By Luke Bujarski
Mexico’s IT startup community may soon be getting another injection of much needed venture capital from a California-based seed fund called MexicanVC. According to César Salazar, General Partner with MexicanVC, the big multinationals and integrated IT services providers are not the only ones looking to capitalize on low-cost IT talent and access to new markets. While never risk-free, turning a profit on IT startups can be a lot cheaper when done in Mexico than in the US. At least, this is the business model MexicanVC is applying as it looks to handpick the next round of applicants for their six-month mentoring program.
Here is what Salazar had to say about the “nearshore” model as it applies to startups, and about the entrepreneurial culture in Mexico:
NSAM: Can you give us an overview of how your group MexicanVC operates?
Salazar: Our goal is to help talented entrepreneurs in Mexico build their startups from the ground up. We provide seed funding to businesses from concept to the first stage, as well as ongoing mentorship from top Mexican and Silicon Valley entrepreneurs, legal advice, and facilitate introductions to angel investors down the road. We look for lightweight internet companies based out of Mexico that have unique ideas for addressing real-world problems, a talented team, deep knowledge of the market, and ability to execute. For an initial investment of $20,000 we ask for 15 percent equity in the firm. During our last round of funding we received 75 applications from startups all over Mexico.
NSAM: Why set up a seed fund for Mexican startups out of Silicon Valley?
Salazar: We identified that there were a bunch of talented and hardworking entrepreneurs trying to build companies, but who were having a difficult time finding financing. The tech-savvy entrepreneurs here think that there are no investors in Mexico. They see it in Silicon Valley but don’t know how to access it here. Recognizing this problem we said, let’s create a seed fund offering very small quantities compared to US standards, but enough in Mexico to pay a team for living expenses and to really give them a chance to test their hypothesis in the market. Most start-ups will find that they’ve built something that doesn’t really make sense. Most good ones fail not because of a lack of hard work, but because the initial support was not there. We look for the good ones.
NSAM: What is the investment culture for startups like in Mexico?
Salazar: Investors here have been more conservative because they are not comfortable with the business model, and have difficulty distinguishing between innovation and invention. Venture capitalists in Mexico tend to be more traditional looking at entertainment, real estate, and not necessarily at information technology startups. Traditional VC money can get through if you take it to the next level and deliver a proven product with recognizable traction in the market. The problem in Mexico is that there are not enough entrepreneurs and not enough startup projects. So in addition to seed funding we organize events and forums connecting hacker communities. The government has tried with programs like Mexico First , but we’ve been doing this at the grassroots level.
NSAM: What is the entrepreneurial and IT mindset like in Mexico City?
Salazar: The multinationals and big Mexican companies are focused more on customizing third-party software instead of developing their own products. They are also the main employers of IT professionals here. Most people look for jobs with the big firms and a stable career path. They pay well so it is difficult for startups to compete for talent. Mexico is also a culture that punishes failure so it is difficult to convince people to take the risk and to adopt an “at least you tried” approach.
NSAM: How do the universities fit into the startup equation?
Salazar: There are three main universities in Mexico City. The Instituto Politecnico Nacional (IPN) offers only technical programs and is the big talent factory – but they are not entrepreneurial. They fit well into the plans of the big companies. The other one is the Universidad Nacional Autonoma de Mexico (UNAM). It’s the only one that offers a fully developed computer science program. The third one is Tech de Monterrey - there are three campuses and all of them graduate engineers. These graduates are the entrepreneurial base in Mexico City. Their motto is “entrepreneurial culture.”
NSAM: How does the MexicanVC model fit with the big companies?
Salazar: I don’t know if we are good news for them. I hope they would like to see more entrepreneurs. Maybe it’s time to reach out to them. Those companies also work on a different scale sponsoring telecommunications and entertainment companies since wide-scale technology adoption ultimately grows their clientele base. Perhaps they would also see value in fostering entrepreneurship in startups.
NSAM: How are Mexico’s cluster initiatives working to stimulate entrepreneurship?
Salazar: They tend to focus on driving adoption but not necessarily innovation, more consulting than startups. They help create business networks, customers, driving costs down, and certifying processes. Financing programs from the government focus on innovation in delivery of services, not pre-seed products. Government programs also tend to measure success by total employment instead of idea generation and innovation, which can be a difficult metric to quantify.
NSAM: Can you mention some of your favorite startups in Mexico?
Salazar: There are few that I really like. There is mediotiempo.com (halftime in English) a media channel focused exclusively on soccer. I believe they ended up selling to Time Warner. Another one is Ovia which is a solution for human resource departments and provides a video interviewing platform which allows for faster candidate screening. Innku is another young and talented applications development firm that has been gaining good traction. On the business-to-business services side, rutanet is a good one. Their online platform helps connect local logistics firms with clients to improve efficiency in their delivery schedules. Aventones is another transportation-orientated startup which is kind of a social networking platform built around ridesharing for commuters. In gaming, Iki Gaming is gaining popularity with some fun options including Cave Town.