Latin Finance - July/August 2010 - 30

mexico venture capital
Mexicana de Inversiones de Capital (CMIC), part of Nafinsa, with $7.5 million, and the IDB, which provided $25 million in debt financing. Soros Economic Development and CAF also participated, says Rodríguez. The fund invests an average of $2-$5 million in businesses catering to the low-income sector. The Ignia vehicle, which Rodríguez says has already invested about $20 million in Mexico, focuses on construction, real estate, health, telecoms and agriculture. It plans to hold investments for about seven or eight years and provide investors an IRR of about 25%, Rodríguez adds. Ignia’s portfolio includes companies like healthcare services provider Primedic, real estate company Ignia Bienes Raíces, organic produce grower and exporter Pro-Orgánico, and construction materials company MexVi. Elsewhere, Alta Ventures has made a first closing of $50 million and plans to raise about $100 million for its first fund. It aims to invest in early-stage IT, telecom, education, health and energy companies, says de los Santos. Participants include CMIC, which invested $20 million out of the initial $50 million. Mexican family offices, institutional investors and retail are also participating. De los Santos says 20% of the fund’s capital will be allocated to companies ready to be scaled up. He expects that an average of $7-$9 million will be invested in these entities. The rest will go to earlystage firms, with each getting around $5 million. Gerbera Capital, meanwhile, expected to have made a final close on its fund this summer. The objective is to raise $40 million, says managing director Alonso Díaz. “We will invest between $2 and $10 million per project, and we will look at all sectors from high-tech to infrastructure,” he adds. Of the five or so Mexican funds focusing on VC, none is investing seed money. “Only the government invests seed money,” says Amexcap’s Márquez, adding that besides Nafinsa, this comes from Conacyt and the economy ministry. “The initial phase of a business is usually sponsored by family funds and then once its path is established the [VC] funds can invest,” says Mike Fitzgerald, chairman of the LatAm practice at law firm Milbank. Milbank represented Ignia in its investment in organic farmer Chiapas Organic Holdings for $5 million in May.

Multinational Mentoring

Measuring the Impact

Nafinsa is about to start fundraising for a new VC fund of funds. Aguilar expects it to reach $100 million in four years. Of that, Aguilar says Nafin will contribute $40 million, with the rest coming from the economy ministry and Conacyt, the national council of science and technology, as well as multilaterals and international institutional investors.

Mexico Funds Prefer Growth Stage
Early stage investing just beginning

Which stage did funds invest in?

2009
Mature (19%) Early (26%)

Besides VC, early-stage companies in Mexico can also get support from multinational technology companies. “Both Cisco and Intel have been active in Mexico. They are buying [stakes in] companies and funding them as well, looking for new technology,” Ambrose says. “We are corporate investors who work on business development,” says Erik López, managing director of Intel Capital, a division of technology company Intel Corporation. “We do a lot of company building and provide a lot of mentoring to companies in a venture [or early] stage, helping them discover what their growth opportunities are,” he adds. All funds come from Intel’s internal resources. Intel, which López says usually takes a 20% stake, looks to invest in companies developing applications for the internet, IT, digital applications for healthcare, consumer electronics and cleantech or technology that helps reduce waste and pollution.

Academic Boost

Growth (55%)

Source: Deloitte and Amexcap

Fundraising was set to officially begin this summer, Aguilar explains, adding that so far the response from potential investors has been positive. Nafinsa will invest in VC funds operating in Mexico, rather than investing directly in companies. “We expect to invest in 19 funds that should support about 30 companies, which could create about 10,000 jobs,” Aguilar explains. The idea to create a separate VC entity, says Aguilar, is to be able to gauge the development of PE and VC individually. “This will allow us to measure the impact that we are able to have in each market. Also, the risk profile of VC is different from that of PE,” Aguilar explains. Return on investment will also be different. “In PE, average return on investment in Mexico is 18%-20%, but in VC we don’t have a track record to show what average return on investment is. Returns in VC should be higher than in PE given that there is more risk,” Aguilar says.

Mexican universities are also supporting the creation of new companies via a government campaign to create business incubators. Some of the institutions participating are Monterrey Tech, the Autonomous University of Mexico (UNAM) and the Mexican Polytechnic Institute. “About 200 incubators were created with the help of universities and private companies, but so far we haven’t seen much success. Less than half have survived,” Márquez says. “Monterrey Tech is a critical source creating new entrepreneurs out of the incubators,” says Ambrose. “The university has in-house programs that are producing many entrepreneurs and new projects, creating a pipeline of deal flow,” “We have worked with Monterrey Tech to create technology entrepreneurs and generate curricula,” says Intel Capital’s López. This is all good news for Mexico’s rising entrepreneurial class, which has long been deterred by lack of funding and the closed and bureaucratic nature of much of the domestic economy. However, the country has a long way to go to catch up with other large LatAm economies. LF

30 LatinFinance

July/August 2010

Latin Finance - July/August 2010

Table of Contents for the Digital Edition of Latin Finance - July/August 2010