I
have a long-standing love affair with Mexico. As a surfer who’s lived there in
the past, I’ve come to love the culture, the people and the incredible
countryside.
But
Mexico has more than just great beaches, food and rich culture. It has a
booming economy with positive GDP growth, a bustling engineering and innovation
community, and an ecosystem ripe for entrepreneurial growth.
Roughly
a year ago, my company, Crowdfunder.com, was invited by top leadership in
Mexico to come discuss the opportunities for crowdfunding in Mexico. Many in
Mexico had seen Crowdfunder’s success in the U.S. and our role in U.S. JOBS Act
legislation, and because of this I was invited by business leaders in Mexico to
look at creating something similar to the JOBS Act for the small-business
ecosystem there.
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Fast
forward many months, and we launched Crowdfunder.mx to bring access to capital
to Mexican entrepreneurs, while creating an online network for existing Mexican
investors.
It’s
been a pleasure to spend more time in the country with an eye toward supporting
and developing the Mexican entrepreneurial community, and I wanted to share
with you what I’ve learned about the fascinating state of startups and small
business down in Mexico…
The
Story Of Mexican Small Business
You
may be surprised to learn that Mexico has an existing & innovative
entrepreneurial culture. The country that brought us tequila (thank you,
Mexico) has a large and growing technical and software development/hacker
community, which is providing a fertile breeding ground for startups. It’s also
a little known fact that Mexico is Startup Weekend’s largest market outside of
the U.S., and that between 60,000 to 110,000 new engineers graduate in Mexico
annually.
Small
business is a powerful force in the Mexican economy. Small and medium
businesses (SMBs) account for 52% of GDP and 72% of job creation in Mexico,
making up an even more significant portion of the economy than does small
business in the U.S.
The
amount SMBs contribute to the Mexican economy is impressive, especially
considering the incredible fact that 79% of all Mexican SMBs are essentially
self-financed. See the stats below.
Sources:
Ministry of the Economy
National Development Bank
http://eleconomista.com.mx/industrias/2011/06/15/las-cifras-financiamiento-pymes
46%
of SMBs fund their ventures with personal savings, and vendor agreements (
e.g., business practices such as factoring). 33% receive loans from family
members. Only 18% of SMB entrepreneurs access financing via commercial banks,
with an additional 3% gaining financing from the National Development Bank.
Even
though SMBs create nearly three-quarters of the jobs in Mexico, the mortality
rate for SMBs is still high. Three out four Mexican SMBs fail within two years,
and the failure rate is even higher for micro-businesses. In Mexico, as in the
U.S., one of the major causes of SMB failure is financing challenges. While
there is plenty of capital available inside Mexico that could be put to work,
the ecosystem and investment markets haven’t shaped up to put more of it into
play for business owners.
What
Do Mexican Entrepreneurs Need?
So
what does all this mean? Currently, 79% of Mexican entrepreneurs would benefit
from access to grassroots capital — those who currently rely solely on savings,
family loans and vendor financing. Not to mention the would-be entrepreneurs
who haven’t made the plunge yet, due to their inability to access start-up
capital.
Access
to capital is one of the biggest hurdles Mexican entrepreneurs currently face,
but there are others. SMBs report their largest challenges to success as:
•Financing:
48%
•Management:
43%
•Sales:
16%
Accordingly,
most experts agree, the Mexican entrepreneurial community could benefit greatly
from more resources in the following categories:
1.Access
to capital
2.Business
education
3.Networks
and mentorship
If
awareness is the first step towards growth, Mexico is poised to jump to the
next level. The Mexican federal government has a strategic vision towards
entrepreneurship, articulated by the National Institute for Entrepreneurs
(NIE). Among its goals are fostering an environment that facilitates scaling of
SMBs, and promoting the consolidation and strengthening of financing and
capital markets for entrepreneurs.
Is
Crowdfunding The Solution?
The
opportunity to provide access to capital for small business owners south of the
border is tremendous. Business crowdfunding can have a substantial social
impact for the citizens of Mexico by bringing opportunity and new access to
capital — including both investors and small business owners. Business
crowdfunding in Mexico has the potential to create an entirely new capital market,
and to jump-start SMB growth there. This could level the playing field and
generate more opportunities for Mexican entrepreneurs, especially for those who
aren’t connected into the network of the very wealthy few.
In
words of Jesús Ramírez Díaz, Secretary of the Mexican Senate’s Science and
Technology Commission,
“
Nowadays
crowdfunding is a real and sustainable social alternative that should be
adopted as public policy for financing entrepreneurs in Mexico. Crowdfunding
mechanisms are exactly what the government needs to support in order to
stimulate and foster innovation and business culture in our country.
The
timing is right for crowdfunding and an online investment network in Mexico,
thus we’ve begun localizing Crowdfunder for the launch of Crowdfunder.mx.
Knowing that it takes an ecosystem, Crowdfunder.mx is being shaped with
strategic partners like the National Development Bank for SMBs, Endeavor
Mexico, Angel Ventures Mexico, Monterrey Tech (ITESM), 500 Startups Mexico
City, and more, in order to satisfy investor’s main challenges in Mexico which
include:
•Deal
Flow: Access to hundreds of investment opportunities
•Standardization:
Consistent deal terms and professional documents
•Signaling:
Identifying quality companies and founders from crowdsourced methods
•Vetting:
Increased transparency of founders and teams via social network identities
Opening
The Funding Floodgates
There
is real room for growth in the Mexican venture capital industry, as V.C. firms
in Mexico deploy funds representing only 0.04 percent of the country’s G.D.P.
According to Crowdfunder.mx research, the main difficulty for institutional and
independent investors is lack of access to high-quality deals. Mexican
investors are ready and willing to invest, but they communicate that they lack
the means to connect with worthy companies and founders that are deserving of
outside investment.
Crowdfunding,
or more broadly, online investment networks, can help provide more of those
right connections. Enrique Jacob Rocha, president of the NIE told my colleagues
in Mexico recently,
“
We
believe the time has come for crowdfunding to mature from its creative projects
base, to satisfy the needs of companies and investors with opportunities for
investment in equity and debt. For the first time, entrepreneurs will be able
to fundraise on platforms with access to a much broader pool of investors, and
then get ready to approach private V.C. funds.
Educating
Mexican Entrepreneurs
For
Mexican SMB entrepreneurs, the challenge isn’t simply obtaining capital.
Education is also a key piece of the puzzle. Crowdfunding provides
opportunities for informal education by connecting like-minded people with
similar interests — investor to entrepreneur, entrepreneur to entrepreneur, and
investor to investor, and showing what works through market validation and real
world examples.
However,
before Mexican SMB owners can take advantage of the education found through
crowdfunding networks, they have to actually know about and understand the
value of crowdfunding.
The
Multilateral Investment Fund (MIF), a member of the Interamerican Development
Bank, shared with me that they believe crowdfunding offers a unique opportunity
to create new forms of financing for innovative businesses.
However,
MassSolution, a consulting firm hired by the MIF, concluded that while Mexican
technology companies have some access to crowdfunding, they rarely take
advantage of this alternate source of financing.
The
missing links here are better awareness/information and more opportunities for
education and modeling of successful businesses and leaders. Meanwhile,
stakeholders in the Mexican ecosystem all seem to be acutely aware of these
missing pieces- from the government, to early stage investors like Alta
Ventures Mexico, to entrepreneurial communities like Endeavor Mexico.
That’s
why we’re now seeing an exciting mix of initiatives and efforts in Mexico to
combine technology and financing with education, and even some legislative
reform rumored to be coming forth, to transform the fundraising experience
there. Access to crowd-raised funds alone will not be the game changer needed.
Crowdfunding
Goes Local, In Mexico
One
example of an educational, relationship-building program tied into crowdfunding
is CROWDFUNDx — a series of online+offline events being created and kicked off
in key cities in US and Mexico to strengthen local communities and educate
investors and entrepreneurs.
Patterned
after the successful TEDx model, CROWDFUNDx is a D.I.Y. tool (but for building
local startup communities) that engages people within a given local
entrepreneurial ecosystem by leveraging local leaders to lead their own
communities. The CROWDFUNDx model creates a 90+ day acceleration process where
startups compete for votes and ratings from the crowd, giving entrepreneurs a
local process for visibility locally, and giving investors a place to plug in
and help identify the top local deals.
CROWDFUNDx
has communities circled and set to launch in 10 cities in Mexico:
Aguascalientes, Chihuahua, Ciudad Obregón, Guadalajara, Mérida, Mexico City,
Oaxaca, San Luis Potosí, Tijuana, and Villahermosa.
These
networks are starting to grow their membership online, and leaders in the
communities plan to have their first CROWDFUNDx community events in the coming
months and quarters.
If
CROWDFUNDx works in Mexico as well as it has in 3 U.S. local initiatives, then
these communities will help identify a handful of top investment-worthy
businesses in each city, and bring investors to the table over the Crowdfunder
social network.
It’s
clear, crowdfunding and online investment networks have promise for an
entrepreneurial country like Mexico, but simply giving small business owners
access to investors is not what is going to be most meaningful and
transformative. The big idea for Mexican entrepreneurs is providing a
combination of access to investors, education, networking and mentorship.
Crowdfunding can help meet these needs, and if managed effectively, can
super-charge the process through localized social networks and face-to-face
community events.
Wait,
Is Equity Crowdfunding Legal In Mexico?
Mexico
has it’s own definition of accredited investors. There the definition is
someone who makes roughly $160,000 U.S. dollars, as opposed to the $200,000 for
qualification as a U.S. accredited investor.
The
legal environment does not allow for non-accredited investor activity, but
expect activity around private accredited investment networks in Mexico soon.
At
present, there is no current JOBS Act type legislation that has passed in
Mexico. However, based on interactions by the Crowdfunder Mexico team with
government leadership and key policy influencers, it’s likely that legislation
will be introduced in the near future.
What
You Can Do Now
You
can check out some of what’s happening at Crowdfunder Mexico in the
CROWDFUNDxMexicoCity community on Crowdfunder to be part of it as an
entrepreneur or investor.
If
you want to get more personally involved in Mexico, a key local catalyst in the
Mexican crowdfunding ecosystem is Pepe Villatoro, CEO of Crowdfunder Mexico,
who can be contacted on the Crowdfunder social network.
The
business crowdfunding revolution is taking shape in Mexico, and the ecosystem
leaders are calling for the creation of this new capital market through new
legislation in Mexico.
If
you want to support entrepreneurship in Mexico, alongside other leaders, then
please post your support here on Forbes for new Crowdfunding Laws in Mexico by
copying and pasting the following into the Comment box below:
Yo
apoyo el emprendimiento mexicano y pido nuevas leyes de Crowdfunding para
mejorar el acceso a capital para pequeños empresarios en México
Re-Give
Imagination. Ignited
Global
social action driven personal and
enterprise crowd sourcing, funding and commerce platform
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