(The audio version of this post can be found on the Interconnected YouTube channel):
Mexico has been known as an up-and-coming tech hub and a gateway to the Latin American market. As an investor focused on developer-centered products, open source startups, and infrastructure technology companies with a particular interest in emerging market innovation, I have been wanting to do some firsthand learning there.
So, despite the ongoing pandemic, I took all the necessary precautions and spent roughly seven weeks in Mexico from January to March. I spent most of my time meeting founders to get a handle on what they are building, why they are pursuing those ideas, and how the entire ecosystem is evolving to support their ambitions.
One fascinating, though not surprising, observation was how much LatAm entrepreneurs look to Asian tech giants for product inspiration and growth strategies. Companies like Tencent, DiDi and Grab are household names among founders. This makes sense because the market conditions in Mexico and other parts of LatAm resemble China, India and Southeast Asia more than the U.S.
What often happens is entrepreneurs first look to successful startups in the U.S. to emulate and localize. As they find product market fit, they start to look to Asian tech companies for inspiration while morphing them to suit local needs.
One good example is Rappi, an app that started out as a grocery delivery service. Its future ambition is squarely to become the superapp of LatAm: It is expanding aggressively both geographically and product-wise into delivery for restaurant orders, pharmacy and even COVID tests. It’s also introducing new payment, banking and financial-service products. Rappi Pay launched in Mexico just a few weeks ago, while I was still in the country.
Rappi now looks more like Meituan and Grab than any of its U.S. counterparts, and that’s not an accident. SoftBank, whose portfolio contains many of these Asian tech giants, invested heavily in Rappi’s previous two rounds and now has a $5 billion fund dedicated to the LatAm region. The knowledge and experience accumulated from Asian tech in the last 10 years is transferring to like-minded firms like Rappi, right under Silicon Valley’s proverbial nose.
Knowledge transfer is not the only trend flowing in the U.S.-Asia-LatAm nexus. Competition is afoot as well.
Because of similar market conditions, Asian tech giants are directly expanding into Mexico and other LatAm countries. The one I witnessed up close during my visit was DiDi.
DiDi’s foray into LatAm started in January 2018 with its acquisition of 99, a Brazilian ride-sharing company. In April 2018, DiDi entered Mexico with its bread-and-butter ridesharing service. It wasn’t until April 2019 that DiDi launched its food delivery service, DiDi Food, in Monterrey and Guadalajara -- two of the largest cities in Mexico. Its expansion hasn’t slowed down since, with a 10% extra earnings incentive to lure delivery drivers.
My Airbnb in Mexico City happened to be two blocks away from the large WeWork building where DiDi’s local office was located. Every day, I saw a long line of people responding to the earning incentives -- waiting outside to get hired as DiDi delivery workers. Meanwhile, the Uber office that’s literally one block away had hardly any foot traffic. As Uber and Rappi fight for more wealthy consumers, DiDi is working to attract lower-income users to grab market share, hoping that one day some of these people will reach the middle class and become profitable customers.
DiDi’s geographical expansion includes not only large cities, but also smaller ones, like Querétaro, which I visited. Its expansion approach is also multi-product -- its own payment product, DiDi Pay, is prominently promoted in new local markets.
This multi-product push is likely necessitated by fierce local competition, especially in fintech. According to a report by Finnovista, there are 441 fintech startups in Mexico, spanning all flavors of the category, from remittance products to different dimensions of financial services like lending, wealth management and insurance.
Even though fintech is by far the hottest area of Mexican tech startup activities, there is no clear winner yet. The field is wide open for giants like Rappi and DiDi, as well as new entrants.
The proportion of Mexicans who are unbanked or underbanked is large. Equally large is the proportion of the population that now has smartphones. Among the 128 million Mexicans, the smartphone ownership hovers between 80 million and 90 million. The quality-affordability mix of the data plans offered by telecommunications companies like Telcel are quite good -- oftentimes better than the WiFi in my Airbnb.NoThe leapfrog effect from no Internet straight to mobile Internet is well underway in Mexico. What will follow may be another leapfrog phenomenon, from dirty cash and paper ledger straight to digital payment and neobanks -- a quintessential “Asian tech” experience.
I’m not a fintech-focused investor, so have no educated guess on how this vertical will evolve in Mexico. How DiDi’s capital-intensive, lower-income user strategy will fare in its LatAm expansion is also an open question. What is certain is that Asian tech giants are influential in the region, both as a source of inspiration and competition.
The ‘mafia’ effect
To my dismay, not many startups work on “pure technical” projects -- AI/ML, infrastructure, APIs -- where technology itself is the moat, not just the enabler. That’s where my investment focus and sweet spot is. But I do think that will change in the next few years, because the “mafias” are forming.
The “mafia” effect is a key ingredient in the sustainable growth of a tech ecosystem, where the alumni of successful tech companies either leave to start new companies or fund them as angels. We are all familiar with the stories of mafias from PayPal and YouTube, and more recently Pinterest, Square and Stripe, not to mention the giants, like Google and Facebook.
In Mexico and a few other countries, alums of Rappi and Uber’s LatAm operations are forming their own startup “mafias.”
Ex-Rappi employees are everywhere. Even though I was physically in Mexico, it was not hard to meet and connect with Rappi-affiliated founders in Colombia, where the company started. The Rappi mafia has already produced a handful of companies, like Tributi (tax filing automation), Plerk (employee benefits and perks), and HelloGuru (no code).
Having started its LatAm expansion in Mexico and built a sizable engineering and data science hub in Brazil, many ex-Uber employees are also becoming founders. Some Uber LatAm mafia startups are Heru (professional services for gig workers) and Cloud Humans (professional freelancer marketplace). Mexico’s own first unicorn, Kavak, also has “mafia potential.”
I did not spend much time learning about Brazil on this trip; the Brazilian market tends to be its own world and not as interconnected with the rest of LatAm. But it would not surprise me if there’s a “Nubank Mafia” there already pumping out startups, too.
The “mafias” tend to work on unsolved internal problems or project ideas that did not come to fruition. This approach can yield some easy early wins, because the founders’ ex-employer usually becomes their first customer. However, as these regional tech giants grow and mature, their tech stack must improve. They will need better, dedicated third-party technical products provided by startups like Truora (fraud detection) and Mati (identity verification). This technical growing pain should inspire more innovation lower down the stack, like Palenca (a gig worker data API product, founded by ex-Uber employees).
These are the types of “pure technical” ideas I’m tracking and excited about, as more “mafias” blossom in Mexico and other parts of LatAm.
Maturing funding ecosystem
The “mafia” effect is a natural phenomenon when a startup becomes successful and completes its first full vesting cycle -- usually four years if the company has raised a significant amount of American VC dollars and follows the typical Silicon Valley vesting schedule. As early employees fully vest their stock options, experience growth and scale, and have the itch to start something new, they can usually count on the support of their colleagues. Indeed, the initial funding into many of the Rappi mafia startups came from the Rappi co-founders and other employees.
The impact of this early investment source cannot be overstated. The availability of small angel checks with a long time horizon is an often-missing ingredient in building a sustainable tech hub -- something that was in short supply in Mexico’s venture investing ecosystem.
The Mexican VC industry is only about 10 years old. It existed mostly under a friendly government under former President Enrique Peña Nieto. During the Nieto administration, government funding generously poured into startups directly, as well as VC funds and incubators indirectly (a taxpayer-funded LP!). After the 2018 Mexican presidential election, all that funding disappeared with the change in leadership. The impact of the new president was a common topic of discussion during my conversations with Mexican entrepreneurs.
With the injection of angel money from the mafias and other sources, the ecosystem is maturing regardless of the government. Certain things that Silicon Valley investors may take for granted used to be an uphill battle for founders, but are now more standard.
One example is the YC SAFE document -- a widely accepted term sheet template for early-stage investing in Silicon Valley that was a strange legal animal in Mexico as recently as three years ago. Now, it’s becoming the default for any Mexican startup with firm plans to raise money from U.S. investors. As for startups who want to stay in Mexico, a “Mexican SAFE” has been created and templatized that complies with local corporate law, called IMIET (Instrumento Mexicano de Inversión en Etapas Tempranas).
So while the overall amount of money is less, there’s now more of the right kind of money with the right investment mindset and time horizon. Combining that with devices like SAFE to smoothen dealmaking for entrepreneurs, the Mexico’s tech ecosystem appears to be trending in the right direction.
Latin America is not a monolith
So far, I’ve mentioned Mexico and LatAm more broadly and often in the same breath, but I want to underscore that the LatAm region is not a monolith.
As an investor, I paid close attention to the region’s engineering talent. That distribution, in terms of quality and density, is definitely uneven across different LatAm countries, even though technical know-hows are easier and cheaper to learn than ever before. The way business gets done and companies get built also differ, both in and outside of Brazil, where the difference is more pronounced, and among Spanish-speaking countries.
For anyone looking to invest in or expand their business into LatAm, humbly learning and remembering those differences and not treating the region monolithically is critical to success. Many people have made that mistake by treating China, India and Southeast Asia as monoliths; the same attitude will only spell failure if applied to LatAm.
Even though I only saw a handful of products that are within my investment focus on this trip, the ecosystem is no doubt maturing. I’m optimistic that we’ll see more uniquely LatAm innovation happening up and down the technical stack soon. If the speed of technology progression in Asia is a forward-looking indicator, emerging markets tend to leapfrog much quicker than most people in developed markets can anticipate.
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一个常见的故事就是，创业者首先会寻找美国硅谷的成功案例去模仿和本土化。当他们找到product market fit 以后，往往把目光转向亚洲科技公司去寻找灵感，再与适应当地情况的各种创新结合。
滴滴从2018年1月开始进军拉美，当时以收购巴西的共享乘车公司99打响“第一炮”。2018年4月进入墨西哥，从提供共享乘车服务开始。直到2019年4月，滴滴才在蒙特雷和瓜达拉哈拉 -- 墨西哥最大的两个城市 -- 推出其餐饮配送服务，DiDi Food。此后，它的扩张进度一直在加速，并以和同行比多10%的收入奖励来吸引送货司机。
滴滴的地域扩张不仅限于大城市，也包括些小城市，比如我此行去的Queretaro (位于墨西哥城西北方向四个小时的距离）。它的扩张方式也是“多产品化“的 -- 其支付产品，DiDi Pay，在突破新市场时是推广的“主打”。
在墨西哥，从没有互联网直接跳到移动互联网的“跳跃现象”（leapfrog effect）已经在发生。接下来的下一个“跳跃现象”很可能是，从脏脏的纸钱直接跳到数字化支付和互联网新银行（neobank）-- 这种跳跃是典型的 "亚洲科技" 发展过程。
令我有点失望的是，没有找到多少创业公司从事 "纯技术" 项目，比如AI/机器学习、基础科技、API等以技术本身为护城河，而不只是靠点数字化去推动的to C产品。"纯技术" 项目是我的投资重点和强项，但我认为未来几年目前的情况会有所改变，因为 "帮派" 效应正在成形。
"帮派" 效应是一个科技创业生态是否可持续发展的关键因素，成功的科技公司的前员工（所谓的”帮派”）要么离开创办新公司，要么以天使投资人的身份提供资金。大家都很熟悉硅谷有名的一些“帮派” 的故事，从PayPal帮和YouTube帮开始，到最近的Pinterest、Square和Stripe，更不用说从谷歌和Facebook这种巨头出来的“帮派”了。
我此行并没有花太多时间了解巴西，因为巴西市场是个自己的世界，与拉美其他国家的互联互通程度不深。但如果那里已经有一个 "Nubank帮派" 在创办各种新公司，我不会感到惊讶。
这些 "帮派" 的起点往往先是从解决某些内部未解决的问题，或者没有实现的新产品想法开始。这种创业方法同时在早期可以较轻松地达到显著的进展，因为创始人的前雇主通常会成为第一个客户。然而，随着当地的各大科技巨头日益成长和成熟，它们的技术堆栈也必须升级，将需要更专业的第三方技术产品提供商，比如像Truora（欺诈检测即风控）和Mati（身份验证）等。这种技术上的成长应该会激发更多技术栈下层的创新，比如Palenca (一个由几个前Uber员工创立的共享劳力人员个人数据的API产品）。
随着更多的 "帮派" 在墨西哥和拉美其他地区开花结果，我专注跟踪它们的进展，期望有更多的 "纯技术" 项目出现。
"帮派" 效应是当一家初创公司成功后，并走完第一个员工股权归属周期后的自然现象 -- 如果该公司融了大量的美国风投，并跟随硅谷的归属时间周期，那么通常是四年时间。当早期员工的期权完全归属，也经历了快速成长和规模化，有了想自己开公司的想法，他们通常会依靠前同事的支持。许多“Rappi帮派”创业公司的天使轮资金都来自Rappi的联合创始人和其他员工。
随着 “帮派效应” 和其他天使阶段资金的注入，无论政府的姿态是什么，整个生态都在不断成熟。某些硅谷投资届已经默认的东西和方法，过去对墨西哥创业者来说都很困难，但现在许多这些东西也已经开始标准化了。
其中一个例子是YC SAFE文件 -- 这是一份被广泛接受的硅谷早期投资的条款表模板，在三年前的墨西哥，还是个奇特的东西，很多投资人不接受。现在，它已经成为任何有坚定计划向美国投资者融资的墨西哥初创企业默认使用的文件。至于那些想留在墨西哥的公司，生态中也已经开始标准化一个符合当地公司法的 "墨西哥版SAFE"，简称为IMIET（西班牙语全称：Instrumento Mexicano de Inversión en Etapas Tempranas)。