Even as the Mexican venture capital industry struggles for critical mass, some ambitious types are looking to encourage not only innovative but “disruptive” companies. One of those is Hugo Stevens, the general manager at Startup Factory, who spoke with Global Delivery Report Editor Robert L. Scheier about how the early stage VC fund mentors companies that look to make major changes in their industries.
Q: Tell me about the Startup Factory.
A: I and my partner — Manuel Landa, a serial entrepreneur and founder of the only Mexican company that has been listed in Nasdaq — work with very early stage companies that don’t have a fully formed business model. Our premise is that a lot of industries in Mexico, like pharmaceuticals, education financial services, and so on are ready to be disrupted. We work with the founders, and advisors, and mentors, to understand where the opportunities are in a particular industry to use technology to change the business models. We also provide contacts with people currently in those industries to help understand the current state and the opportunities.
Q: For example?
A: Take financial services. What if we were to create that industry today, knowing everything we know about how it works and what technology is available. How could that technology be used to change how a product is made, or advertised or distributed?
Another is local newspapers, which have a problem with their distribution model that relies on printing and needing a staff to generate the content. Today, we wouldn’t use physical distribution, but mobile phones, and have a lot of the editing done through a social application. And the advertising would be very different, really dynamic, and based on a person’s location.
Another factor that’s very important is I have met some people from Argentina, Brazil, and other markets, including some in Asia. The interesting things is that they face a lot of the same challenges we have here, which means that once we figure out how to do one of these businesses in a way that works here, if could work in other emerging economies as well.
Q: How many firms are you working with?
A: Nine companies currently, with the next batch in July. Some are gaining users as we speak; some of them are in the initial stages of testing and release for a wider audience. They include companies doing mobile personalized advertising, a chain of stores that display goods for online purchase but which carry no inventory, a virtual professional services firm with national coverage, an online cloud services aggregator, and a digital medicine distributor.
Q: And how much investment money do you have under management?
A: We are in the process of raising around $4-$5M USD. We thought we would need about $5-$6 million for the next few years, but found we didn’t really need that much. With Amazon Web Services you don’t have to worry about buying servers and infrastructure and so on. There’s a lot of open source software and services. The cost of starting a company is really, really low, within Mexico.
Q: What’s the status of the venture capital community in Mexico?
A: It’s moving really really quickly. Two years ago we were the only crazy weirdoes, putting up money even for small firms. Over the last year, over the last six months, things have evolved really, really, really quickly. On the one hand, we’re seeing some of the leading players, which are VC funds, which didn’t do a lot of early stage investing, getting really interested in such investments. Also, a lot of new players are being formed, to support those companies at the early stages.
Q: Why is this changing?
A: Now, we’re seeing we no longer have to ask for somebody else’s permission to try something new. Before, we would have to go and try to speak to one of the big companies, and see if they wanted to do something with a startup, or approach some investor, who would probably demand a large stake in the company. Now, the rules have changed and we don’t have to wait for somebody’s permission. All those factors mean we can try anything.