By Duncan Tucker
With the aim of increasing investment in Guadalajara’s burgeoning high-tech industry, venture capitalists in Mexico have established a new seed fund called KickStart del Occidente.
The fund is administered by early-stage venture capital fund Alta Ventures Mexico and promoted by angel investor group mexVC. Based on existing KickStart seed funds in Utah and Monterrey, the idea is to raise money for investments in Western Mexico’s most promising start-ups.
The initial aim was to raise $10 million USD in the first half of 2012. mexVC’s financial consultant Alem Muminovic declined to say how much money has been raised so far, but said that administrators are currently holding one-on-one meetings with local investors from Guadalajara.
Raising funds for investment in Mexico’s young high-tech industry is not without its difficulties. Local businessmen generally prefer to put their money into manufacturing or real estate, instead of riskier ventures in IT.
“These local companies need to step up their game,” says Muminovic. “We are trying to take some of their investments from traditional industries like real estate and move a small, small part of their investments to the high-tech field.”
“It is a big challenge. We knew from the beginning that it was going to be difficult. There have been several attempts in the past in Guadalajara and only one has been successful,” admits Muminovic. “We know that if we do anything wrong it will hurt not only us but also the local start-up industry so any effort needs to be very well structured and professionally handled.”
The best way to convince investors is to clearly explain the seed fund’s plans and past work, says Muminovic. “Our partners Alta Ventures have had tremendous success not only in the U.S. but also in Mexico. So we’re trying to convey a compelling story to [potential investors].”
What makes Western Mexico so compelling then?
“Everything we do is based on research that Alta Ventures has done,” Muminovic explains.”We see Mexico as an interesting market. There is interesting entrepreneurial activity and innovation potential in Mexico, and we believe the only thing the ecosystem needs right now is the money from investors to really kick-start it.”
KickStart del Occidente features an ensemble cast, drawing together many key players from this “ecosystem.” Muminovic says participants include fund managers and associates of Alta Venture, a panel of investors and members of industry and established corporations.
“The idea is to bring some key universities to the table as well,” he adds, as well as any “other actors of the ecosystem that we think could contribute, not only in finding projects but also in evaluating them. We are trying to align the interests of different actors in the ecosystem through this fund and basically funnel the few resources that are available into the best projects.”
Muminovic says they are looking for “start-ups with a proven concept and some customers. They need to be at the right stage of development. They also need to have a clear fit with the sectors we are looking to invest in.”
The first of these sectors, “internet, mobiles and social media,” is blossoming in Guadalajara. Another area is “anything to do with the aging population.” Muminovic says they will target companies serving “people who require additional services and who are entering an age where their spending is at a peak.” The idea is to provide “consumer products and services that this population will need in the next five to ten years in Mexico.”
Another sector is one that has been gaining increasing attention in Mexico: security. “We still haven’t found any interesting deals there, but it is an interesting sector,” says Muminovic.
Finally, they will be looking to invest in “everything to do with the green wave.” This will include energy generation and efficiency.
“The idea is to invest in five or six projects a year, over five years. So in total we will be investing in maybe 25 projects,” says Muminovic.
The amount invested depends on each project, but in general each company will receive around $200,000 to $300,000 USD in two to three instalments. This ensures that that each company must meet pre-set goals in order to continue receiving funds.
“We expect our projects to return between 30 and 40 percent of the investment annually,” says Muminovic. “Then as these projects are maturing, within say five years of our investment, we will be looking to sell these companies to strategic buyers.”
“Strategic buyers” refers to big corporations who want to enter a certain niche, have specific technology needs or see a clear strategic opportunity for their business, he says.