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Mexico, Latam Gain Traction in Battle for Startup Funding

Fernando Lelo de Larrea H. - ALLVP


Andrea Villar By Andrea Villar | Journalist and Industry Analyst - Thu, 11/12/2020 - 05:00

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Q: How has the venture capital ecosystem in Latin America and Mexico evolved this year?

A: This is an atypical year coming from another unusual one. In 2019, we experienced a dramatic transformation mainly because of Softbank's involvement in Latin America and the large numbers that were generated from that. 2019 marked a record on all fronts and it is very difficult to surpass that. If we compare data from 2019 with 2020, it might scare us into believing that the industry is being greatly affected but the truth is that the base was affected from the beginning.

For me, 2020 is a year in which entrepreneurs have been launching very attractive, high-value products. The COVID crisis is allowing talented people to finally launch their projects. However, there are few funds available in the short term. Due to investment cycles, some funds are now in fundraising or are finishing their previous cycles so there is little supply of entrepreneurial capital and much demand. 

The lack of supply has led to local funds being replaced by international funds, so competition has increased. International funds have a lot of cash and appetite to invest in Mexico and Latin America, more than we have ever seen before. Practically every week we see one or three rounds backed up by major international funds. 2019 was characterized by large transactions but the volume and frequency of transactions we are seeing in 2020 are unique and give me much hope. We are going through a tremendously exciting time. 

Q: Why are Mexico and Latin America so attractive for international funds?

A: The region had been neglected and there are many leapfrogging opportunities, meaning that technology will skip a generation with the latest advances, hogging a much larger market share. Additionally, the amount of talent in the region is enormous. In cities like Sao Paulo or Mexico City, there is a wide range of international talent being imported because of the quality of life available.

Funds are competing with each other, particularly in terms of the returns they offer to raise more capital from their stakeholders. Diversification into emerging markets helps them to offer different return rates compared to their peers. Emerging markets such as India, China and Southeast Asia are saturated and Latin America is now perceived as the most attractive space for diversification among leading funds. 

Q: How does Latin America compare with Silicon Valley?

A: Silicon Valley has a very high rejection rate. Funds invest in 2-5 percent of the companies they see in a year. Obviously, if there are many funds there are more companies financed but there are many startups that are rejected all the time. The stories we hear are of those who receive funding. 

I do not think we should aspire to be Silicon Valley. That area has very unique characteristics in terms of density, capital, talent, technology, universities and networks. Trying to replicate this is a mistake. The Mexican market can be compared to Argentina, Colombia, Brazil, Spain, Malaysia or Turkey. Good policies have resulted in a good base of Series A seed capital funds. The participation of Afores has also been beneficial and we are beginning to see dynamism in the creation of companies. Of course, when we compare ourselves to Silicon Valley, the numbers are modest. However, compared to the Mexican environment two to five years ago and with other ecosystems, we are optimistic. 

In Silicon Valley, the projects being financed are leisure-oriented for very privileged segments of the population. How are we tackling the problem of water, access to energy, access to education, better health? How do we pull people out of poverty? These are solutions that are not going to come from Silicon Valley but from ecosystems that are facing these problems every day. We have to see what is being done in India that we could take advantage of in Mexico or projects that we could take from Mexico to Africa, for example. We are going to start seeing much more interesting models than the typical Silicon Valley social networks for centennials. 

Q: Would you say Kavak's recent valuation paves the way for entrepreneurs in the country?

A: I think these are powerful signals to different parts of the market. Talking to different funds, I have noticed an unjustified perception that only Brazil was big enough to make a unicorn. Cases like Kavak and Rappi deny this false perception. Kavak demonstrates that unicorns can be born in this region. These projects create jobs and value. Many people look at Kavak and start believing that they too can do it. That is good.

I do not want to give too much credit to the fact that Mexico already has a unicorn. What I think is most important to point out is how much the ecosystem has advanced. Five years ago, we said that there was going to be a Mexican unicorn and nobody believed it. After Kavak, more companies will follow, Afores will start to enjoy extraordinary returns and we will see IPOs in Mexico and abroad. Eventually, we will see a technology company in the Mexican Stock Exchange Index (IPC) or a Mexican technology company among the 20 largest companies in the country. 

Q: What is ALLVP looking for in companies?

A: We are eager to invest and we are actively deploying Fund III. To date, we have seven companies funded and are about to announce an eighth. We are becoming much more selective, much more attentive and eager to find the best teams. In the end, this is a game of people and when you find an extraordinary talent wanting to change the lives of thousands of people with an extraordinary product, you want to join them in their journey. It is about creating a win-win, taking a product to its fullest potential, transforming lives and at the same time giving investors a return and generating jobs.

I have learned to ask many more questions about the entrepreneur than about the business. Instead of believing that I have a crystal ball and thinking about how things will work out in a business plan, I look for things that do not change, like character, emotional intelligence, the ability to deal with problems and recruit talent and learning to keep a clear ethical perspective. Those things are harder to evaluate. At ALLVPs, we have developed a better ability to analyze those things. After that, we need to evaluate how differentiated the product is and how well entrepreneurs understand the market’s need. A very common mistake in the world of entrepreneurship, from an investor's position, is to fall in love with a concept and not with the driver of that concept. 

Entrepreneurs must have a clear vision and the ability to recognize and adapt to change. A clear example is RobinFood. We invested in the platform in October 2019 and six months later a pandemic broke out and all businesses were closed. A rigid-minded entrepreneur would have thought that everything was already lost but when you always have your vision in mind, everything changes and you have the ability to reinvent yourself.

Q: Entrepreneurs sometimes feel funds do not have the vision and are not committed to the local economy. How can entrepreneurs attract investors?

A: While there have been mistakes among investors, we are not in the business of promoting the national industry nor are we in the business of rewarding local patents. We are in the business of identifying potential large businesses and helping them grow. If a technology is better in Asia or Europe, then let the market choose the best regardless of where it was made. If a Mexican technology is the best in the whole industry, of course we have to support it. 

Being Mexican cannot be the virtue of a startup. The product must be the best and the market must want it. Sometimes what happens is that the product is the best but the end consumer does not trust it because they prefer foreign technology. There is a very big barrier to overcome that does not have to do with the product but with the perception of its value proposal. It is true that in Mexico sometimes we tend to prefer foreign over domestic products but investors are not going to fund a project because the technology is Mexican. They are going to fund it because the technology targets a profitable piece of the market. 

Q: A recent study revealed a bias in VC funds' pitching process as men are often asked questions related to potential gains while women are asked about potential losses and risk mitigation. What does ALLVP do to give all entrepreneurs an equal shot?

A: There is a bias and we have to recognize it to address it. At ALLVP, we have implemented some policies in this regard. Also, other than Federico Antoni and me, our team is 100 percent female, including our new partner Antonia Rojas. This is precisely because we need to bring in people to help us make better decisions. I have a responsibility to my firm and to the market and my investors, so despite my cognitive biases, the best decisions must be made.

When we look at the data, female entrepreneurship is very low compared to men, particularly in high-impact ventures. To correct this, certain things have to be changed in the process. For example, if a venture is led by a woman, she skips the first stage of interviews and goes straight to the partners because we want to make sure we level the playing field. Additionally, I participate in AMEXCAP's Diversification and Inclusion Committee because we have to deal with this problem as an industry. Venture capital is taking a leadership role among all private equity to add more female partners. This is a first step and we still have a lot to do, which is particularly evident in the results. We want funded projects to be 50/50.

Q: What are the most valuable lessons you have learned in the past few years? 

A: We have had major business failures and we have had processes with a great deal of uncertainty, such as the investment in Cornershop. What has helped us make good decisions is to remember that we are in this business for the long term. ALLVP was founded with our professional development over the rest of our careers in mind and we want to create an institution that will last and change Mexico through innovation, entrepreneurship and venture capital. We have been doing it for nine years and we want to be doing it for the next 30. Perseverance, patience and doing things well will build a reputation for ALLVP and, in the long term, that reputation is what will reward us.


ALLVP is a venture capital fund founded in 2012. The Series A-B firm has positioned itself as the preeminent early-stage investor in Mexican startups from the healthcare, fintech, smart cities and future of commerce sectors

Photo by:   ALLVP

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