Mexico’s Venture Capital BoomBy Liliana Reyes | Tue, 11/09/2021 - 10:50
Venture capital in our country is experiencing one of its best moments and, without a doubt, this is only the beginning. The birth of five unicorns from September 2020 to date is the best cover letter of what is possible for our country when it comes to problem-solving, with the help of tenacious entrepreneurs with innovative ideas on how to solve issues (usually working hand in hand with technological tools), and above all a venture capital fund that bets on entrepreneurial talent and supports the startup and growth of companies.
This is all happening in the midst of a pandemic and demonstrates that even in difficult times, these innovative companies are capable of reaching extraordinary levels of growth, hand in hand with private capital that provides smart money (resources and advice). Likewise, we are witnessing how international VC and growth funds are participating in the subsequent investment rounds of companies that obtained their first investments from Mexican funds.
This growth or boom is largely due to how attractive the development of new technologies has become for national and foreign private capital funds, in the context of the Mexican economic recovery, in addition to an overall improvement to last year's public health situation caused by COVID-19.
Another factor that makes Mexico an attractive destination for investment is its privileged location and well-connected population: 72 percent of Mexicans have internet access and 54 percent have a smartphone. This means that fintech and other ventures that are based in digital technology, which make up 76 percent of the investment from private equity funds, can provide services that meet the needs of the population, including digital banking services, delivery, or intermediary services in the purchase and sale of property.
Mexico has even been overtaking Brazil as the region’s startup development hub. This is largely due to the trust that investors, both national and international, have placed in local ventures such as Kavak and Clip. These unicorn companies are valued at $8.7 billion and $1 billion respectively. The common characteristic among these ventures is their work in the digital space.
Local funds, such as ALLVP, Angel Ventures México, Dalus Capital, DILA Capital, Ignia, Nazca, and Cometa, have fostered this growth through their investments in local ventures together with international funds, such as Accel, General Atlatic Sofbank, Kazek and QED.
Even banks and credit institutions have sought to be part of the growth of this sector. In one example, Credijusto acquired Banco Finterra to provide facilities and services to Mexican fintechs, such as direct access to the global banking infrastructure, a loan portfolio, reduction of fund costs and credibility of the entity.
Additionally, retirement funds (Afores), which oversee US$236 billion, have entered the venture capital ecosystem as limited partners and private equity investors through instruments such as CKDs and CERPIs. Currently, public and private retirement funds have a 43 percent participation rate in the entire private equity industry in our country and it is expected that more will participate in the venture capital segment.
Among the most outstanding success cases in the venture capital ecosystem, according to a mergers and acquisitions report by the market analysis platform TTR, companies such as Kavak, Clip, Bitso, and Kavak, the digital platform for buying and selling cars, received capital injections totaling US$485 million dollars from Ribbit, D1, Founders Fund, and BOND, registering the largest transaction in the first half of 2021. Softbank and Viking made a US$250 million investment in the payment platform Clip. This investment helped the company reach a $1 billion dollar valuation. Bitso received an injection in cryptocurrency for US$250 million in a series C round led by Tiger Global and Coatue, alongside BOND and Valor Capital Group and Paradigm.
We need to continue these success stories in our country. It is essential that every day there are even more new investors in capital funds that invest in Mexico, who then invest in national and foreign entrepreneurs who see Mexico as the ideal place to scale their projects. We cannot allow this wave to lose momentum.
Through 2020, the committed capital accumulated in venture capital funds amounted to US$2.3 billion dollars, a quadrupling over the last 10 years and with average annual growth of 16.0 percent. In addition, at least US$3.7 billion in investments have been made in 884 different companies. In the first half of this year, an increase of 240 percent was reported, since transactions increased by 88.4 percent compared to the same period last year, resulting in an invested capital value of US$1.95 billion and an income of $3.5 billion, raising total resources of US$304.4 million across 211 transactions.
The VC industry in Mexico presents an encouraging future, since the constant growth in investments, in capital, and in returns make it increasingly attractive for potential investors to invest in this area of the economy, in addition to the aforementioned conditions that the country presents.