As an up-and-coming hub for innovation internationally, Mexico's startup ecosystem is undergoing great change. GC talks to some of the actors about the journey so far, with a focus on what lies between Mexico and the realization of its entrepreneurial potential.
On the international stage, Mexico is
known for many things - stunning
mountain ranges, distinctive folk art,
white sand beaches, and well-exported tradition.
Now, another distinction is emerging from the
Latin American country: one of entrepreneurship
and innovation. According to a survey conducted
by the Association for Private Capital Investment
in Latin America (LAVCA) in 2019, Mexico
accounts for the second-highest proportion of
Latin America's start-ups, second only to Brazil.
With this renown comes investment; money
poured from around the world into companies
of Mexican origin - so much so that, in 2015,
Mexico actually overtook Brazil, becoming the
most popular destination for private equity
vehicles in Latin America, reaching USD$2.1bn in
raised capital, according to the Emerging Market
Private Equity Association (EMPEA).
In a funding round this year, card payment startup
Clip raised USD$100m, including a USD$20m
investment from Japanese giant SoftBank Group.
In 2018, Mexican scooter start-up, Grin, raised a
Latin American-record breaking USD$20m in a
seed round just months after its founding.
But among the positivity to be found on the
ground are worrying signs that Mexico's hardfought
status as an innovation hub is fading:
the government in Mexico has softened its
commitment to supporting the country's startup
scene, and hasn't been able to make a dent
in global innovation rankings, in which it ranks
near the bottom of the table out of fellow
Nevertheless, the demographic case is a strong
one (a median age of 27 and 86% mobile phone
penetration, according to a 2019 report by the
Center for Strategic & International Studies
(CSIS) Americas Program), and there are highly
motivated parties throughout Mexico that are
forging ahead, excited to play a role in helping
Mexico achieve its massive potential as a nexus of
innovation and entrepreneurship in Latin America.
Mexico has gradually positioned itself as
an innovation hub and global investment
destination, but it wasn't wholly organic. Rather,
it has been the result of a push on many fronts:
from the federal government, to Mexico's
educational institutions, to the general counsel
of industry companies on the ground.
On the government's part, the Secretariat of
Economy established the National Institute
of the Entrepreneur (INADEM in Spanish) in
2013, in order to support entrepreneurs and
SMEs throughout Mexico, both financially and
otherwise. It was the subject of criticism for
alleged corruption and inefficiency - and was
dissolved in 2019 - but provided direct support
to budding entrepreneurs and was initially well
funded, with a budget of USD$664m in 2014.
The dissolution of INADEM has left a void, and
it's unclear how the new administration plans
to enable innovation moving forward. But
the economic benefits of realising Mexico's
entrepreneurial potential should be an easy sell
'In the beginning, there was a trend, with the
government implementing INADEM, in having
federal resources used on national investments. At
the time, at least 50% of the money invested was
put up by INADEM,' explains Mariana Romero,
general counsel at LIV
Capital, a leading Mexican
private equity fund.
'You had to compete to
get the funding, and fit
certain criteria in order to
be eligible for the funds.
Although it has been
terminated now, they are
trying other programmes,
but they haven't been
so effective. But, the non-financial resources
INADEM provided are still being used.'
Azael Capetillo is the director of the
INNOVaction GYM - a centre for innovation
and entrepreneurship at Mexican university
Tecnológico de Monterrey. The centre is located
within the university's school of engineering
and, among other things, is focused on
accelerating disruption. While the centre caters
mainly for students, it is open to enthusiasts
and entrepreneurs from the wider community.
From that position, Capetillo has seen how the
government, both locally and federally, have
interacted with the entrepreneurial community
The economic office of Monterrey, one of their
roles is to increase economic development. They
can see through these kinds of actions that their
own goals are starting to be accomplished as
well. It gets to a point in which this becomes
strategic for them, because it progresses their
own goals,' he explains.
'Sometimes, one of the things the government
doesn't understand is the pains of the industry
or entrepreneurs. By working with these kinds
of initiatives, they get a close understanding
of the problems suffered by the industry
and entrepreneurs. Once they understand
the problems, they take actions to fix those
problems. Most of the time, it's not that the
government doesn't want to help, it's that they
don't understand exactly what the problem is.'
This can be of particular concern for start-ups
whose business needs have advanced beyond
the regulations already in place. For instance,
Mexico City-based fintech start-up Credijusto
provides asset-backed loans to SMEs in-country.
'Even though we do structure our loans in a
way that you would call traditional lending, the
means that we do it from are pointed toward
the technological,' says Ariel A. Lupa Mendlovic,
legal director at Credijusto.
'For example, we are trying to do non-present
lending, and that's where there is a lack of
regulation. The regulators are not ready for
a company like us approving loans without
being in the same room as a client. So, we're
pushing for e-signatures for mortgages, and we
are pushing for non-present signatures for IOUs or
promissory notes. This is an area of opportunity.'
The way that Mexico is governed, together with
the economic success that smart regulation and
legislation bring, are co-dependent with the wellbeing
of the innovation scene. A healthy Mexican
economy will attract more capital, as will inviting
regulation - but it is the success of innovative
companies in Mexico that feed back into the
economy. The result is that every player in the
ecosystem plays a significant role in the overall
success of the Mexican economy.
'There are tonnes of opportunities here in
Mexico. Mexico is not always seen as that
opportunity, because there are worldwide
investors that look at other places,' says Romero.
'But when you see that there are a lot of good
examples in Mexico that we can bring to the
world, and put us on the map for investors to
see - that's when you start attracting money to
Credijusto is a good example of this
interconnectedness - in this case, in the fintech
sector. Credijusto was born out of the need of
SMEs to be able to secure loans at a time when
the large, incumbent financial institutions were
unwilling to adequately cater to them.
'Here in Mexico, for instance, there has been
a real gap to fill in terms of financial inclusion,'
'Banks have been historically fairly conservative
in their lending practices - young companies that
are creative need a certain amount of financing,
but banks would only authorise small amounts,
so they were getting left out. But, at a macro
level, SMEs are the ones that drive the economy.'
And yet, federal regulations happened to be such
that a start-up like Credijusto would be a viable
'The gap was easy to fill for Credijusto and similar
companies, because regulation in Mexico has
been fairly convenient for non-bank lenders.'
This is also the case for Carlos Sánchez Almada,
director of legal, compliance and public policy
at Kuesk, another fintech start-up in Mexico
offering small loans made available via mobile,
facilitated by advances in AI and machine
learning, which allow funding decisions to be
made in minutes.
'We are very grateful to the Mexican government
because they have given us the opportunity
to develop as a new business model, not only
by supporting our new concept, but also by
allowing us to share our good practices in order
to receive their recommendations and apply
them to our projects,' Sánchez explains.
'Presenting the company and the business model
to the authorities is one of my activities, and
it is maybe the one I enjoy the most because
Kueski has become a high-impact company in
Mexico. This is due to the high need for credit
accessibility in our country's population.'
Monterrey, the site of Capetillo's INNOVaction
GYM, is a renowned hub for innovation in Mexico.
The reason behind that is another illustration
of the interface between business and government, and
the roles each play in developing the economy.
Initiatives such as Nuevo León 4.0 (Nuevo
León being the state in which Monterrey
sits) was introduced tomodernise the state,
long known for its traditional
manufacturing and production industries.
'Monterrey has been an industrial place for
many years - over 100. It was a strategy of the
government in those times, and now you can see
that industry here is very well known for product
manufacturing and efficiency. A few years ago,
the Secretary of Economy at the time was a
businessman, and he realised that the industry
here needed to adopt new technology, and he
pushed for the creation of this programme -
Nuevo León 4.0,' explains Capetillo.
'There has been a strategy behind this - that
if we don't change the industry from being a
production industry to a knowledge industry,
we are sooner or later going to be displaced by
someone else. So there is this strategy of moving
into a knowledge industry, creating an industry
which is leveraged by the previously established
companies who create a demand for these new
applications. So it's not only by chance - there
has been a lot of planning in the community.'
Romero, having been in the private equity
industry for more than a decade, has had a front
row seat to the government's efforts in this
area and has taken note of what has specifically
contributed to the growth of investment into
Mexico. Of particular importance was the
recent decision to allow Mexican pension fund
managers to begin spending into a broader set
of investments than was originally allowed (since
the creation of the Mexican retirement fund
regime in the 1990s, these pension funds were
limited to investments in public debt and foreign
currencies). Now, as the Mexican economy has
become increasingly sophisticated, regulations
have delimited these funds accordingly.
'Ten years ago, that was unmentionable,' she
explains. 'Mexican funds had a lot of money
and it was just sitting there, and would only be
invested in places where there wasn't much risk,
but also not much in the way of returns.'
The aforementioned demographic advantage
held by Mexico also means its educational
institutions are a critical cog in the machine.
According to a 2018 white paper by Mexican
industry advocate Entrada Group, Mexico
graduates more engineering and technology
students on an annual basis than the United
'What the universities have done is to push for
knowledge in these areas. Now, it's a common
topic to have blockchain, artificial intelligence,
data analysts, cybersecurity and additive
manufacturing,' explains Capetillo.
'In Monterrey, we have four main universities,
which are in the top ten universities in Mexico.
Two of our projects, Nuevo León 4.0 and MIT
REAP, have joined the universities in pushing
for this knowledge and these skills. You have
students come in for workshops in Monterrey
and then another in other universities and
so on. Universities have tried to democratise
knowledge and skills in these new technologies.'
Nuevo León 4.0 is a collective effort between
the state's universities, business community
and government to maximise output from the
longstanding manufacturing centre. MIT REAP -
short for Regional Entrepreneurship Acceleration
Program - is an innovation accelerator initiated
by the eponymous United States university,
which isolates regions with great potential for
innovation and establishes partnerships with
their local communities - particularly their
educational institutions - in order to share
knowledge across borders. It admits up to
eight regions into the programme annually -
Monterrey joining in 2018 with Tecnológico de
Monterrey as a key stakeholder.
INVESTING WITH MENTORSHIP
An indispensable part of the global innovation
economy are private equity venture capital
funds. Aspiring innovators, with ideas they
believe have commercial value, have few options
when looking for funding given the chasm
between early-stage business propositions and
the thresholds and preparation required to
embark upon an IPO. Private equity and venture
capital firms serve as a facilitator, connecting
innovators with sources of cash.
Romero is undoubtedly a reflection of the
bullish attitude those GC spoke with towards the
role Mexico has to play in the global investment
economy, and her enthusiasm for Mexico's
potential and LIV Capital's ability to realise it is
palpable. She joined the company in 2013 as its
first in-house legal counsel, at a time when few
other funds were considering establishing their
own legal team.
'At the beginning, many firms saw inside counsel
as just a cost, and they'd rather hire outside
counsel to look after their fund. But I thought
that was a mistake: you need a lawyer, and
you never know what's going to happen and
you want to save costs by not hiring someone
in-house and outsourcing everything to your
external lawyer, but he or she does not know
the whole story. They don't know the history of
the fund or the portfolio companies. How can an
external person be familiarised with the whole
structure of the fund?' she says.
'Now, I see many fund managers have their
own in-house counsel and legal team. You'll
always need support - in-house counsel can't
be all hands-on with everything that happens
in the fund; for instance, you might have
labour claims or criminal claims - but you
need someone to have the ability to collaborate
and create a structure in the fund where
STARTING UP THE LEGAL FUNCTION
If the proliferation of in-house counsel within
equity funds has been slow to become
commonplace, then it's been even rarer for the
high-growth companies they count amongst
their portfolio - especially those on the start-up
end of the spectrum.
Credijusto, for example, hired Mendlovic as a
dedicated legal director at a relatively early
stage - and he can see problems arising from
a time where there was no legal department
within the company. So Credijusto is certainly
better off for it, he contends.
'Our contracts were a mess, and no one
in the company could collect on their
contracts because they weren't feasible to
litigate. So I came in on a clean slate, and
convinced the CEOs that at the core of what
we're doing is selling contracts so it's very
important to have a strong legal team,' says
'We were also wanting to secure VC funding
and investments from banks so, on that side,
we get all of our advice externally and we
were advised well. But, on the other side of
the business, that was abandoned to third
parties, and external lawyers generally don't
have a deep knowledge of the company, which
will always lead to some messes needing to be
And here again, there is an illustration of how
the many ingredients of Mexico's start-up world
'You are starting to see a trend - which I've been
pushing from my side - to have our portfolio
companies have their own legal counsel, at the
company level,' says Romero. 'But it's often
thought that the lawyers of the funds would also
be posing as the lawyers of the companies they've
invested in. Imagine that. How many portfolio
companies do you think we have? If I was acting
as internal counsel for each of those companies, I
wouldn't have time for anything,' she says.
'So, what I have started doing in the past four
years is, of the companies we invest in, I make
sure they bring in someone. It doesn't have
to be someone that is experienced, because I
would be mentoring her or
him, and I can be in constant
communication with them. We
try to differentiate from many
other private equity funds.
For us, it's not just money.
It's intelligent money. We're
bringing in the money to
grow the business, but we are
also helping them - from the
business side - to make sure
their business is running well
on the legal as well as the financial side, so that
when an investor eventually comes over, the
company has everything they need.'
While 'fast growth' might not inspire thoughts
of management overly concerned with legal,
Mendlovic has found that being the in-house
adviser for a start-up has been an experience like
'Being in a fairly small company - we're still 260
employees - the environment is actually pretty
horizontal. Members of the management
team, the CEOs and the founders and the
investors walk around through the office and
there's always an element of "Hey, Ariel -
we need X. Can we do Y to get it?" And I get
interesting questions. I like to think of myself
as a problem-solving lawyer, and I need to
think outside of the box. It's pretty interesting
to get different members of our team join
the compliance perspective with the more
aggressive sale perspective to find the perfect
This aligns with Sánchez's experience at
'One of the benefits of advising a younger
company is the opportunity of establishing the
legal foundations from the very beginning,' he
'As a young, growing company, Kueski faces
challenges every day but we do not consider
them as problems, but opportunities to
learn and become stronger in our determination
to be an honourable leading enterprise which
can set the example to other start-ups in