The Mexican startup ecosystem faces new obstacles, but is gaining strength like never before – Entrepreneur
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Only in June 2021, a hundred Mexican startups raised 506 million dollars in capital, only slightly less than in 2020 where we received a peak of 831 million dollars.
For centuries, the expression ‘Ingenio Mexicano’ has been used with a touch of bitter irony, referring to unusual or creative (and sometimes half) solutions, making it work with what is available. But that same slick, improvised culture of Mexican businesses in the midst of limited infrastructure is paying off amazingly in the world of startups and tech. Modern Mexican ingenuity uses a dose of creativity, a pinch of improvisation, and enormous adaptability to drive innovation.
This last year, the first unicorns in Mexico have reached millions of dollars of investment, which only increases the global eyes that observe the Mexican startup ecosystem. Only in June 2021, a hundred Mexican startups raised 506 million dollars in capital, only slightly less than in 2020 where we received a peak of 831 million dollars.
According to current entrepreneurs, a company that has conquered the Mexican market can succeed anywhere outside of Mexico. After all, anyone who manages to overcome notorious local roadblocks – corruption, red tape, weak public institutions, and high competition for start-up capital – has proven their business idea worthy of global hype. Overcoming these obstacles means becoming living proof of modern Mexican ingenuity.
Although there are more things in the ecosystem of Mexican startups that you should know.
The sums arriving in Latin America continue to rise, with startups taking over the entire subcontinent. The Latin American Startup Directory has observed two consecutive years of record in venture capital investments. Startups across Latin America reached 488 deals worth $ 4 billion in 2020, of which Mexico and Brazil reached the highest quotas.
Despite the economic crisis that hit the region due to the pandemic, the first unicorns of LATAM were born, four of which are Mexican: Kavak, Bitso, Clip and Konfío. The latter, a fintech company, just secured $ 235 million Series E financing.
Speaking of current technology trends in the economy, André Barrence , Head of Google for Startups, declares: “Latin America is experiencing the greatest and best moment. We have excellent speed because the ecosystem has developed well in the last five years. There is a solid foundation, and it seems like everything is happening at the same time right now. “
According to Ron Oliver , director of Startup México (SUM) , about half of the startups that operated during 2020 were able to take the national closure as an opportunity to renew their services and overcome urgent economic challenges. “By generating new products and services, they were able to accommodate the new appetite for e-commerce and technological solutions in Mexico and became uniquely sexy for the market,” explains Oliver.
Likewise, e-commerce in Mexico experienced a 500% growth in the first months of the pandemic , which turned startups like Jüsto into real stars in the corporate skies. The rise of e-commerce has also had positive effects on affiliated industries. Cargamos , a Mexican last-mile logistics platform, was able to take advantage of the unique conditions of the pandemic and build a national distribution network that could support the e-commerce boom, helping them secure an initial investment round of 11 million dollars . 
Gerry Giacomán and Diego García, co-founders of Clara / Image: Courtesy Clara
But increased sales is not the only catalyst for successful startups. Personal experience and creative ideas are the key ingredients. Kavak , the first Mexican unicorn startup in history, was created by Venezuelan immigrant Carlos García with an initial budget of just $ 250. When Carlos had an unsatisfying personal experience in the Mexican auto market, his frustration led him to create a company that meets, if not exceeds, the needs of consumers in the local auto industry. Due to the pandemic, city dwellers abandoned ride-sharing services like Uber, and their demand for a cheap, reliable car with no hidden surprises grew. Offering safe, fast and financially backed car buying, Kavak could fill the gap in the market at lightning speed.
After two years of incremental transformation, young Mexicans are beginning to make lasting changes in their lifestyles, demanding new consumer goods and shopping experiences, including fast, personalized and efficient delivery. Mobile commerce generated $ 11 billion in revenue in Mexico in 2019, at a time when 60% of the Mexican population owned a smartphone, a percentage that is expected to increase by another 10% by 2025. Despite Since a large part of the population still suffers from limited access to new technologies, the mobile purchasing power is enormous.
According to Oliver, fintech and e-commerce companies are the most dominant in the Mexican startup ecosystem. “However, there is growing interest in other industries such as healthtech, foodtech and edtech. According to ecosystem insiders, companies in these industries will be the next big unicorns once the short-term popularity of fintech fades,” he explains .
Cannabis technology will soon have its value too. Mexico’s legislative body, the Senate of the Republic, could soon complete the regulation of marijuana for recreational and medicinal purposes. The approval of this law will substantially strengthen a new and expanding economic sector.
One of the founders of Mexican cannabis technology , Janis White, emphasizes: “Now is the time to have good ideas. Mexico is full of really creative people who see these opportunities. We are innovative people. It is part of our culture, to be ingenuity. Mexican”.
In recent years, acceleration programs such as MassChallenge , 500 Startups , StartUp Mexico , and capital providers such as Ventura Mexico , Angel Ventures , and other funds have played a key role in supporting startup growth. At the same time, new programs such as New Ventures , 1million startups, and Softbank have reached the startup culture, providing entrepreneurs with the tools and financing necessary to achieve their goals. After educational institutions and economic actors have promoted entrepreneurship in Mexico for the past 20 years, it seems like the best time to start a business.
Another trend that permeates the Mexican startup ecosystem is aligned with a global mega trend: social entrepreneurship. More and more regional startups are trying to tackle societal problems or find solutions for their stakeholders with their new ventures.
To help entrepreneurs intensify their impact game, the private university Tecnológico Monterrey is building a conscious entrepreneurship laboratory designed for startups to incorporate social entrepreneurship. Ulrick Noel, General Director of the EGL Entrepreneurship Institute at Tecnológico de Monterrey, explains: “With our laboratory of ideas, we intend to bring these concepts closer to the people who manage companies at the moment. The objective is for them to be aware of the value of moving to capitalism aware”. 
Carlos García Ottati, CEO and Co-founder of Kavak / Image: Courtesy Kavak
According to María Puch , institutional director of New Ventures, “there is a lack of financing for impact companies. There is a misconception among investors that if companies are doing something that generates social impact, they cannot be as profitable.” In reality, a conscious startup can become just as profitable when it grows according to market needs. For this reason, funds such as Google Founders , 7 OECD , and the UN’s 1 million startups program place special emphasis on projects that have a positive impact. An example is the startup Ethichub , which offers cryptocurrency loans to rural communities and which recently received a significant injection of $ 600,000 of investment from the IDB.
So why, of all countries, is Mexico so relevant? The country combines the three key aspects of a fertile market to grow an innovative business: commercial ties, demographics and culture.
Commercial ties: Subscribed to 13 global free trade agreements, which include 50 countries, Mexico is the ninth largest exporter in the world. In 2019, the country invoiced a total of 480,000 million dollars in foreign regions, of which most of it goes to the United States. Large US companies are showing a growing interest in penetrating the market, and Amazon has just built large fulfillment centers in Tijuana to distribute its merchandise throughout the country. Production is slowly shifting out of China due to the current tension between China and other nations. That is why global companies are pivoting towards LATAM. Due to its border with the US, Mexico is very well positioned to capture the growing need to find new production centers and business partners.
People : Mexico is a very young country. In 2020, around 25% of the Mexican population was between 0 and 14 years old, and approximately 66% between 15 and 64 years old. The use of social media among the younger generations is incredibly high, making digital marketing easier: in 2019, more than half the population used social media, and the number is expected to grow from 77 million to 95 million in 2025 . At the same time, Mexico’s universities graduate more than 130,000 computer science graduates annually, who are ready to drive change in the technological ecosystem.
Luis Cabrera , undersecretary of the Secretariat of Small and Medium Enterprises of Monterrey insists: “International investors have to understand that the combination of volume and access to prices forms an immense opportunity. In Mexico you find a large market that is highly based in consumption and ready to expand digitally. “
Culture: The most relevant cultural aspect of Mexico is the push of people to use technology to solve problems. “Mexicans, in all generations, adopt technological tools in a short time. Especially in large cities such as Mexico City, Guadalajara and Monterrey, the spirit of using technology is highly developed,” explains Oliver.
Several policy makers have worked to create a culture of entrepreneurship over the years, since the early 2000s. However, this once very fertile climate for entrepreneurship has recently declined , as the current government of Andrés Manuel López Obrador has set his priorities in the fight against corruption and in lifting the poorest out of their precariousness. At the same time, educational institutions, as well as entrepreneurs, receive much less state aid, which hits young entrepreneurs in particular. According to the people interviewed in the sector, the paradigm shift of the current government has left deep scars on the business landscape, since before, new companies received financial and symbolic support from the government.
“The current government has not mentioned entrepreneurship even once on its political agenda, reflecting political disinterest in what I believe is the greatest contribution to Mexico’s economic development at this time: startups,” says Cabrera.
However, Mexican society remains focused on entrepreneurship, and young Mexicans are willing to make sales. Cabrera reveals that a red flag could be expected to invest in Mexico due to the current political climate: “But the reality is different. The country has a fertile climate. It is a great world economy; we have leadership in the region in terms of consumption , and right now, the momentum is perfect to grow a business. “
And yes, it sounds almost too good to be true. That’s why it’s worth a look behind the scenes.
What the large amounts of investment hide is the fine print. Startups founded five to seven years ago are reaching Series C and D funding, so total investment amounts are growing. However, fewer and fewer startups are actually getting funding. Investors prefer to pour their funds into a promising project rather than diversify into risky Series A and seed funding.
That is why Noel underlines: “We have to continue creating seed funding. We need the sector to discover a way to develop funds for early stage startups, without the help of the government if necessary.”
And here, too, Mexican ingenuity plays its trick. Leveraging early cryptocurrencies to create businesses has become a booming trend. At the same time, last year’s unicorns are establishing a support system for newcomers.
Francisco Solsona , Google’s regional and acceleration chief, explains: “Before, there were no rich founders who could invest millions in other founders, and now the 27 startups are angel investors.”
Now even companies offering seed capital are emerging in Latin America. The Mexican unicorn Konfío offers several types of loans for SMEs, such as invoice financing, microcredits and commercial lines of credit.
Marco Antonio Benítez , founder of the sports technology company Rookmotion , says that networking with and learning from today’s business superstars is a key factor in attracting capital. “You have to meet the right people in Mexico. As there is not much public support, private contacts are what will take you to the critical moments to raise capital.”
However, there is another problem alongside the lack of initial funding: In Mexico, there are large gaps in fundraising for underrepresented groups, such as women or BIPOCs. Some venture capital firms are increasingly focusing on minority groups. The first venture capital groups focused on diversity have emerged in the region, such as the Black Founders Fund Google for Startup and Amplifica Capital , which lends a million dollars to startups led by women in Mexico. 
Ricardo Weder, co-founder Jüsto / Image: Entrepreneur en Español
Despite vision and business acumen, Mexican entrepreneurs face a difficult reality: a lack of technical skills in the job market. Many established companies find it difficult to develop high-tech solutions, so they often need to purchase hardware and software from abroad. Others lack knowledge of customer acquisition and business operation, which are the basic skills needed to break through the market.
Finally, there is a great demand for cybersecurity specialists because banks, institutions and companies in Mexico and LATAM are subject to continuous attacks . Currently, most companies are outsourcing this type of talent, but according to Oliver there are three major problems with foreign talent: On the one hand, being in the same time zone is essential in cybersecurity, since attacks usually occur at night . Second, to protect systems from attacks, you need to have a good command of the language. Third, understanding the culture is very important, as, for example, during national holidays, cybersecurity risks increase.
As André Barrence points out: “We see that there is a skills gap between the market demand for skills such as mobile developers, software developers, data scientists, product designers and cybersecurity specialists.” The skills gap is actually the biggest obstacle and threat to the current growth of the ecosystem. However, it is also one of the key reasons for the boom in educational technology in Mexico. “Curiously, multiple startups are currently thinking of solutions so that more people have previous experience and education to deal with these problems,” explains Barrence optimistically.
We can agree that Mexico is not yet at its peak, but in the initial phase of construction. “Many think that we have already achieved the results, but instead, we are still building. The next five or seven years will be crucial, especially considering the skills gap. It is not just about money. Technology is a business of people, “sums up Barrence.
The need to grow with the right foundations is now, more than ever, necessary. Instead of repeating the same fallacies about diversity, equity, and inclusion, the Mexican ecosystem is now equipped to better combat these difficulties. Young Mexican minds are the key to recovery and they are the only ones destined to fight the structures of inequality embodied by future generations.
Mexican ingenuity is a boon to the currently developing Mexican startup scene. Being resourceful is in part the result of scant public financial and educational support for building a business from scratch. For this reason, young entrepreneurs are exceptionally creative in finding solutions to local social problems, and this is where young Mexicans play their strengths. Endowed with this curious and innovative spirit, the new generations of Mexico will tackle current obstacles, find new solutions and create a new ecosystem that we too will soon discover.
Disclaimer: This article mentions a client from the Space portfolio.
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