“Mexican companies will be up there with the leaders in the Virtual Reality (VR) and Augmented Reality (AR) sectors, and perhaps also in Artificial Intelligence (AI), within the next three to four years.” This was the rather bullish view expressed by Mexican entrepreneur and video games specialist Mario Valle at the South by Southwest (SXSW) interactive festival in Austin, Texas in March. And his optimism is far from being unfounded. In just a few years, a robust startup scene has emerged in Mexico. The regions of Baja California, Tijuana and Monterrey are showing great dynamism and community-based Startup Genome says there are between 350 and 650 young tech companies working in the capital city – as many as in the Malaysian capital Kuala Lumpur but half the number active in South Africa’s Capetown. Meanwhile Startup Genome’s 2017 Global Startup Ecosystem Report lists 2000 to 2600 active startups in Paris, far fewer than the 12,700 to 15,600 fledgling tech companies in Silicon Valley. So, while the Mexican ecosystem clearly has some way to go, it has shown considerable growth in recent years. What is driving this rapid growth and what obstacles still remain to be overcome? One session at SXSW focused on Casa Mexico, a private-public partnership designed to provide a launch-pad for Mexican entrepreneurs. The ‘Casa México & the Mexican Entrepreneurial Ecosystem’ slot provided an overview of the realities of the local startup scene and helped to answer these questions.
in mexico city
There are as many startups working actively in the Mexican capital as in the capital of Malaysia. Plus many more in the regions of Baja California, Tijuana and Monterrey.
The first financing structure designed to foster innovation was created in 2009-2010. Santiago Zavala and Cesar Salazar, two Mexican geeks, were in at the beginning of the Mexican VC seed fund, intended to address the problem of the lack of finance for startups in the country. Everything took off from there when global venture capital seed fund 500 startups bought the company in 2012, thus establishing its first office outside the United States. After Mountain View (home to Google) and San Francisco, the VC fund and startup accelerator decided on Mexico City as a base from which to extend its reach across the Hispanic countries of the South.
An ecosystem under construction
Mexico’s geographical location is a distinct advantage. Proximity to the United States makes collaboration between the ecosystems much easier and Casa Mexico – which promotes interaction between US and Mexican startups – is a good example of this. In fact Mexico, with a population today numbering 127 million, has become the ideal place from which to expand a business throughout the Latin American region, a large and fast-growing market.
Other international accelerators, incubators and providers of startup development programmes such as SeedStars Mexico, Startup Weekend, and Numa Mexico have also set up there. The most recent addition is Startupbootcamp, which has announced the launch of a FinTech programme with Finnovista. In their wake have come local accelerators and incubators, including Orion Startups in partnership with the Technology university Tec de Monterrey on the Chihuahua campus, Startup Studio Monterrey and public-private accelerator Startup Mexico.
University of Guadalajara
Overcoming the lack of investment and absence of standards
Startup entrepreneurs such as Carlos Garcia, founder and CEO of Kavak, an online platform for buying and selling used cars, regret the fact that so far the investment sector in Mexico has not made as much progress as in the United States. Daniel Vogel stressed that “investors [have] less experience and conditions are stricter.” In order to improve the situation, Vogel therefore turned to the United States. “Our US investors offered us a better deal and encouraged us to run our firm in an exemplary manner, and to go further than one usually does in Mexico, suggesting that we for example offer equity options [i.e. the right to receive or purchase shares in the firm] to employees,” he told the SXSW audience, underlining: “Our relationship with the United States has really pulled us up by the bootstraps.” Mario Valle strongly deplores the fact that Mexican investors have a reputation for being risk-averse. He regards a positive mindset as a key factor if the ecosystem is to put down strong roots and make substantial progress.
“The talent pool is exploding in Mexico. There are more software engineers in Mexico than people living in Ireland,” Mario Valle pointed out.
Among areas for improvement in the Mexican ecosystem, Daniel Vogel also points to standardisation of documents, revealing: “We’ve had to spend an enormous amount of money drawing up a document that is standard in the United States”. The country is clearly lagging behind in terms of regulatory infrastructure. The government, which is aware of these shortcomings, has been busy for some years trying to remedy them, for example undertaking a thorough reform of employment and labour law which is scheduled for completion by 2018. Meanwhile obstacles remain. But Mexico can be proud of the fact that it has one vital advantage when it comes to building a solid ecosystem: talented people. The Bitso co-founder pointed out at SXSW that “lots of engineers graduate every year, in computing, in mechanical engineering, in all types of engineering. And this pool of talent is getting better all the time”. In fact Mexicans are increasingly studying technical subjects. “The talent pool is exploding in Mexico. There are more software engineers in Mexico than people in Ireland”, pointed out Mario Valle.
Using problems as a source of inspiration
And in addition to the surge in the talent pool, new ideas abound. “There are so many problems that startups are falling over themselves to solve”, added Daniel Vogel, drawing a smile from the Mexican Consul General, who was among the SXSW audience. The obstacles the country and its citizens are encountering are serving as a real source of inspiration for startup entrepreneurs looking for ideas. For example, the fact that the financial system in Mexico is “dated”, as Carlos Garcia put it, and that meanwhile financial inclusion has become a real issue, has prompted entrepreneurs to come up with solutions. Suffice it to say that FinTech is therefore a booming sector there. Some of the most promising local startups in the Mexican ecosystem are offering online loans. One such company is Kueski (which can grant you a loan almost immediately), others being Konfio (which mainly targets SMEs), Prestadero and KuboFinanciero (a platform for P2P lending, a solution for those who do not have a bank account). Payments platform OpenPay (recently acquired by Spanish banking group BBVA) and Bitso, Daniel Vogel’s firm, enable people to exchange Bitcoins. Other success stories have emerged from the sharing economy. One example is Mexico City-based Carrot. Set up in 2012, this local equivalent of US car-sharing company Zipcar, which enables Mexican people to hire a vehicle by the hour or by the day, has to date raised over $3m million in capital. Meanwhile Lavadero, founded in 2014, provides an on-demand laundry – washing, ironing, dry cleaning – service. The firm will come and pick up your items and bring them back in less than 48 hours. Also among the recently-launched startups developing solutions to problems in cities is Econduce, an app-based electric scooter-sharing business running in Mexico City. Google chose this company, together with two other Mexican startups, to take part in the Launchpad Accelerator program in San Francisco, comprising 2 weeks of all-expenses-paid training at Google Headquarters. Econduce is in fact killing two birds with one stone: making urban mobility easier and at the same time helping to reduce pollution from motor engines.
There is of course still a lot to do, which means a lot of opportunities for entrepreneurs, and in this regard the country has now really taken off. “When people talk about emerging markets, they think of the BRIC countries [Brazil, Russia, India, China]. People rarely think of Mexico as one of the main emerging markets,” Mario Valle pointed out. Nevertheless, Goldman Sachs and other financial players are predicting that the country will boast the sixth or seventh largest economy in the world by 2050 although today it does not feature in the top ten. Mexico’s startups are likely to benefit from this imminent growth, or will perhaps prove to be the source of much of the growth. Watch this space!