Laura Elisondo: Mexico: Unicorn Hatchery?

2021 was undoubtedly a year of great progress for the entrepreneurial ecosystem in Mexico, with the emergence of 7 unicorns (Kavak, Bitso, Clip, Confio, Clara, Incode and Merama), helping companies reach a valuation of USD 1 billion. was nominated. Of the 17 Latin American unicorns, 9 were created in 2021.

Why am I so excited about what is happening today, not only in Mexico, but throughout LATAM? In 2010, when I was graduating from an MBA, it was practically unthinkable to dream of setting up a startup without coming from a “prominent” family or without “wool” friends to support you. At that time it was somewhat strange to talk of a fund or an angel investor club in Latin America. There was no source of private financing for early-stage companies, and Internet access in Mexico barely reached 27% of the population.

Today, things are very different: According to sources such as CB Insights and Pitchbook, the venture capital or VC industry broke records at LATAM in 2021 with over $16 billion dollars. The arrival of SoftBank with a $5 billion dollar first fund and a $3 billion second fund, specifically designated for Latin America, was undoubtedly a great detonator. According to the Federal Telecommunications Institute, Internet penetration in Mexico has reached 70% today. This has a strong effect, as the penetration of the Internet increases, the possibility of adopting new market technologies increases. And the scaling possibilities for startups are now greater.

Personally, I’m very excited that there is capital available to those willing to prepare and take the risk of undertaking. I’m pleased to see that being an entrepreneur today is “fantastic” and university graduates with high tech degrees are “jumping in the ring” with disruptive companies and breaking the status quo. Mexico today is a very fertile land.

The ecosystem has been consolidating since 2009. The Mexican government was a leader in allocating funds for venture capital (as an investment, not just as a subsidy) with the creation of INADEM during Fox, Calderón and EPN’s six-year terms. Luckily the ecosystem was already going strong when AMLO wiped out INADEM and ProMéxico in 2018. And although the closure of these organizations was not desirable to many, the important thing is that the support it has given today is bearing fruit, said Liliana Reyes, general director of AMEXCAP (Mexican Association of Private Capital). @ said from within. Escalables podcast program.

By then, large international funds such as SoftBank, Tiger Global, Andreessen Horowitz, Sequoia Capital, as well as proponents of YC and 500 Startups, had already made their way into the space. It is also important to mention the very important role of local funds, such as ALLVP, Dalus, Dila, Ignia and Angel Ventures, in the development of risk investments in Mexico, to mention just a few of the more than 150 that exist today. Similarly, the consolidation of the formal Angel Investment Club, Family Office and CVC (Corporate Venture Capital) has given impetus to the industry.

“Today it is better to start a startup in Mexico than in Silicon Valley. That is because there are real and difficult problems to solve in Mexico”Courtney MacLogan, founder of Runa, a startup that solves the problem many SMEs face when it comes to paying for payroll. This is also confirmed by Santiago Zavala, partner at 500 Startups, both interviewed on @EscalablesPodcast. Santiago confirms that a large part of the success of these companies is in meeting the large needs of the Mexican market. As examples we have CLIP, which focuses on charges that banks do not want to manage from SMEs, and Confio, which focuses on loans given by traditional banks.

Mexico is the gateway to the rest of Latin America. Foreign companies such as Stripe have already selected Mexico for expansion. We also see exodus of foreign entrepreneurs to start their ventures in our country. According to data from Endeavor Mexico, 31% of fund-raising startups are founded or co-founded by foreigners. As an example we have Carlos, Lorena and Roger de Cavac of Venezuela, the first Mexican unicorn.

Some consider the unicorn title to be overrated. I admit I questioned this as well, when funds investing millions in companies were clearly seen “only because of the profile of their founding team” and not necessarily because of their traction in sales. Many even question whether it is a bubble like “in the time of”dot-com bubbleBut experts say that today we live in a completely different context from the year 2000. At that time the value of the company was provided by the traffic on the website. Today drivers are different. Unlike dot-coms, these unicorn companies are heterogeneous, they are causing disruption in different sectors and with a clear value proposition.

According to LAVCA (Association for Private Capital Investment in Latin America), the fund has investments across sectors: logistics, proptech, healthcare, SaaS, edtech, among others; But the sectors that received the most funding are e-commerce with 22% and fintech with 28%, the latter being the big winner. In the near future I wouldn’t be surprised to see big traditional banks shop around for fintech. There are those who think otherwise, that fintechs will end up buying from traditional banks. We don’t know the future, what we can predict is that there will be many mergers and acquisitions of companies in this area.

Finally, with so much capital on the table and new startups “flying” to achieve a valuation above $1 trillion and reach the much-acclaimed title of unicorn, we’ll undoubtedly see several IPOs. Experts estimate that there will be 2 to 3 Latin American IPOs per quarter during 2022.

We must also be realistic, because in spite of all this Publicity The ecosystem lives on, we can’t forget that new companies consolidate or die. For every case of success, there are many others that are halfway through. 2022 will come at a very fast pace and there will be more news of unicorns, growth, mergers, acquisitions, IPOs and yes, some deaths. What are your predictions?

Lala Elisondo is a Businesswoman, Angel Investor and Business Consultant. He has an MBA from Babson College, with experience in International Business Development, Consumer Product Marketing and Business Start-ups. She is passionate about the issue of impact and her dream is to contribute to “leveling the ground” for those who are born with some economic, educational or gender inequality. You can listen to her on the @EscalablesPodcast podcast where she interviews relevant players from the entrepreneurial ecosystem at LATAM. Available on Spotify and/or Apple Podcasts.

Twitter/IG: @lalaelizondo @escalablespodcast