By Dan Berthiaume
Anyone involved in the IT industry knows a healthy venture capital (VC) market is critical for any country looking to develop a domestic technology infrastructure. IT innovators awakening to the opportunities of a global IT industry may be long on ideas but short on funding, and need the backing of investors in order to see their projects come to fruition.
Fortunately for Mexican technology entrepreneurs looking to launch startups, there is a nascent Mexican VC market taking shape which holds the potential to boost Mexico’s standing as a source of IT innovation. Global Delivery Report recently spoke with Cesar Salazar, General Partner of Mexican.VC, a Silicon Valley-based seed-stage fund which solely focuses on startups based in Mexico, about the current state and likely future direction of VC activity in Mexico.
GDR: How active is the Mexican VC market today in terms of funding IT projects?
CS: It’s starting to get more interesting, particularly with some traditional and impact funds (which consider social and environmental aspects of investments as well as potential financial return) finally making early stage investments. Players such as Alta Ventures, Mexico Ventures, Angel Ventures Mexico and Mexican.VC are very active and betting some bucks in seed deals (providing initial funding to start a business).
GDR: What is Mexican.VC doing to improve the state of Mexican VC activity?
CS: We are closing the gap between nascent Web entrepreneurs and early stage investors. We have a unique model that combines the benefits of an incubator with the level of commitment of a venture capital firm. We are totally invested into early stage startups, both from the money and the time perspective.
We are also making key efforts to empower the whole ecosystem. For example, in 2011 we organized or facilitated seven Startup Weekends (54-hour events for entrepreneurs to test startup ideas, backed by a global non-profit network).
Now, we’re helping to start the largest innovation hub in Mexico City, which we hope to open in mid-2012. (It includes) an 8,000-square-foot planned space to allocate 15-20 startups, event space for 250 people, and a co-working café for 50 people. We’re bringing together more than 50 tech, design and media groups. These groups will organize most of their events in beta. Additionally, we are planning to convert those contents into a digital education channel.
GDR: How does the VC market in Mexico compare to those in other nearshore countries and in the US?
CS: It’s similar in the way it operates and the type of deals most investors are looking for. Most Latin American firms are investing in more traditional models, such as real estate, entertainment, food, tourism, manufacturing and mining, and technology is not a priority, yet. However, we’re seeing a shift and we are excited about what could happen in the next couple of years.
GDR: How difficult is it for a Mexican startup to obtain funding?
CS: I think is it as difficult as in most countries, with the difference that the market is growing here. We are an emerging economy in a great position to start new businesses. There’s interest in every sector to foster entrepreneurship in Mexico, and that’s thrilling. Nonetheless, we need to find a model that works for us, both from and the economic and the cultural aspect.
GDR: How do you see the state of the Mexican VC industry evolving in the next five years?
CS: It will become more sophisticated. People are learning to create models that make a lot of sense, and that improve the chance of success. We will see more funds focused on the long term upside, rather than the short term profit. I hope we also see more seed deals. In an era of widely available infrastructure that scales fairly easily, startups only need enough runway to pay for a living until they hit enough revenue to sustain themselves. Then, if they’re ambitious and smart enough, they can raise money to scale the business at healthier terms. I think this is positive for both sides of the table.