Silicon Valley, It’s Not You It’s Mexico
Silicon Valley, It’s Not You It’s Mexico
It is not your fault that VC markets such as Mexico and other emerging VC hubs are still quitenot ripe. The responsibility to create irresistible investment opportunities for local and foreign investors that will generate a booming ecosystem is ours.
The prepaid phone industry, the biggest Spanish-speaking TV network and the nearshore industry have all been created in Mexico. If SiliconValley wasn’t instrumental in starting businesses such as America Movil from Carlos Slim, Grupo Televisa or Softtek — with a combined market cap of more than $80.57 billion dollars — why should it be different now?
There is no doubt about the inspiration and impact that the Valley has over the entire world. Cities, countries and regions frequently refer to Silicon Valley as close to Mecca as there is and, maybe even more, as something that should be replicated in every potential entrepreneurial hub.
Furthermore, we have witnessed cases in which people stood up demanding Silicon Valleylook our way as a mere cry for help. But that inevitably raises a fundamental question: DoesSilicon Valley have a strong debt toward any other region?
I think not; rather the contrary, we should be thankful for the inspiration and teachings we have absorbed, which serve as a basis for global startup hubs. To think there is no hope to generate startup ecosystems without Silicon Valley’s capital is to play to the strengths of the latter, but not necessarily our own. It is certainly not about replicating Silicon Valley, but rather about establishing our own differentiated communities that can strive on local flavors.
If anything, we should wonder why there isn’t more capital being deployed into VC locally, or even regionally, while the wealthiest from Mexico, Colombia and Venezuela add up to 80 percent of the recent foreign investment in real estate in Madrid, Spain. We need to do a better job at creating incentives for private and corporate investors, such as offsetting potential losses or reducing taxes on capital gains.
Mexico, Not Juicy Enough
“The Mexican entrepreneurial community is yet too small for a country this size and there is yet too much interest in what is happening in the United States,” said Carl Scharmm of the Kauffman Foundation, during his speech at an Angel Ventures Mexico event in Mexico City last year.
In 2014, the United States saw $47.3 billion in VC investments across 3,617 operations, where California alone accounts for $26.8 billion of those investments. According to data provided by LAVCA and CBInsights, this is, simply put, 51 times bigger than all of Latin America’s investments — combined ($525 million across 186 deals).
Among the leading countries in the region, Brazil attracted one-third of this capital and represented nearly half of the early stage deals. As for Mexico, the PE/VC managers deployed 1.31 billion during 2014, but only $38 million was invested in startups across 54 deals, which means that a country of 120 million people and a GDP of $1.2 trillion has a similar VC activity for startups to Nebraska ($37.8 million in 9 deals — $115 billion GSP and 1.8 million people) or Kansas ($42.3 million in 7 deals).
The ugly truth is that there is still work to be done to generate a startup community that is sustainable and can prove interesting to many in the affluent Mexican community who should be LPs in VC funds or angel investors — or even attract more traditional corporates to have a more active funding role. A dynamic ecosystem requires that successful entrepreneurs generate enough capital and influence to increase the volume and size of investments.
According to Endeavor, out of different possible connections among entrepreneurs in MexicoCity, such as mentorships, investments, inspiration, previous employment or founding team, only 14 percent of these interactions account for investments. To really be able to have an exponential growth in the ecosystem, it is imperative that we lower the cost and friction of what it takes to become an investor in the sector.
As means of comparison, the same study conducted by Endeavor in Buenos Aires, Argentina, shows that more than 90 percent of the startups created between 2000 and 2010 are somehow connected; 21 percent of total influence connections are business investments. MercadoLibre, Officenet, Globant, Patagon, Fnbox and Digital Ventures are among the top Argentinian companies that have invested in other startups from Argentina, particularly through their founders as angels or newly created investment vehicles.