Is there evidence of economic mobility due to entrepreneurship in Mexico?
How Endeavor has impacted the VC industry
Por: Roberto Charvel
Endeavor was launched in 1997 as a high impact entrepreneurship movement around the World. Actually, the term high impact entrepreneurship was conceptualized by Endeavor and has now become part of vocabulary in the entrepreneurial ecosystem. It is very cool to see it being used in The Economist every so often.
The company is much better known outside the US as its original focus was Latin America, then emerging markets and know has a global focus. If you go to some of the first countries where Endeavor started operating -such as Chile, Argentina, Brazil or Mexico- you will able to get first hand evidence and success stories not only of successful entrepreneurs, but also of how the culture, regulations and even how the local VC industry has taken off with help of the Endeavor community.
When I was in business school, Endeavor was a great place to get a summer internship: you worked with an Endeavor vetted entrepreneur and learned the ropes to launch your own start up after graduation. This was back in the year 2000 at the top of the entrepreneurial explosion driven by the ascent of the Internet.
It is very likely that Endeavor was able to help the few Latin American successful entrepreneurs of the internet cycle. Back in those days the biggest names were Wences Casares who launched Patagon (a financial services portal sold to Santander for $750 million in the year 2000) and Mercado Libre (which surpassed the $10 billion valuation in 2017). Both companies benefited from Endeavor starting operations in Argentina back in 1998.
In 2001 it launched the Mexico office. The first group of mentors are now incredibly successful managers that are running private equity companies among other high-power jobs. I was lucky to join Endeavor in 2003 as a mentor. That same year I started teaching a VC and PE class. It was the first ever class to focus on VC in Mexico. It was a class taught at ITAM´s business school. Endeavor use to send entrepreneurs thinking about raising money to take the class.
What is really amazing is that back then there was probably one not very active VC fund in Mexico. By the time of the class in 2003, most of the Internet hyped early stage investors had disappeared. However, there were still some signs of life. For example, Intel had a corporate VC office in Mexico. On the other hand, the Mexican government launched a seed capital fund.
Fast forward 15 years and there are currently close to 50 early stage funds. More interestingly, all of them are local funds with different strategies. Some of them are seed capital funds and some other are focused on venture capital. Some of the largest players have been able to raise money from local pension funds. There is a successful fund of funds investing in VC known as Fondo de Fondos, but which real name is Corporación Mexicana de Inversión de Capitales. In 2012 the president created an institute to support entrepreneurship (INADEM) which oversaw a fund that invest in seed capital funds.
It should not come as a surprise to anyone that knows Endeavor, that the Endeavor community in Mexico had a lot to do with this success. Several successful Endeavor entrepreneurs became fund managers, invested in the funds or raised money from the funds. More importantly, they all collaborated with Endeavor and other organizations to create interest from the government and regulators to focus on the industry.
For quite a while I have been trying to uncover how things are going with the entrepreneurial ecosystem. One normal way to look at this is to get data on how many transactions and how much money has been deployed by early stage investors. A more qualitative approach would be to see how much wealth entrepreneurs have been able to create for the market and for themselves. The reason to focus on this has to do with some of the variables that Endeavor uses to select some of the entrepreneurs they support.
How much money is a VC backed entrepreneur making? How much wealth is she creating for herself? Is this a good indication of the health of the ecosystem?
In order to answer these questions, I reached out to 15 early stage funds. I asked them for information on their portfolio companies. Some of the fields of information I requested were: company’s last valuation, last year’s sales, net salary of the Founder-CEO, equity ownership of the Founder-CEO among other things.
The 15 funds shared 125 investments. Just that is proof of how the entrepreneurial activity is healthy and growing from almost nothing 15 years before. 125 is not the universe of investments but rather a sample of a potential 5x larger universe. Of the 125 investments, the funds provided data on the valuation on 84 of them. The value of the 84 companies added a surprising $2.6 billion dollar. The data has also information on 76 entrepreneurs’ equity value on their own firms. The wealth they have created for themselves adds up to $249 million or a median of $1.7 million per entrepreneur. For a country with a lack of economic mobility these seem to be great news as entrepreneurship seems to be creating palpable wealth.
However, I was surprised to learn how little a Founder-CEO makes. Entrepreneurs like to get paid in different ways, so the best potential proxy was to gather information on net compensation. With information of 112 entrepreneurs, I was able to conclude that the average net compensation is of only $65k with a median of $56k. This range is similar to the gross compensation of a public-school teacher in the US.
Will this make Mexican star ups more competitive? Are there significant differences among the compensations in different industries? What other variables determine the entrepreneurs’ compensations? Do founders with seed capital make less than those with VC investments?
There is so much more to learn and document to continue building the case for Endeavor’s impact in the creation of a VC industry in Mexico. For example, what has the impact of Endeavor Catalyst fund in the local ecosystem? How has the impact grown overtime? How much can be traced back to the concept of the “Endeavor Mafia” concept? One of the soft powers that Endeavor has created is trust among its own community. I would not have been able to gather the information of this article if I had not known the fund managers through Endeavor.
Las opiniones expresadas en los artículos de opinión son las de los autores y no reflejan necesariamente los puntos de vista de Endeavor México.
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