How start-up culture is changing Mexico

Photo by Matthew Rutledge

The story of Mexico’s private sector has long been one of monopolies and duopolies. These often massive companies dominate a range of Mexican industries, reaping the lucrative benefits of little to no competition, established distribution networks and widespread access to credit.

But another story is now emerging. Mexican start-ups, especially those in technology services, are taking off, and their success is quickly broadening the economic landscape.

Many Mexicans own their own businesses. In 2013, more than 10 percent of working Mexicans had their own company, ranging from neighborhood shops to high-tech manufacturing firms. These entrepreneurs are of all ages and social classes but are drawn most heavily from the youth (25- to 35-year-olds) in Mexico’s middle class.

Unlike just a few years ago, however, a cultural shift is underway in Mexico’s tech start-up community. New companies such as SinDelantal and Carrot are aiming to change the way Mexicans order food or think about renting cars. And business accelerators such as 500 Mexico City and the Institute of Business Model and Accelerator in Querétaro, as well as entrepreneurial movements and networks such as Tijuana Innovadora and Endeavor Mexico, are helping to get the next big idea off the ground.

Events for new companies are also popping up across the country. Startup Weekend, funded largely by Google for Entrepreneurs, has already hosted more events in Mexico than anywhere else in Latin America, bringing together developers, designers and marketers for 54 hours to launch start-ups. The results have been impressive, with Mexico’s technology industry growing at three times the global average.

Fernando Luege is one example of this growing trend. Nine years ago, Luege was 18 years old, working alone in Mexico City to help companies process huge amounts of information. He founded Ondore and steadily expanded the company’s reach into analytics and data mining. Today, Ondore’s 40 employees are based in offices in both Mexico City and San Francisco, and the company is looking to expand further north into the U.S. and south into Latin America after receiving a $1.5 million investment from the Mexican venture capital firm Alta Ventures.

However, many Mexican start-ups struggle to replicate Ondore’s success. One problem is attracting personnel. Even with roughly 115,000 engineering and tech students graduating each year from Mexico's universities, many end up working in other industries or going abroad.

Internet access is also an issue, as only 43 percent of Mexicans are regular internet users, compared with 84 percent of Americans. While online sales are growing quickly — from $6.4 billion in 2012 to $9.2 billion in 2013 — Mexico remains a limited e-commerce market.

Financing is another major hurdle. Very few of Mexico’s start-ups can obtain a bank loan, and only 5 percent receive venture capital or angel investment funds (compared with 20 to 47 percent of U.S. start-ups). Instead, nearly 80 percent of new companies rely on their own resources or loans from family and friends. Further, most Mexican start-ups fail within two years, with a quarter citing their lack of financing options as the main reason.

This funding landscape, however, may be starting to change. In 2012, the U.S. business platform Crowdfunder began operating in Mexico, looking to connect Mexican businesses with investors. The government in 2013 also pushed through financial reform that aims to loosen banking constraints and expand access to credit for small- and medium-sized businesses. It also recently created the National Institute of the Entrepreneur to support new businesses. With a budget of $595 million, the institute offers training and funds for start-ups looking to solve problems through innovation.

The U.S. also stands to gain from Mexico’s growing entrepreneurial community. Geekdom and HeroX are partnering to position San Antonio as a regional innovation hub, betting that Mexico and its start-ups could be the city’s comparative advantage. Their contest, the San Antonio Mx Challenge, offers $500,000 to whoever can come up with the best model to bridge Mexico and San Antonio’s entrepreneurial communities. By connecting Mexican innovation with U.S. financing and business knowledge, the groups hope to boost competition and new services and serve as a source of innovation for communities on both sides of the border.

With dynamic reforms and rapid changes underway in Mexico, building on these innovative partnerships will be key to growing the tech economy there while strengthening and deepening cross-border investment in Texas and the rest of the U.S.

Antonio Garza

President, Texas Exes