Mexico City — Latin America’s Future Tech Hub?
A new wave of entrepreneurs are launching in North America’s most populous city.
“Mexico is really the portal to the rest of Latin America, and well positioned to be the tech hub for Latin America,” says entrepreneur Courtney McColgan, MBA ’12 | iStock/Pe3check
With a population of 12 million people — over 21 million if you include the entire metropolitan region — Mexico City is both its nation’s capital and the most populous city in North America. This highly concentrated market is becoming home to a new wave of entrepreneurs looking for opportunities outside the costly, competitive confines of Silicon Valley.
The city has no shortage of challenges: Infrastructure headaches, cumbersome business practices, and a nascent startup ecosystem require entrepreneurs to embrace the unexpected. But these same leaders see promise in this resilient, international city where English is common and investment is on the rise. For them, it’s a chance to help shape startup culture in a city with the potential to become the tech hub for Latin America.
Loreanne Garcia, cofounder and chief people officer at Kavak. | Courtesy of Loreanne Garcia
“There Is a Lot of Opportunity.”
Loreanne Garcia always wanted to be an entrepreneur, but she didn’t make the jump until her brother, a Venezuelan living and working in Colombia with few contacts and little free time, found himself unable to sell his car prior to taking a new job in Mexico. It was a familiar problem in a region where most used car transactions are handled person-to-person.
“Security is also such a big deal,” Garcia says. “You don’t know what you’re buying, you have to meet with strangers in the middle of the street, they can rob you, kidnap you, kill you.”
In the end, her brother was forced to leave his car behind, eventually selling it nine months later. When he came to his sister with an idea for Kavak, an online platform to transform the sale and purchase of used cars in the region, she jumped at the opportunity.
“It was a no-brainer,” she says. “I said ‘Yes, definitely; we have to do it.’”
Stepping Into Entrepreneurship
It was the entrepreneurial opportunity Garcia had been waiting for. Raised in Venezuela, she had worked in sales at Procter & Gamble and as a business analyst at McKinsey & Co. prior to receiving her MBA. Following graduation she’d rejoined McKinsey, but in less than three years she and her husband — a Stanford GSB classmate from Mexico — opted to relocate to Mexico. There, she’d worked briefly in microfinance at Aprecia Financiera, then in strategy at Coca-Cola.
Following her brother’s suggestion, she began researching Mexico’s used car market. It was highly concentrated with little competition; most of the country’s used car transactions were private and occurred in Mexico City, Guadalajara, and Monterrey. Encouraged, they began buying and selling cars and raising capital.
“We were older entrepreneurs than average, in our 30s, and had some contacts,” she says. “A local fund led the round, and we got a lot of family and friend investors. We were picky with the people we let into the team as investors; we had to get people who knew Mexico very well, knew about cars, knew about the data around these cars, and could connect with Silicon Valley. So we had a really interesting group who helped us make connections and make good decisions.”
Transforming Problems into Opportunities
Launched in 2015, Kavak now operates 10 centers in Mexico City, selling cars that are inspected and guaranteed to be free of legal or mechanical issues. The company is in a high-growth stage, Garcia says; she expects to double her team of 520 employees and expand to Guadalajara and Monterrey within the year. Nevertheless, there are hurdles; most conspicuously, the lack of resources commonly found in the U.S. Checking a car’s history, for example, is enormously time-consuming in Mexico City, as is finding enough auto parts to supply the company’s rapidly growing needs. Yet such problems also provide unexpected opportunities to expand her company beyond its original mission.
“We’re now getting into everything related to the car-owning experience,” she says. “People here haven’t traditionally financed used cars, so we’re getting into finance. There’s nothing like Carfax here, so we’re getting into data to be able to provide information on car histories. We’re also getting into servicing.”
Making a Difference
Mexico City’s concentrated market is larger than the sum total of every other Spanish-speaking country in Latin American, Garcia says.
“We’re really happy with how we’re growing,” she says. “It’s a huge market fit, people know who we are, and investors are really interested in us, which gives us more capability to grow faster and better.”
The region has also provided her the chance to have the impact she might never have found in Silicon Valley.
“Here, you understand the difference you’re making in people’s lives, in the lives of your employees, and to the market that you’re opening to other entrepreneurs,” she says. “There is still a lot of opportunity.”
Maite Diez-Canedo, cofounder at Via.work. | Courtesy of Maite Diez-Canedo
“There’s a Comfort with Chaos Here.”
Maite Diez-Canedo began her career as an analyst at JP Morgan in New York, but had long wanted to help solve some of the biggest problems faced by growing companies located in non-tech hubs. Her opportunity came as she and sister, Itziar Diez-Canedo, were concurrently enrolled at Stanford GSB — Maite working on her MBA, and Itziar in the one-year MSx program for mid-career professionals.
“I was born and raised in Mexico City, and it feels very near to me to help entrepreneurs and young companies grow,” Maite Diez-Canedo says. “At the GSB, we spoke with hundreds of entrepreneurs around the world and realized one of their key problems is always access to talent, as well as skill gaps locally. There is also a massive trend in the way our generation thinks about work. We want more impact, more meaning, and more global experiences. These two ideas sort of fell into our laps and we decided to build a company together.”
Less Competition, Multiplied Resources
Their platform, Via.work, conceived at Stanford’s Startup Garage, connects professionals with startups around the world.
“We help companies recruit in an innovative new, fast way, connecting them with global talent,” she says. “We’ve placed hundreds of people in over 25 cities around the world, everywhere from São Paulo to Bali. We raised a seed round in Silicon Valley a year and a half ago, and we’re now growing our team.”
The decision to locate in Mexico City was an easy one, Diez-Canedo says.
“Our clients are largely startups in Latin America, so it felt necessary to be in the region from a commercial perspective, but beyond that, there’s a real operational efficiency here,” she says. “Competing in San Francisco for talent is pretty impossible. You’re one in a million and don’t have the resources. But in Mexico, you’re a Silicon Valley company operating in Mexico. You’re very attractive, and resources here are multiplied because the cost of living is so much lower and salaries are so much more affordable.”
An Ecosystem of Entrepreneurs
Hurdles do exist; it can be difficult to find skilled talent, particularly in tech roles, and simple logistics — such as setting up an LLC or even a bank account — can be much more time-consuming than in the U.S. But it’s not a deal-breaker, Diez-Canedo says.
“There’s a comfort with chaos here, and that’s an interesting thing I wasn’t expecting,” she says. “We live in a chaotic country — everything from our morning commute to our politics. But I think that comfort with chaos and that resilience is really helpful for startups.”
Despite such challenges, the culture of entrepreneurship in Mexico City continues to grow, she says.
“What’s different here than in the U.S. is that there are still relatively few exit stories in Mexico, which means the risk profile of joining a startup here is very different than it is in San Francisco,” she says. “A college graduate joining a startup in San Francisco is the norm, whereas in Mexico, people still think of stability more in terms of joining a larger company. But things are changing; there’s a growing ecosystem of entrepreneurs, a growing number of venture capital firms allocating capital toward entrepreneurs, and a growing openness to joining a startup. That wasn’t the case five years ago.”
Courtney McColgan, founder and CEO at Runa. | Courtesy of Courtney McColgan
“Mexico Is the Portal to the Rest of Latin America.”
As the CMO of Cabify, a ride-sharing company operating in Latin America, Courtney McColgan was accustomed to a wide range of challenges. What she wasn’t expecting was an odd problem within her own organization.
“There wasn’t a month that went by that I didn’t get a complaint from someone on my team about their payroll,” she recalls. “I don’t think I’d ever complained in my entire life about my payroll; I thought it was so weird that it was a common problem. I kind of put a Post-it on the wall reminding myself that when I’m ready to leave and start my own company, I should look into modern payroll for Latin America.”
Within four years, McColgan had left Cabify and launched Runa, a cloud-based payroll software system designed to automate payroll for Latin America. Based in Mexico City, the company is now valued at $75 million.
Entrepreneurship isn’t new to McColgan. In addition to working as an analyst at Morgan Stanley and Draper Fisher Jurvetson, she’d launched a tech platform and an e-commerce site before moving to Latin America with her husband, a Peruvian-born Stanford GSB alumnus. But what she discovered about payroll systems in Latin America surprised her.
“What I learned is that payroll is very local,” she says. “What works in California doesn’t work in Alaska, let alone what works in America doesn’t work in Mexico.”
After researching payroll systems in both Latin America and the U.S., McColgan entered the three-month program at Y Combinator to launch Runa. The company raised $6 million in its seed round, and has raised $25 million to date.
“Our first year we grew 50% month over month, and we ended the year processing payroll for 10,000 employees,” she said. “In 2019 we grew 18% month over month and ended the year processing payroll for 50,000 employees.”
Runa now has over 150 employees and the capacity to serve all of Mexico’s 32 states. McColgan hopes to be processing payroll for over 400,000 employees across all categories of employment by the end of this year.
An Emerging Startup Culture
Despite these successes, she says, operating in Mexico City presents challenges. Local investors, still new to venture, are reluctant to write big checks to businesses, and few entrepreneurs have the resources and knowledge to access Silicon Valley capital while also building a business in Mexico.
“One of the biggest hurdles is cultural differences,” McColgan says. “I had a template in my brain of how startups work, formed over the last 15 to 20 years working in Silicon Valley, and down here there’s no template. I’ve had to explain what a unicorn is to people, what a series A and B is, and what a Silicon Valley investor is. There’s a general knowledge gap because the sector here is so young and new.”
Latin America’s Tech Hub
Despite that, McColgan sees immense potential.
“Mexico is really the portal to the rest of Latin America, and well positioned to be the tech hub for Latin America,” she says. “Brazil is a very large market, but Portuguese is spoken there, not Spanish, which is a big challenge if you want to build a company that spans the width of all Latin America. Mexico has amazing talent, there’s a lot of English spoken here, and a huge part of Mexico’s economy is tourism, so they’re very used to foreigners — especially Americans — coming down here. You also have a technical labor force here that is comfortable in English.”
Launching in Mexico City has also afforded McColgan an unusual chance to have impact beyond her own organization.
“I’m excited about building a large technical platform that can solve a really fundamental problem for business, but I’m also excited, as we grow the company, to see the cultural impact we can have on the ecosystem of startups in Latin America,” she says. “It’s a really amazing opportunity that doesn’t exist in the valley now, because we’ve sort of passed that point.”
Starting Up in Mexico City
Stanford GSB alumni and company founders Maite Diez-Canedo, Loreanne Garcia, and Courtney McColgan share some advice for those considering the challenge.
Broaden Your Idea of What Entrepreneurship Means
There are countless ways to approach entrepreneurship, says Maite Diez-Canedo, cofounder of professional job recruiting platform Via.work.
“Most of the founders you know are from very big tech companies, who have raised a whole bunch of VC money, and they’re awesome, but there are other ways of doing it as well,” she says.
“Entrepreneurship can mean starting a traditional, non-tech company within a very traditional space. You could start a company and not ever raise venture capital and still make it profitable. You could think of doing a search fund. You have to build your company in a way that fits your unique company, and there are millions of ways of doing that, but it doesn’t necessarily feel natural when everyone is focused on one-in-a-million hyper-growth unicorns that mostly depend on outside capital to survive.”
Know Why You’re There
Preparation and participation are essential to making a successful move to Mexico, says Loreanne Garcia, founder of Kavak, a used car sales platform.
“Have a good product, know you’re solving a problem, have the right team in place, and the right investors on board,” she says. “The markets in Latin America tend to be unstable, so you need to be very conscious about how you invest your money, and how you can be prepared for anything to come. You have to be profitable faster than you probably would be in the American market.”
Also, get involved in the startup community, says Diez-Canedo.
“Participate in the ecosystem with other startup founders and other venture capital firms,” she advises. “Be present, raise your hand, say that you’re here. I think we need that in general.”
Look at the Models, Then Tweak
Historically, many successful companies in Latin America have been based on existing business models, says Courtney McColgan, founder and CEO of Runa, which provides cloud-based payroll software services throughout Mexico.
“MercadoLibre is basically the eBay of Latin America, and Despegar is an Expedia for Latin America,” she says. “I think you shouldn’t ignore the trends; you can look at models in the space that have been successful and see what applies to the local situation down here. It’s helpful to have confidence in the model, because it’s so hard to get things done here. Find a business model that works, come down here and tweak it for the local reality. That’s not trivial — it’s hard — and it takes all your energy, so put all your eggs in that basket on the execution side, and not necessarily on thinking up some whole new model.”
Become a Change Maker
Launching in Mexico means adapting to doing things differently, and working to share your vision with others.
“You’ll need to do a lot of things from scratch that people in the U.S. hardly think about, like trying to make a call when you don’t even have a phone line,” says Garcia. “The talent pool you can find at the beginning may not be comparable to Silicon Valley, so you’ll have to do a lot of training, and you have to be able to recruit, because people are used to going to the big companies. You have to change that mindset, and be part of a change in the market to make entrepreneurship more attractive to top talent.”
Anticipate New Opportunities
Entrepreneurs in Mexico City frequently find unexpected opportunities to push beyond their initial business goals, says McColgan.
“There are so few people in Latin America who can build good tech — reliable tech that works — that you have the ability to cover much more ground than you originally anticipated,” she says. “We set out to build modern payroll, but are finding all these other ways we can start to provide better employee benefits. We’re now applying to become a financial institution in both Mexico and Brazil, and starting to build the Brazil payroll platform because it naturally makes sense. I didn’t even think about that when I set out to build this company.”
— Beth Jensen
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