Venture Capital Investment in Mexico Sees 132 Percent GrowthBy José Escobedo | Wed, 06/17/2020 - 18:02
Despite COVID-19´s devastating impact on Mexico’s economy, where close to 10,000 companies have shut down over the past two months, venture capital (VC) investment in the country is increasing. Investors focused on technology-based startups are just one example. In 2020, VC investment in Mexico has grown 132 percent compared to the same period in 2019, according to information from the Transactional Track Report (TTR) for April 2020 reported on El Economista.
Private equity and VC have seen an increase in value in 2020 according to TTR. Until April of this year, there have been 31 venture capital agreement closed deals linked to Mexico worth a total of US$303 million. A large percentage of the increase is due to SoftBank's US$100 million investment in the Mexican fintech Alphacredit. The main VC transaction in April was Bizrupt’s Mexico, Encomenda Smart Capital, Draper BI and Archipiélago Next’s investment in US artificial intelligence-based human resources management platform Erudit AI of US$650,000, reported El Economista.
In Mexico, internet companies that specialize in e-commerce and emerging technologies are common targets for VC investment funds. Between 2016 and 2019, VC investments in internet companies went from 16 to 39, with an average annual growth rate of 39.78 percent, followed by the financial and technology sectors.
Something to highlight is that three out of four VC operations are cross-border transactions. This means international funds either invest in Mexican companies or Mexican funds invest in foreign companies, which are mainly located in the US and Latin America.
It is still too early to know how much COVID-19 damaged the world’s startup economy, although most experts predict that a recession will occur and will have severe lasting impacts across the industry board. Last year the startup economy was valued at approximately US$3 trillion worldwide, reports Entrepreneur.
At the end of 2019 and the beginning of this year, before COVID-19 arrived in Latin America, the startup economy was very resilient in the region. Entrepreneur reports that “in just three years, investment in Latin American startups increased nearly tenfold, from US$500 million in 2016 to US$4.6 billion last year (2019). Part of the record growth was due to a new US$5 billion Softbank Innovation Fund, which focuses exclusively on the Latin American market. However, even without Softbank’s contribution, the region experienced a record increase in funding in 2019.”
Over the past four months, startups have been greatly impacted by the world economic crisis. The number of venture deals that took effect in Latin America decreased by 60 percent during 4Q19 and 1Q20. This is mainly due to the lack of cash flow from investors who are still assessing the current economic situation. On a global scale, VC deals in China deceased more than 50 percent.
Still, the lingering opportunity for startups to impact traditional industries is significant. One example is La Haus, a startup that aims to digitize Latin America’s real estate market. Zillow Group Co-Founder Spencer Rascoff and Trulia Co-Founder Pete Flint are among the investors betting on La Haus, who are interested in entering the real estate market in Latin America in cities like Mexico City, Medellin and Bogota. The startup functions as a property search portal, as well as a brokerage, and currently has 200 employees.
“It’s hard to understate the opportunity in Latin America for the breakthrough in real estate product experience that La Haus is building,” said Flint. “This is a market that is chronically underserved — there is effectively no organized real estate infrastructure today. La Haus and its technology stack will change that, fitting together and streamlining the entire process.”