluma, the genre’s 24-year-old top artist, learned to play guitar on YouTube and released two albums before going viral on TikTok with songs “AMG” and “PRC” in 2022. His song “Ella Baila Sola” became his first to land on the Billboard Top Ten in April 2023.
By the end of 2023, he was the 5th most streamed artist in the world, profiled in the New York Times, and his third album, Génesis, won a Grammy for Best Música Mexicana Album.
The Peso Pluma Case, Applied to Latino-Focused Consumer Businesses
Peso Pluma’s exponential growth signals important considerations for startups and businesses seeking to acquire and retain Latino users, while also providing perspective on market sizing and expansion.
The Peso Pluma Case: Latino Customer Acquisition and Retention
Totaling around 20% of the U.S. population, Latinos spend more time on social media and TV than any other group. However, acquiring and retaining this population requires more nuance than one may expect. Peso Pluma’s case shows how modern, culturally relevant strategies can effectively acquire and retain this group.
Peso Pluma Insight #1: Language is Neither a Barrier Nor an Gateway
Pew Research Center found that while 93% of foreign-born U.S. Latinos speak Spanish at home, U.S.-born Latinos increasingly use English. Beyond language, cultural and contextual understanding is key. For example, a report commissioned by the U.S. Hispanic Chamber of Commerce found that Latinos prefer Spanish music but English reading. This aligns with TikToks about Peso Pluma, where content is mostly in Spanish, but comments are mostly in English.
Spanish-language music’s global popularity shows that language isn’t always a barrier to customer acquisition but it does emphasize the need for businesses to understand Latino cultural and language nuances in their targeting approaches.
Peso Pluma Insight #2: Authenticity is Everything
In an era of high customer acquisition costs and challenges in user retention, creating an authentic brand persona can engage and retain users. A prime example is Duolingo, whose mascot, Duo, embraced its history of sending moderately threatening application reminders to build its social presence.
With 11.1 million followers across TikTok and Instagram, Duolingo connects with users through regular, unconventional content commenting on current and pop culture events, like Duo’s crush on Dua Lipa and its Jujutsu Kaisen references. Commenters remain highly engaged, awaiting Duo’s next move. This strategy, when done well, can be much more cost effective than paid advertising and they create a direct relationship with a user base.
Peso Pluma embodies unapologetic authenticity and both his music and persona reflect his cultural roots and individuality. In an interview with The New York Times, he noted how he was inspired by Chalino Sanchez and Ariel Camacho’s music but never connected to the aesthetics. He stated, “My favorite genres have always been reggaeton and hip-hop…That’s why I don’t wear the sombreros. I don’t wear the boots. I’m not that.”
When it comes to the Latino market, Latino consumers tend to be more loyal to brands, especially those that connect with their culture, values, languages, and traditions, as compared to other consumer groups. The loyalty he’s garnered as a breakout start comes through in comments on social media.
Recently, Peso Pluma’s became the first in his genre to perform at the 2023 MTV VMAs. Comments on the video (which now has 6.8M views) include the following:
- “I hope y’all know this is one of the most culture-defining performances from a Mexican artist we have gotten in a long time. Viva México cabrones 🇲🇽🇲🇽🇲🇽”
- “Soy español , y me encanta que por fin artistas urbanos jovenes canten sin autotune y utilicen banda músical utilizando instrumentos deverdad , bravo por este artista”
- Translation: “I’m Spanish, and I love that young urban artists are finally singing without autotune and using real instruments. Bravo to this artist”
- “Cuando escuche esta canción, me hizo llorar los instrumentos al principio. Soy de Colombia pero vivo en USA y en Colombia escúchamos mucho la Música Mexicana. Es mucha DEMACIADA cultura en los sonidos de la canción. Las palabras de la letra son un poco más modernas pero, me encanta como la música se evoluciona para no morir y este muchacho lo está haciendo muy bien!! Love you Mexico 🇲🇽”
- Translation: “When I first heard this song, the instruments at the beginning made me cry. I’m Colombian but I live in the U.S. and in Colombia, we listen to Mexican music a lot. There’s a lot of culture in the sounds of the song. The lyrics are more modern but I love how music keeps evolving to not die and this young man is doing it great. Love you Mexico!”.
The YouTube comments highlight the association between authenticity, cultural pride, and support for those bringing culture onto global stages.
Peso Pluma Insight #3: The Latino Market Has a Digital Distribution Advantage
U.S. Latino consumers are highly social. Because they will share what they love (and don’t love) with their friends, family, and community, social networks and media play an important role in purchasing and consumption choices.
According to Nielson, U.S. Latinos, particularly those 18–49, are also five times more likely to share the content they consume in comparison to non-Hispanic Whites. They also watch more TV than other groups and those over the age of 35 surpass their peers in phone ownership and usage. This behavior has implications for creating viral moments.
The built in propensity for virality can go in either direction. While many of the Música Mexicana’s current stars launched their careers following social media virality, last year, Yartiza y Su Esencia’s comments about not liking the food in Mexico City became a scandal that spread from every social media platform the L.A. Times and evening news.
The Peso Pluma Case: Market Sizing and Expansion
Initially overlooked by labels and awards shows, Música Mexicana gained a global appeal following a fresh interpretation. See below for an infographic by Spotify Newsroom showing how the market was growing before its explosion in 2023:
This expansion mirrors the strategies commonly deployed by successful startups that often start with a niche or ‘wedge’ and build upon it to reach (or create) a larger market.
Predicting business and market evolution can be tough in early stages. To mitigate risk, venture investors usually make assumptions about initial market size, growth rate, and potential market share. However, this doesn’t always work well for businesses creating vastly new product categories or drastically changing the market, as seen with current Música Mexicana artists.
A notable example of underestimating a market’s propensity to evolve is when Aswath Damodaran, a finance professor at New York University’s Stern School of Business, predicted Uber’s market size based on the market dynamics of 2014, reaching a $5.9 billion dollar valuation. For context, Uber’s current market capitalization stands at $141.97 billion.
Bill Gurley, Uber’s series A lead and board member, responded to Damodaran’s market sizing with the following:
“In choosing to use the historical size of the taxi and limousine market, Damodaran is making an implicit assumption that the future will look quite like the past. In other words, the arrival of a product or service like Uber will have zero impact on the overall market size of the car-for-hire transportation market. There are multiple reasons why this is a flawed assumption. When you materially improve an offering, and create new features, functions, experiences, price points, and even enable new use cases, you can materially expand the market in the process. The past can be a poor guide for the future if the future offering is materially different than the past.”
In the music industry, Peso Pluma and his peers exemplify successful market expansion. After innovating within the Música Mexicana genre, they broadened its appeal and creating new cross-genre business and collaboration opportunities in the process. Reflecting on Aswath Damodaran and Bill Gurley’s public discussion about Uber’s market size ten years ago, it’s intriguing to think that a Música Mexicana artist performing at the VMAs and appearing in Rolling Stone with an American rapper would have been inconceivable merely a couple of years ago.
The Peso Pluma Case, Applied to Venture Capital
I notice clear similarities between the institutional neglect of the Música Mexicana genre and the prevalent disregard among venture investors towards consumer-facing areas that could better serve U.S. Latino consumers. The manner in which the Música Mexicana genre was dismissed as niche and unsophisticated by institutions, despite its considerable economic influence, mirrors the institutional apathy towards consumer solutions for U.S. Latinos, despite their increasing demographic and purchasing power.
The Peso Pluma case can be applied to the Latino Investable Opportunity by assessing opportunities via a two-part approach.
- Could the market radically evolve? Are there existing market dynamics amongst the U.S. Latino population that create an environment for market expansion?
- When it comes to the business, are the products creating radically different experiences, developing different economics, and/or developing new use cases?
The U.S. Latino market presents numerous indicators suggesting it’s poised for businesses to create significant expansion under the right conditions. The U.S. Latino population is growing, increasingly educated, and increasing its purchasing power. While often viewed as a niche market or demographic, it is not a small market. If we considered U.S. Latinos as a country, its economic output would match France’s, and its gross domestic product (GDP) growth rate would be third to that of China and India over the past decade.
Despite increasing levels of population size, education levels, and purchasing power, Latino consumers are still, on average, more dissatisfied with current product and service offerings than White, non-Hispanic consumers. Latino communities also report lower or inadequate access to key product and service categories, including food, housing, banking, broadband, healthcare, and consumer goods.
While the conditions in the market are poised for growth, investors often find themselves in an uncertain landscape when it comes to consumer-facing investable opportunities. Latino-focused businesses face challenges in obtaining venture capital, often perceived as too niche or not profitable. For some reason, the initial wedge concept doesn’t resonate as much in this context. Furthermore, the lack of comparable businesses and even fewer exit opportunities heighten investor hesitations.
When looking at exits, the primary example is mitú, which was acquired in 2020 for an undisclosed amount by Latido Music at the Series B stage after raising $52 million in venture funding. Since its acquisition, mitú remains active as a digital media company representing the Latino point of view among consumers 18–44 through touch points in video, editorial, social media and commerce.
Without a clear understanding of the exit outcomes or comparables, investors must envision how products aimed at U.S. Latinos, either on a permanent basis or as an initial strategy, can carve out a niche in the competitive battle for end-user acquisition and retention.
All of these factors combined pose fundraising challenges for startups throughout their venture lifecycle, especially during the early stages of company building. Regardless of stage, leveraging the U.S. Latino market dynamics (understanding language nuances, building authentic + culturally relevant brands, and understanding the Latino digital distribution flywheel) to generate traction in the form of user growth and revenue will remain key for U.S. Latino focused companies to overcome the lack of comparables and raise the necessary capital to scale.
Currently, there are several Latino-focused consumer startups (several in the Chingona portfolio like Encantos, Suma Wealth, and Sigo Seguros) that are pre-Series A. Beyond Series A, there are fewer companies (Canela Media, which raised a $32 million Series A in 2022 comes to mind).
As we begin to see early-stage U.S. Latino-focused companies reach growth stages, I will be watching how these brands leverage the U.S. Latino market dynamics to activate improved experiences, different business models, and new use cases.
Personally, I’m looking out for how venture-backed, consumer-facing businesses will create new markets in the same way Peso Pluma has accomplished what seemed impossible just years ago. In both Peso Pluma’s rise and tomorrow’s U.S. Latino-focused consumer unicorn, a sustained connection to heritage and authenticity will be a key ingredient for success.
¡Hasta la próxima! ✌️
The Latino Investable Opportunity x Chingona Ventures
Pre-seed/Seed Stage investors, like Chingona Ventures, that understand the Latino Investable Opportunity and the Latino community are uniquely poised to fund the founders building the businesses of tomorrow that better serve U.S. Latinos. For us, this means finding Latino entrepreneurs building venture-backable businesses, entrepreneurs whose businesses materially target Latino populations, and Latino entrepreneurs building venture-backable businesses for Latino populations.
Our investment approach at Chingona Ventures involves going early, going big, and embracing any opportunity to get involved. This means deploying the first and frequently largest institutional check into an investment round, supporting company operationalization, and working with founders to achieve their fundraise milestones.
If you’re a founder and/or a founder targeting preparing to raise or raising a pre-seed or seed round, we’d love to learn more about your business! The fastest way to get to us is to fill out the form here.
