Dave McClure, the famous hyperactive and controversial venture capitalist & the founding general partner at 500 Startups (an internet seed fund and startup accelerator program in Mountain View, CA.) was recently in Mexico City as part of a “business tour” that his organization calls Geeks On A Plane (GOAP).
GOAP is a tour for startups, investors and executives to learn about burgeoning technology markets worldwide, and this was their first time in Mexico. As part of the protocolary etiquette for this rather unconventional group of very interesting people, a formal reception at the house of the U.S. Ambassador in Mexico was held and later on an “Off the Record” Roundtable took place at the Mexico City´s Startup Weekend 2012 event.
I was kindly invited to participate both at the Ambassador´s reception and the Roundtable, where I had the privilege of exchanging ideas with both young and energetic U.S. entrepreneurs, as well as very savvy Silicon Valley investors.
There is clearly some kind of magic that happens in Silicon Valley and nowhere else. After spending sometime with these fellows, you got the impression that the laws of gravity do not apply there. Nothing can fall, and even if it falls (and that´s what normally happens), nobody calls that a failure (they call it learning) and they try again, aiming even higher the next time.
I was able to confirm that big difference at the “Off the Record” Roundtable where the specific conditions of the Mexican Startup/VC ecosystem were analyzed.
Inspired by Dave´s “call-it-as-it-is” attitude, my participation was somehow controversial, but hopefully enriched both our visitors and Mexican colleagues with an alternative perspective of the sometimes boring and endless “what-is-missing-from-the-Mexican-ecosystem-for-Internet-Startups” discussion. Some of those concepts were:
- There is a growing number of engineers graduating in Mexico (a larger number than even Brazil), but that does not create automatically entrepreneurs. It´s good to have qualified (and inexpensive) technical resources, but more is needed.
- Engineers are overrated in Mexico (disclosure: I am an engineer myself) and most of the attention in Academic, Government and Startup-related programs and events has focused on them. We need a healthier balance of technically-savvy business guys working together with programmers, as it happens in Silicon Valley.
- Mexican entrepreneurs aim too low. They still have to develop the confidence and ambition to go for the homerun and not for the lifestyle business (even if it has a digital format). I mentioned that it is ironic how Argentina with all its structural, political and long term economic problems, has one of the most vibrant startup ecosystems in Latin America, mainly due to their entrepreneurs’ attitude (there is a joke in Mexico that goes: “the best business you can do is selling an Argentinian for what he/she thinks is worth”). That attitude has given them a few homeruns like Mercado Libre and Patagon, which on turn seeded much of what´s going on there.
- Mexico has no end-to-end seed capital for the first two critical rounds: the incubator round (US$15K) and the post-seed round (US$250K), which normally happen on a continuum. There is an increasing source of funds for “incubator rounds”, as it is a cheap way to enter the game with high rewards, but nobody is automatically following on with the next ticket where the risk and returns are still high (which is what Yuri Milner does for Y Combinator´s graduates with his US$150K convertible note). The few VCs and Angel groups are either to high in the food chain or are too slow and rigid to swiftly pick up the good projects coming out of the increasing number of incubators, accelerators and discovery funds.
- There was a debate whether or not Mexicans were risk averse and I firmly stated that the concept may apply to investors and wealthy families that still look for safe heavens in real estate or franchises, but not to the middle class young entrepreneurs which have learned over the last couple of decades that the corporate world is neither safe or a chance to make a difference. I also commented that at the end of the day, money is fungible and if the Mexican investors don´t get it fast enough, money from abroad will start looking at Mexico as an invesment destination for Internet Startups, given its US$1 Trillion cuasi-monopolistic economy , combined with the US$1 trillion purchasing power of the U.S. Hispanic community (made primarily of people from Mexican-origin).
- Finally I gave a few recommendations to the entrepreneurs coming with the GOAP tour and interested in attacking the Latin American markets:
- Go Mobile first: most of the users (over 71% in Mexico) are accesing Internet services for the first time thru mobile devices, not via desktop or laptops with web interfaces.
- Try to resolve the “consumption platforms” challenges first (online payments, deliveries, distribution) where the biggest rewards reside.
- Exploit your own Latin American market within the U.S.: the Hispanic market that on the one hand follows consumption patterns from Mexico and other Latin countries, but on the other are blended with American trends. It is a difficult market for Americans to understand, but believe me (I spent seven years in the U.S. pursuing that market), it is also difficult for native Latin Americans that also have to do a lot of learning.