Mexico finally knows a boon for startups

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KMexican AVAK Startups offer an elegant solution to obvious problems. How to buy a used car in one of the world’s largest and most informal used car markets. Few buyers trust the seller’s reputation for product quality. Few sellers trust buyers to cash in. Alejandro Guerra, general manager of Kabak in Mexico, often includes “meeting someone in a convenience store and see what happens”. The Kavak app allows you to buy and sell your car from a company that acts as a trusted intermediary.

Kabak, who raised $ 700 million in an $ 8.7 billion fundraiser last month, is part of a startup explosion in Mexico. Since the company became the first Mexican start-up worth over $ 1 billion last year, three more “unicorns” have been added. So far this year, unlisted Mexican tech companies have raised nearly $ 3 billion, almost the same as the total for the past nine years (see chart).

Mexico’s 126 million people are young on average and belong to most middle-income groups. According to research firm Newzoo, around 54% own smartphones, a slightly higher share than Brazilians who also like novelty. Mexico is one of the top five markets for tech stars, including the Uber rideshare service and Spotify music streaming. Colombian food delivery sweetheart, huge for Rappi. But until recently, national founders struggled to make their own name.

This is mainly due to the lack of money. Mexican entrepreneurs had to turn to local venture capitalists with relatively shallow pockets. That started to change in 2019 when SoftBank launched the Latin American Fund. In September, Japan’s Free Spending Technology Investment Group announced a second $ 3 billion fund, with total investment in the region reaching $ 8 billion, much of which was invested in Mexico. Singapore’s high-tech conglomerate Sea, a well-known Silicon Valley venture capital fund (CV) Company, and Tiger Global, an aggressive New York hedge fund that recently CV world.

This money goes into a national company like Kabak that fixes what Philip Haugwitz of the McKinsey consulting firm calls a “problem” in Mexico. One in three Mexicans have a bank account, it is difficult to get a loan, and there are too many cash-only businesses, in part thanks to the FinTech Act of 2018, especially FinTech startups. The business is flourishing. Fintech RadarMexico, an industry newsletter, has more fintech than Brazil, the historic center of Latin American companies. Albo, an exclusively digital “online bank”, makes it easy to set up an account. Clip offers a credit card reader for smartphones. GBM We will lend to SMEs with no credit history. Kavak will help you finance your transactions on this platform.

Obstacles remain. Like many startups, Mexican startups face a vague path to profitability. Dealing with bureaucracy is a nightmare. Transaction processing can take Kavak days in Mexico, compared to less than 40 minutes in Brazil. Still, investors are brilliant. Marcelo Claure, director of the Latin American Foundation of Softbank, calls Mexico a “country of opportunity”. He says this has helped his fund’s returns to outperform all other regions. And what works in Mexico may also work in other emerging markets. Kabak, which expanded to Argentina last year and Brazil this year, is now focusing on people living in the Pacific and Atlantic Oceans. ■■

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This article was published in the Business section under the title “The Mexican Wave”.

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