Mexican tech startups are riding a wave of investment from venture capital firms and others, with no sign of slowing down – especially in fintech.
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Last year Kavak, an online used car platform, became the first Mexican unicorn when its valuation passed the $1 billion mark. By September, three others had joined its ranks and Kavan’s own valuation soared to more than $8 billion. The amount of funding raised this year by unlisted Mexican technology firms is roughly equivalent to what was raised in the nine previous years combined.
A look at Mexico’s population of 126 million people helps explain why: On average, they are young and earning a comfortable upper-middle income. More than half, 54%, own a smartphone, according to research firm Newzoo. Foreign tech firms have already reached great heights in Mexico. It is one of the top markets for American ride-hailing firm Uber and Swedish music streaming service Spotify, as well as Colombian online delivery service Rappi.
Historically home-grown tech startups had a steeper climb in Mexico, primarily due to lack of funds. Mexican entrepreneurs made their pitches to venture capital firms with limited capital to go around. But when SoftBank launched its LatinAmerica fund in 2019, the local industry rapidly gained momentum. In September, the Japanese multinational announced a second fund of $3 billion, bringing its total investments in the region to $8 billion, according to The Economist. Much of this is in Mexico.
SoftBank is not alone in its enthusiasm for Mexico’s technology sector. It has also attracted sizeable investments from Singaporean tech conglomerate Sea, Silicon Valley venture capital firm Founders Fund, and Tiger Global, a New York-based hedge fund focussed mainly on technology.
Mexico’s tech startups are striking gold by applying ingenuity to systemic problems, which McKinsey’s Philipp Haugwitz calls “pain points” in Mexico. Kavan, for example, saw that the country has a very large yet mostly informal used car market. CEO Alejandro Guerra describes transactions as often involving “meeting someone at a corner store and seeing how it goes”. His company meets a need by serving as a trusted middleman between buyers and sellers.
Mexico’s financial sector is especially in need of solutions: Only one in three people has a bank account, loans are difficult to get, and many businesses remain cash-only. Fintech entrepreneurs see virtually unlimited opportunity. The “Fintech Law” of 2018 provided a legal framework for the industry. Then in 2020, changes in consumer behaviour gave it a major boost. Venture capital investments continue to pour in, fuelling rapid development. Finnovista, a Spanish venture development firm focused on fintech in Latin America, reports that Mexico now has more fintech firms than Brazil.
Fintech firms like Albo, Clip and Konfio, and other startups in Mexico are flourishing, but they face the same challenges as startups everywhere when it comes to profitability. They must also contend with an unwieldly bureaucracy, which can slow down financial transactions. Yet investors remain optimistic about Mexican tech startups. One of their biggest champions, SoftBank Group International CEO Marcelo Claure, who heads SoftBank’s Latin American fund, calls Mexico “the land of opportunity”.