A Mindset Shift in Mexico

Mexico entrepreneur 

As I head to Mexico City this week, I reflect on the progress this ecosystem has demonstrated over the past few years in a quest to become a globally-recognized hub for entrepreneurs.

Long gone are the days when the government’s promotion of the private sector focused exclusively on making the nation a top manufacturing destination. Today, it is not unusual for startup-savvy civil servants to talk rather of the democratization of manufacturing through the entrepreneurial “maker movement”. In general, the public sector has begun making the case for a competitive Mexico by highlighting its entrepreneurs’ strong links to both the North and South, through its various free trade agreements and diaspora.

In order for Mexico to gain a pin on the global map of entrepreneurship as a friendly place for entrepreneurs, the argument must run deeper than the oft-cited access to the Latin American markets and its large diaspora exposed to entrepreneurial culture in the United States. It must be able to brag about the mindset shift among a growing talent pool and a policy environment conducive to new venture success.
This mindset shift has begun, catching the eye of global investors. Dave McClure’s 500 Startups, for example, made a sizable bet on startups in Mexico and decided in 2012 to run a local startup accelerator in Mexico City. It did so by acquiring the MexicoVC accelerator. Last year’s batch included applicants from across the Latin American region.

The Founder Institute also began working in Mexico in 2012, under the leadership of local angel investors and entrepreneurs Jorge Madrigal and José Akle. Wayra, the accelerator of telecom giant Telefonica, has invested in programs to offer mentorship, assistance and events to help accelerate Mexican startups. These and other “legitimizing” moves have put Mexico on the radar of those combing the world for vibrant startup cultures.

Startup communities in Guadalajara, Monterrey and Tijuana are now following Mexico City -- once mostly associated with drugs, violence and prostitution but now the home to an entrepreneurship movement called Tijuana Innovadora, whose annual gathering has attracted top of the line speakers such as Apple co-founder Steve Wozniak and Maker Faire’s founder Dale Dougherty.
The Queretaro area of the country is also emerging as a place to watch on the national entrepreneurship ecosystem map. It is home to the Institute of Business Model and Accelerator (IMAN), an organization dedicated to designing “new instruments and training experiences to enhance the entrepreneurial spirit that drives a new approach to scalable businesses in Mexico.”

Former CEO of Wayra in Mexico, Marcus Dantus, has now launched the first home-grown innovation campus for entrepreneurs. Called Startup Mexico, the initiative seeks to create a hub that draws under the same roof young companies, seed capital funds, academia, corporations and services for entrepreneurs. As Dantus explained, Startup Mexico seeks to enable local entrepreneurs to generate high-impact ventures, and to attract to Mexico those Latin Americans scale-ups en route to developed markets such as the US or Europe, or European and American companies en route to Latin American markets.

The government has decided it should leverage these developments and work in tandem with grassroots startup communities to catalyze Mexico’s entrepreneurial development. After reviewing National Institute of Statistics and Geography data showing that 80 percent of startups fail by their second year, most often due to a lack of financing and training, the Secretariat of the Economy’s National Institute of the Entrepreneur (INADEM) has been seeking to implement and refine programs addressing entrepreneurs’ needs. This has been done with a particular focus on businesses that contribute to solving societal problems through innovation, as expressed by INADEM’s President, Enrique Jacob Rocha. Along with the work of the National Science and Technology Council (CONACYT), the creation of INADEM in 2013 has institutionalized the importance of entrepreneurial innovation as a key element in the country’s growth agenda.

Set up as an independent government agency, INADEM now helps implement several programs addressing the following goals, as listed by the 2014 report of the Index of Systemic Conditions for Dynamic Entrepreneurship (ICSed-Prodem):

  • Consolidating a healthy environment for the creation of new enterprises and particularly, high-impact businesses;
  • Promoting an entrepreneurial culture among young people;
  • Building a network of specialized mentors;
  • Establishing new incubation models;
  • Helping fund the startup and expansion processes; and
  • Supporting the “born global” firms.

One initiative at INADEM is a seed capital fund of funds, which responds to Mexico’s underdeveloped seed capital market. Where in the United States bank loans provide 15 - 30 percent of the initial finance of high-growth startups, the OECD Development Centre recently highlighted that the figure is close to zero in Mexico. Similarly, finance for startups in Mexico comes from venture capitalists and angel investors only in 5 percent of cases, compared to 20 - 47 percent in the United States.

In fact, private equity and venture capital (VC) represent little more than 0.02 percent of Mexico’s gross domestic product (GDP), one of the lowest figures in the region. NAFIN, the national development bank specialized in providing credit to SMEs is now trying to help the country’s VC and private equity market mature. Mexico’s efforts are yielding some results in terms of capital. In 2013, Mexico showed the most progress in improving the conditions for the development of VC market, according to the Latin American Venture Capital Association (LAVCA).

I am hoping this week when in Mexico City to find leadership eager to discuss leveraging local strengths over strategies to replicate what Silicon Valley did in order to become a startup hub. That Mexican entrepreneurs are already validating their innovations through the iterative processes of testing early-stage ideas speaks well for the current leadership. I welcome observations and suggestions from others following government engagement in entrepreneurial development in this part of the world.

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