How Can Startups Ride the Investment Boom?

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Startups in the Mexican and wider Latin American ecosystem are living through an investment boom. But even within this soaring environment, critical success factors determine which companies get funded. Mexico’s venture capital experts argue that startups focusing on the right technology for growing sectors, with solid strategies and governance, are likely to be successful.  

“This is the best time in human history to begin a startup,” said Diego Muradás, Co-Founder & CEO, insurance startup Zenda.la. The reasons are simple: there is significant liquidity available to invest in startups and the pandemic greatly increased the speed of digitalization. These circumstances have created an environment where innovative startups excel. “The digital economy is formalizing rapidly. Digital startups benefit greatly from this development,” said Diego Serebrisky, Co-Founder & Managing Partner, Dalus Capital.

“The numbers do not lie: at the end of September, we received US$12 billion in our regional startup ecosystem. This is much, much more than we received in the past,” said Muradás. This great environment provides great opportunities for investors too. "We are living in a spectacular moment to be an entrepreneur. Today if you do not make money there is something fundamentally wrong with your company. There is plenty of money to make in the world of entrepreneurs,” said Camilo Kejner, Managing Partner, Angel Ventures.

This is great news for Mexico’s startup scene, although its tech companies are not as recognized as those of other countries. While the US’s Silicon Valley is an obvious example, Brazil’s tech companies have also gained popularity with international investors. However, Brazil is not necessarily ahead of Mexico. “Brazil has been better at marketing its startup sector to large investment funds,” said Kejner. But Mexico’s tech startups are much more advanced, he added.

Boosted by several unicorns, the Mexican market is gathering steam. “Mexico is behind in the region but is catching up very quickly,” said Paqui Casanueva, Chairman, NGO Endeavor México. “This is good news for Mexico and entrepreneurs everywhere.”

As Mexico’s reputation grows, big capital is catching on. But how can companies ensure they do not miss the capital train?

To get investment, companies need a clear, concise long-term strategy to show to investors. “Venture capital favors startups with significant clarity in their ideas, followed by a catchy narrative and later translated into an effective strategy,” stated Antonia Rojas, Partner, ALLVP, a private equity firm.

Venture capital experts agree that these factors help boost a startups story and therefore improve its acceptance among investors. A solid approach toward environment, social and governance matters must also be taken into account from day one so it permeates company culture, argued Casanueva. Nevertheless, companies should not become bogged down by their own politics. “Compliance should not turn into complicated-ness,” he said.

Other than solidly sustainable management, investors are attracted to businesses that can grow rapidly, both in the local market and elsewhere. “As an investor, you want fast and scalable companies, who can deliver results in other countries,” said Casanueva.

“Investors are no longer just looking for fintechs,” said Muradás. Venture capitalists are looking for startups in health, city applications and e-commerce or other online consumption avenues. Other industries will soon follow. "We will experience investors moving away from traditional industries toward digital economies in virtually all sectors of the economy,” said Serebrisky. Nevertheless, some market developments will be deemed more necessary than others and therefore attract more liquidity coming from the investment boom. "An area where we will see major investments is in startups that will reduce climate change,” added Serebrisky.

Tech startups, however, are expected to keep a special place in investors’ minds. “Deep tech startups are receiving a lot of attention because they can solve substantial scientific or engineering challenges and fit in neatly with future trends like blockchain and web 3.0,” said Rojas.

When looking for funding, maturing startups can make a big impact with initial public offerings (IPOs) on stock exchanges. But this is not the best option for every company. “Institutional investors and public markets need to see that your business has merit for a good IPO,” said Casanueva.

"If startups do choose to get listed, they often choose the US’ NASDAQ instead of local options, a sign that the market is not yet mature yet,” said Casanueva. Nevertheless, Mexico’s stock markets can become more robust and become a great intermediate step for startups. “Not every company needs to move in the US,” added Muradás.

There are many reasons for optimism in future listings, said Rojas. For early investors, exits do not always translate to massive paydays but this is slowly shifting. “If you look at the sales of Cornershop to Uber and Auth0 to Okta, you see Latin American startups being sold for billions of dollars. No one would have imagined this some years ago,” she said. Whereas there are still plenty of challenges ahead, many more startups from Mexico’s ecosystem could see similar successes.