Startup Hubs Around the World: Mexico City
One of the most important financial centers in North America is located in the country of Mexico. The capital city of Mexico, Mexico City is not part of the state but is a Federal District. A separate entity, it belongs to the federation of Mexico.
In our continuing investigation of startup hubs around the world, let’s investigate 1) the location, 2) the tax incentives, 3) legal incentives, 4) investors, 5) local resources, 6) specialization of the area, and 7) startups to watch in Mexico City.
Located in the Valley of Mexico, the Mexico City area is home to over 21 million people, making it the largest Spanish speaking city in the world. Situated in the center of the country, Mexico City has a unique advantage over other cities. With balmy weather essentially year round, there is a great opportunity to enjoy outdoor living. The bustling city offers residents opportunities to explore outside the office, providing the entrepreneur a great place to live and play.
Mexico City offers a wide range of activities, from cultural offerings like museums and theaters to sports arenas and parks. Sitting inside the Valley, Mexico City seems as though it is sequestered in its corner of the world, and in a way, it is. Internet usage in Mexico City is under 45 percent of adults use the internet, compared to almost 75 percent in the United States. The use of technology is growing, especially among younger residents of Mexico City, but it is moving at a slower pace than in other parts of the world.
One gets the sense that in years gone by, Mexico City residents could forget about the rest of the world and hide behind their mountains. Apparently they want to continue that casual lifestyle and are in no hurry to catch up.
Advantages of choosing the city
Sheer population numbers indicate that the city itself is densely populated. To offset the overcrowding, Mexico City has instituted a variety of transportation methods that allow individuals to travel throughout the city easily. There are intercity buses, bicycle rental stations, taxis, minibuses and one of the world’s largest metro systems. This transportation system provides the entrepreneur with easy access through the city and allows for travel to other countries as well.
The Mexico International Airport is one of the top 5 interesting airports to see in the world. It offers daily international flights to Europe and the United States, providing entrepreneurs with access to vendors, investors and customers around the world.
Any entrepreneur who wants to reach the Spanish market should consider establishing their startup in Mexico City. With such a thriving city, there are multiple opportunities to test market products or services. Age demographics is varied as well, providing the entrepreneur with a test market of virtually every bracket.
If Mexico City were to become its stand-alone country, it would have the fifth largest budget in Latin America. For a city that is home to that much money, there needs to be a developed plan for cultivating seed investors who would be willing to invest in locally grown companies. The cycle of investing becomes much stronger when it includes entrepreneurs who have successfully exited the startup cycle. They provide a much-needed source of wisdom and encouragement, as well as offering monetary support. The entrepreneur marketplace thrives on movement and growth. As startups grow, they generate energy, and it encourages other startups to grow and innovate.
Mexico City is notoriously corrupt. Before you decide to establish a startup there, it would be helpful to understand the level of corruption in the area that you intend to move. It is also imperative that you know where the corruption is at, what markets are being targeted and how to handle them. In some areas, there are specific industries that come under fire. Knowing what to expect can help you deal with the situation and be prepared. It has been claimed that there is a special “way of Mexico” philosophy; that in some situations it is better to simply give in and pay the corruption so they’ll leave you alone. Whether you agree with that philosophy or not, the reality is that the corruption in Mexico is prevalent.
While not every company in Mexico City is corrupt, it is important to be aware of the potential for being taken advantage of. It is important to contract with a tax professional who will be able to ensure that the startup is set up correctly; the paperwork is properly filled out and the right fees have been paid. Particularly for the entrepreneur who does not speak Spanish, it is important to be able to communicate in the native tongue. Conversational Spanish class would be an extremely wise thing to complete before heading to Mexico City to start a company.
The legal system in Mexico City runs on its set of clocks – and the batteries are wearing down. The concept of telling time doesn’t seem to hold much importance in Mexico, and there is no real sense of urgency to move quickly. Entrepreneurs who are not prepared for this will find themselves frustrated when the meeting they have scheduled starts forty-five minutes late and runs over into the next appointment scheduled.
Another adjustment for entrepreneurs may be a lack of support from the government for employers. In the employee/employer work relationship, the employee seems to hold all the power. It can be virtually impossible to fire anyone. The first thirty days of employment are the eligible firing phase; after that, a company cannot fire someone easily. When someone is fired, they are paid a severance package of thirty days pay and a seniority payment based on the length of time they worked; unless it is proven they did something illegal. The strict labor laws have led to a large number of contracts in Mexico City – many companies don’t have any full time employees, preferring to hire contractors who work on a per job basis.
It is imperative for entrepreneurs in Mexico City to find a lawyer to work with. To help fight off corruption, deal with any legal paperwork that must be handled and to ensure that the company is being treated fairly, it is essential to have a lawyer in your corner who can speak the language and understands the nuances of the country.
Nearly 80% of new companies rely on their family, friends and personal savings to launch their company. Within two years, most of those companies are no longer in business. Financial reforms have recently been passed in Mexico City. These reforms are intended to create new methods of finding funding, relieve banking restrictions and allow for easier access to bank loans.
One of Mexico City’s challenges is a lack of seed capital funds. Bank loans in the United States account for up to 30 percent of the startup financing for startup companies. In Mexico, however, that number drops almost to zero. Financing in Mexico City is difficult to find, only 5 percent of the startups are financed through angel investors or venture capitalists. The United States? Up to 47 percent. This vast difference is an indicator of the long road Mexico City has ahead of it. To truly be successful as a startup hub, the government must make securing financing a priority.
Investors from around the world have begun to notice the changes in Mexico City’s approach to entrepreneurship. Dave McClure’s 500 Startups took a chance and began to run the Mexico VC accelerator several years ago. His gamble paid off, and now he is accepting applications from all over the world for his yearly accelerator boot camp.
One of the key areas of specialization that Mexico City has been focused on is in the area of sustainability. The Coca Cola hub has helped to spearhead the sustainability movement in Mexico City, and it is taking off with resounding success.
Another area of specialization in Mexico City is the tech market. Rather than repackaging yesterday’s new methods in a different format, the entrepreneurs in Mexico City are working towards the development of new tools and support. Many companies simply add a “Spanish” component to their product and consider it innovative. However, to be truly innovative, the company must develop a product that is unique and different.
Tech market innovation can include payment methods, online storage, music players and more. The sky is the limit on what innovative entrepreneurs can create.
To assist entrepreneurs in Mexico, the government established the National Institute of the Entrepreneur. With a budget of almost $600 million, the NIE will offer training, support and funding to entrepreneurs who focus on innovation. Innovative entrepreneurs often:
- cultivate an environment of creativity
- encourage entrepreneurship in young people
- work to establish new incubation processes
- support global firms
- help fund startups
Once you’ve made the decision to move, establishing a network of trusted people who can be counted on for help should be one of the first things you complete. Becoming established with a local hub can provide the entrepreneur with a set of likeminded acquaintances who can provide support and encouragement, along with training and mentoring.
There are several such hubs in Mexico City that would be appropriate for entrepreneurs in any industry.
Startup hubs in Mexico City include
500 Mexico City: This accelerator and incubator is one of the leading programs in Mexico City. It is particularly interested in early startup stages. It provides office space, know-how and money to promising startups. The startups can collaborate to offer insight and encouragement. This incubator runs several camps through the year, selecting promising companies and then coaching them to help them develop the resources and tools to be successful.
Wayra Mexico: Perhaps one of the most active accelerators, Wayra wants to establish an innovation based currency. It has developed innovative trainings on mentoring and held accelerator boot camps.
Coca Cola Accelerator: Working towards a unique collegiate approach, Coca Cola offers entrepreneurs the chance at a partnership with Coca Cola that will involve collaboration, designing and developing an idea. One of Coca-Cola’s biggest concerns is sustainability. This can clearly be seen through their product design and development, but they want to help other companies find ways to be kinder to the earth.
Another resource that entrepreneurs can take advantage of is the number of schools and universities around. Mexico City has a number of universities and colleges that offer tech and engineering degrees. Every year approximately 115,000 graduates leave college and ultimately the country to join startups around the world or find a different industry. This resource drain must be stopped. Students must be given the opportunity and persuasion to stay in Mexico City and become innovators and entrepreneurs.
STARTUPS TO WATCH
WePlann: A travel activity booklet that is geared for the Latin American market, WePlann shows the user where activities.
Ondore: An analytics and data mining company, Ondore has 40 employees working out of two countries.
Boletia: An event organizer, Boletia helps events find their audience for their conferences or concerts. Tickets can also be sold at convenience stores, which allows more people the opportunity to get tickets since they are so hard to find. The company receives a 6.5 percent fee per ticket.
Capptalog: Capptalog is a way for small and medium companies to develop a catalog of their products that they can use on mobile devices. Using SaaS platforms, it creates and organizes products, allows the user to add product descriptions, insert pictures or videos and add sale pages for each product. With over 5 million small or medium size businesses in Mexico, Capptalog would be satisfied with 72 percent of the company’s sales.
E-Training: In an effort to help train the growing number of unemployed people in Mexico, E-Training offers online education courses to help prepare job seekers for the skills they’ll need to get a job in today’s marketplace. Over 20 million people in Mexico are unemployed, and with 14% of their users taking advantage of online education, they are gearing up for a busy year.
Harris: Keeping track of what you eat is time consuming and cumbersome. Harris uses a SaaS platform as a dashboard that lists foods and other nutritional information. Users can then collaborate with nutritionists about developing an eating plan and tracking what they actually eat.
Nuperty: A real estate platform, Nuperty connect lenders, sellers and buyers. With the protocol to search real estate listings, it connects buyers to banks and lenders when they are ready to search for financing. A rapid growth explosion in Mexico City is moving the company to other Latin American countries quickly.
Pop Contacts: A mobile communication app, Pop Contacts keeps your names and addresses all centrally located. Pulling all the communication devices together across messages, it stores your conversations all in one place making it easier to stay in the know with your friends. No more wondering who said what, or trying to keep up with your different means of communication. It keeps your contacts straight between messaging, apps and email.
SeMeAntoja : Finding good quality fast food can be problematic. Two years old, SeMeAntoja is a software development that allows customers to order from a restaurant – even if they don’t offer online ordering. The company has grown over 36 percent since the beginning of the year and looks to be on track for continuing growth. With an aggressive growth plan, it has exploded from its 3,900 users to over 33,000. Restaurants can sign up to sell their food through Facebook, their website or an iPhone app. 1,200 customers are using their service weekly to find delicious favorites or to try something new off the menu.