Entrepreneurship in Mexico

It seemed odd to me that the Kauffman Fellows would choose Mexico City for the recently concluded annual summit.  When one thinks of Mexico, venture capital rarely comes to mind.  Well, I was in for some big surprises.

Robust Economy: Mexico seems to be enjoying robust economic health.  Despite its heavy reliance on the northern neighbor (US accounts for 80% of its exports which are 40% of its GDP), the economy is growing about 5% a year.  The peso is stable and the country has recovered all the manufacturing jobs it lost during the recession.  One can also see a rise in Latin American pride – a sense that the country can emulate the success of Brazil, Chile and Peru, and that entrepreneurship holds the key to success.

Young VC: Naturally, PE/VC is nascent in the country.  Regulations that permitted the insurance companies to invest in venture firms were put in place as recently as 2001.  There are only 5 or so VC firms that invest in small entrepreneurial companies with high growth potential, and they are typically small with less than $100 million of capital.  Many VC-funded companies incorporate in Canada to avoid double taxation.  A lot more can be done to promote innovation (here is a nice article), but that has not prevented gritty entrepreneurs from bootstrapping very high performing businesses with global ambitions. 

Comparative Advantage: Since most Latin American markets are small, successful ventures tend to develop cross-border footprints.  Hence, most successful businesses build multi-language and multi-local capabilities early on, growing through distributed operations across multiple countries.  This global mindset could be their secret sauce – their comparative advantage in a flatter world.  Their other advantage is more obvious – the proximity to the world’s largest market and highly competitive factors of production.  With a three-fold rise in Chinese wages in the last decade, Mexico has substantially narrowed its wage gap with China.

Exceptional Entrepreneurs:  Let me share a few outstanding examples.  A company that provides software infrastructure to dozens of microfinance institutions across Latin America is now expanding overseas.  Another, which has POS installations across 40% retail stores in some countries, is venturing into Asian markets on the backs of its multinational partner.  A technology entrepreneur who has built an impressive SAP consultancy after graduating from Carnegie Mellon is seeking capital to grow through acquisitions.  These are businesses bootstrapped by very capable and driven entrepreneurs – the best one will find anywhere.

Endeavour: One good place to locate promising entrepreneurs in Mexico and other emerging economies is through Endeavour.  Active for more than a decade in Latin America and developing a global footprint, this non-profit organization identifies emerging business leaders and provides them with advice, resources and mentorship.  They are a perfect complement to the Kauffman Fellows program – developing next-generation entrepreneurs just as KFP develops next-generation VCs.  

I’m happy that KFP and Endeavor are collaborating in meaningful ways.  The outcome can be very positive for entrepreneurs globally, especially in emerging economies like Mexico.