Last month, I joined a group of 30 Silicon Valley VCs on a plane down to Monterrey, Mexico. Why? As the Draper Network’s Community Manager, I was invited by our member fund, Dalus Capital, to attend their Mexico Venture Capital Conference (MVCC). The event is a part of INCmty — Latin America’s largest entrepreneurship festival, where Richard Branson and our own Tim Draper were this year’s headliners. For those setting their eyes on international markets, you will certainly want to keep Mexico and the greater Latin America within your sights.
The Mexico entrepreneurial and venture ecosystem is rapidly on the rise and more sophisticated than the country’s “emerging market” status suggests. This year, Mexico has led the LatAm region in numbers of VC deals and has deployed over $260 million USD over the last 5 years, with deal flow up 6x since 2011. The country’s tech scene has many factors working in its favor: (1) demographics and market potential, (2) strong, mission-driven entrepreneurs, (3) regulatory support, and (4) proximity to the United States. I’ll explore each of these in turn and hopefully make the case for investors to pay close attention to what is happening in Mexico.
Demographics and Market Potential
Mexico is the most populous Spanish-speaking nation in the world, with a population of 120 million — 22 million of them in the Mexico City alone. The population density creates opportunity for startups to test and scale their solutions. Solutions developed and market-tested in Mexico can be scaled to other emerging economies throughout Latin America, reaching another 600+ million people. One example of Mexico serving as an innovation gateway to LatAm is ride-sharing and carpooling platform Aventones, which expanded from Mexico and into LatAm prior to its acquisition by French company BlaBlaCar in 2015. Monterrey-based SeMeAntoja, a food-ordering platform, was a part of 500 Startups Batch 6 in 2013. SeMeAntoja expanded into Chile and Argentina and was acquired by FoodPanda in July 2014.
Half of Mexico’s population is under 26 years-old. They are typically mobile-first, tech-savvy consumers. And only half of the Latin American population is currently online. The number of internet users is expected to double to 600 million people in the next 5 years. Currently, Latin America leads the world in smartphone adoption.
Strong, Mission-Driven Entrepreneurs
During our group’s visit to MVCC, we met and heard from many impressive entrepreneurs from Mexico and all over Latin America through INCmty’s Startup Pitch session and founder fireside chats. We listened to over 50 startup founders, whose companies are disrupting a variety of industries from fintech to industrial energy, to ecommerce, and logistics. Mexican and LatAm entrepreneurs are not simply creating copycat businesses of US success stories, but rather they are purposefully solving distinct problems of the LatAm consumer. The greatest examples of unique problems can be found in the Latin American financial services industry. More than 50% of the population in Mexico and Latin America remain unbanked. In 2016, more than 40% of venture capital dollars went into fintech, an increase from 29% in 2015.
Kubo Financiero, based out of Mexico, is the first regulated peer-to-peer lending platform in LatAm. In August 2016, the company raised a US $7.5 M Series A with participation from Dalus Capital (then Alta Ventures). According to Diego Serebrisky, Managing Director of Dalus Capital and a board member at Kubo, “The need for credit in Mexico is massive and Kubo with CEO Vicente Fenoll’s leadership has structured a model that is not only able to tap into the unfulfilled need for credit, but also provide it at below competitor’s costs. This has already generated enormous benefits for lenders and borrowers, and we only expect to see it grow.”
While entrepreneurial talent and the desire for innovation can be found in many regions around the world, a startup ecosystem will not thrive if there is no support from the local government. In 2013, the Mexican government decided to catalyze the country’s startup ecosystem through the creation of the National Institute of Entrepreneurship (INADEM). INADEM formalized entrepreneurial innovation as a key component of the country’s growth agenda to attract and retain entrepreneurial talent for the economy. Today the governmental agency supports 20 Seed funds and has participated in 8–10 other funds as investors.
Another big win was the introduction of the CKD (Certificados de Capital de Desarrollo), a special purpose vehicle that enables pension funds to invest in venture capital asset class — something they were not able to do so before. The purpose of the CKD was to create additional sources of capital for Mexican companies and infrastructure to support economic growth.
Proximity to the United States
Mexico’s proximity to the US, and Silicon Valley in particular, is helpful for the tech ecosystem. It is not only the ability to operate in a similar time zone, which has helped outsourced developers in Mexico to out-compete those in India or Eastern Europe, but it is also fundamental to founders who are looking to raise awareness (and money) in the Silicon Valley.
When Adolfo Babatz, CEO of the mobile payment solution Clip, was fundraising, he wanted a mix of US and LatAm investors. He says, “The reason is that different investors bring different things to the table. Silicon Valley investors are a little bit out of touch with emerging markets and developing economies, but they do push you to think really really big, which is good. And in Mexico, investors are much more worried about product issues and are more cash conscious. This combination, and its different shades, is powerful when building a company.” Clip has raised $17.7M to-date from investors including Sierra Ventures (Silicon Valley) and Alta Ventures (Mexico).
In Mexico, I ate the best tacos and drank the finest tasting tequilas in my life; I also was thoroughly blown away by the country’s blossoming entrepreneurial and venture scene. The impact that these startups will produce in Mexico and Latin America in the coming years will be incredible.
Thank you, Dalus Capital, for hosting Draper Venture Network. ¡Viva México!
Special thank you to Christian Aguirre of Dalus Capital and Julie Ruvolo of the Latin American Private Equity & Venture Capital Association (LAVCA) for your assistance when writing this piece.