Mexico’s Start-Up Ecosystem Drives Talent Development and “Global Reach”

Mexico is known for many things: tequila, tacos and mariachi music. But technology, innovation and startups? Actually, yes. The country has become an increasingly powerful player on the …

Mexico is known for many things: tequila, tacos and mariachi music. But technology, innovation and startups? Actually, yes.

The country has become an increasingly powerful player on the Latin American innovation map. It ranked 66th on the 2014 Global Innovation Index, behind Chile (46), Panama (52), Costa Rica (57) and Brazil (61), but ahead of Colombia (68), Uruguay (72) and Peru (73). Gartner estimates that the Mexican IT market is worth US$64 billion and anticipates it will grow nearly 3% through 2018.

Mexico’s tech talent pool has already caught the attention of some big names in innovation.

Global Reach

Enterprise software and computer hardware giant Oracle established its third international development center (following the U.S. and Mexico City) in Guadalajara in 2011. The engineering operations of Ooyala, which provides video solutions for media companies, enterprises, broadcasters and operators all over the globe, are based in Guadalajara and have been since 2010. There is a Microsoft Technology Center in Mexico City, and Cisco inaugurated a global services center in the city earlier this year.

Growth is fueled by a number of factors – universities, government initiatives, investment. The Mexican startup scene has also proven a major contributor, becoming an increasingly important driver of the country’s growing technological prowess.

“I think [the startup industry] is moving very rapidly and growing very fast, and it keeps accelerating the pace,” said Marcus Dantus, the founder and CEO of Startup Mexico, a privately-held innovation company and campus based in Mexico City. “There are more projects coming out of universities every year, there are more people participating, and there are more people wanting to become entrepreneurs.”

“It’s still at an early stage, but it’s developing and growing rapidly,” said Diego Serebrisky, Managing Director at Mexico City-based venture capital firm Alta Ventures.

Talent Development

Dantus said that “talent abounds” in Mexico, adding that about half of the country’s population is under the age of 30 and claiming that Mexico now graduates more engineers per capita than any other country in the world.

But it is not just students who are going the startup route – seasoned professionals are looking in that direction, too. Fabian Aguilar Urbán, Fund Manager at Angel Ventures Mexico, explained that his team is coming across more and more startups with CTOs who are ex-employees of companies like Cisco, Google and IBM. “You do get a lot of skills if you work at a big corporation,” he said.

Serebrisky echoed Aguilar Urbán’s sentiment that it is not just students who are contributing. Seasoned technology professionals are getting into the game, as are serial entrepreneurs whose previous ventures have fallen outside of the technology realm. “It’s very broad. It’s not just the 20- to 24-year-olds,” he said.

He offered up two examples. Mobile payment company Clip was launched in April 2013 by Adolfo Babatz and Vilash Poovala, who previously worked at PayPal and Visa. According to CrunchBase, Clip has raised upwards of $8 million in venture capital funding. Similarly, Vicente Fenoll, the founder of peer-to-peer lending platform Kubo, had previously built the more traditional microfinance company Fincomún.

There have been a number of catalysts at play in this expansion of startup activity in Mexico.

Andres Barreto, serial entrepreneur and seed investor at Socialatom Ventures, pointed to the 2010 launch of Mexican.VC and its 2012 acquisition by 500 Startups as important drivers, as well as the 2013 establishment of the National Entrepreneurship Institute (INADEM), which is specifically aimed at developing a stronger entrepreneurial ecosystem in Mexico. “There’s been a boom in the startup industry,” Barreto said.

INADEM distributed more than $650 million in 2014, leading to the creation of 6,000 new companies and 73,000 new jobs. More than $1 billion in venture capital funding was committed to Mexico last year as well. Argentina-based accelerator and seed fund NXTP Labs has announced an agreement with Mexico’s naranya*LABS to invest $8 million in Mexico. Telefónica accelerator Wayra, which launched in Mexico in 2011, is still going strong, as is 500 Mexico City. While in 2010, there were approximately 40 venture capital funds committed to Mexican companies, today, there are around 80.

Overcoming Hurdles

The Mexican startup industry certainly appears to be up and running, but there are still a number of obstacles to overcome.

First of all, what shape will the startup scene take? Dantus, Aguilar Urbán and Barreto agree that a carbon copy of Silicon Valley is not the answer. They instead encourage a global approach, though they differ on exactly what that entails.

Dantus sees Mexico as an innovation bridge from Latin America to the United States and Europe, and Aguilar Urbán’s view is similar. Barreto, on the other hand, sees the greatest potential in Mexican companies and talent building global products. All agree that Mexico cannot just focus on Mexico. “The temptation of the Mexican market is that it’s a big market, so it is very tempting, but it’s half the size of the U.S. market, and it’s not half as difficult – it’s more difficult,” Barreto said.

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The role of startups in producing tech talent in Mexico is unclear as well. While some engineering graduates are going the entrepreneurial route, others are still heading straight to software development factories and larger companies. Oracle plucks much of its Guadalajara talent straight from universities and trains them with specific skill sets to work on and develop products at scale.

“Big corporations are taking the lead in creating high-tech experts, but I think that’s going to change soon enough,” Aguilar Urbán said.

Beyond Acquihires

What does this mean for Mexico’s startups?

Acquisitions – and acquihires – may not be as likely as many entrepreneurs hope. HotelTonight, Uber and Yelp have gone straight to the Mexican market. They are hiring commercial and sales teams locally, but not engineers, and they are not acquiring local copycats.

That being said, Serebrisky clarified that there are still opportunities for local iterations of proven ideas – depending on the nature of the business. While it may not work for Facebook or Uber to acquire in order to order markets, for others, it does. “For some it makes sense to do the acquisition of local players because it gives them a head-start in having a team, in connections, and gives them an initial market share of an existing base of clients,” he said.

And even without acquisitions, companies that are looking for Mexican technological talent may not search in startups and may instead go to the bigger players, recruiting more senior workers directly from companies like Ooyala, Oracle and even Rocket Internet. Reports indicate Amazon is set to land in Mexico in 2015, but it is not clear yet who they will be interested in hiring – or from where.

Mexico’s startup and technology industry provides quite a bit of food for thought for entities large and small considering nearshore opportunities in the country. Most are still testing the waters, but the prospects are very real. “There is a true opportunity in hiring teams in Mexico,” Barreto said.

Expanding Opportunities

One such example is 3D Robotics, an open-source unmanned aerial vehicle technology company and the manufacturing arm of DIY Drones. The company’s manufacturing operations are in Tijuana, Mexico, and its founder, Jordi Muñoz, was named in Inc.’s 35 Under 35 Coolest Entrepreneurs of 2014.

Bismarck Lepe, the co-founder of Ooyala, has kept development operations in Mexico with his latest venture, Wizeline. The bulk of the company’s engineering efforts is based in Guadalajara.

Google has a good-sized office in Mexico City, as does Facebook. And they certainly won’t be the last to take notice. “Some of the tech multinationals have opened or are opening operations and large offices here, and in part, I think that’s because many of them see that it’s a good place to have headquarters or offices that are regional, so that it’s not only Mexico but other countries in the region they cover from here,” Serebrisky said.

There is no question that Mexico is becoming an increasingly powerful player on the technological map, nor that its talent pool is attractive. Those looking for hiring opportunities will find them.

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