Mexico City: Latin America’s Future Tech Hub, Colombia is Now the 37th Full Member of the OECD, Brazil’s Embraer Says Boeing ‘Wrongfully Terminated’ Deal for $4B Tie-Up, and More from Latin America….
Other featured stories include: Frubana Raises $25M Series A Led by GGV and Monashees, SimpliRoute Plans Latin American Expansion Following $3M Series A, Argentina Quits All Future Mercosur Trade Talks Amid Virus crisis, and dataPlor’s Case Study and Analysis on Small Businesses Impacted by COVID-19 in Mexico Published in Grupo Expansión.
Mexico City: Latin America’s Future Tech Hub
Insights by Stanford Business discusses the new wave of entrepreneurs launching in North America’s most populous city. The following article highlights the successes of three Stanford MBA graduates- Loreanne Garcia, Maite Diez-Canedo, and Courtney McColgan- and discusses their companies’ involvement in Mexico City.
With a population of 12 million people — over 21 million including the entire metropolitan region — Mexico City is both its nation’s capital and the most populous city in North America. Mexico City’s highly concentrated market is becoming home to a new wave of entrepreneurs looking for opportunities outside the costly, competitive borders of Silicon Valley.
The city has no shortage of challenges: Infrastructure headaches, burdensome business practices, and a rudimentary startup ecosystem require entrepreneurs to embrace the unexpected. For some entrepreneurs, Mexico City’s presence as a resilient, international city where English is common and investment is on the rise presents a chance to help shape startup culture in a city with the potential to become the tech hub for Latin America.
“There Is a Lot of Opportunity”
Loreanne Garcia always wanted to be an entrepreneur, but didn’t make the jump until her brother, a Venezuelan living and working in Colombia with few contacts and limited free time, found himself unable to sell his car prior to taking a new job in Mexico. This is a familiar problem in Latin America, where most used car transactions are handled person-to-person.
“Security is also such a big deal… 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,” Garcia says.
In the end, Loreanne’s 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 stated. “I said ‘Yes, definitely; we have to do it.’”
Raised in Venezuela, Loreanne had worked in sales at Procter & Gamble and as a business analyst at McKinsey & Co. prior to receiving her MBA at Stanford. Following graduation, she rejoined McKinsey, but in less than three years she and her husband— a Stanford GSB classmate from Mexico— decided to relocate to Mexico. There, she worked briefly in microfinance at Aprecia Financiera, then moved into a strategy role at Coca-Cola.
She began researching Mexico’s used car market, which was highly concentrated with little competition. The majority of the country’s used car transactions were private and occurred in Mexico City, Guadalajara, and Monterrey. Encouraged, Loreanne and her brother began buying and selling cars and raising capital.
“We were older entrepreneurs than average, in our 30s, and had some contacts… 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,” she said.
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.
Undoubtedly, there are hurdles. A large roadblock is the lack of resources commonly found in the United States. For example, in Mexico City, checking a car’s history is very time-consuming, as is finding sufficient auto parts to supply the company’s rapidly growing needs. However, 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… 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,” she says.
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…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,” she added.
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.”
“There’s a Comfort with Chaos”
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…At the [Stanford] 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,” Maite says.
Their platform, Via.work, created 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… 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,” she says.
Diez-Canedo says the decision to locate in Mexico City was an easy one, as competing in San Francisco for talent is pretty impossible.
“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…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,” she says.
Hurdles do exist; as 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. It’s not a deal-breaker, however, Diez-Canedo says.
“There’s a comfort with chaos here, and that’s an interesting thing I wasn’t expecting… 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,” she added.
Despite such challenges, the culture of entrepreneurship in Mexico City continues to grow.
“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… 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.”
“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 array of challenges. What she wasn’t anticipating, however, 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… 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,” she recalls.
Within four years, McColgan had left Cabify and launched Runa, a cloud-based payroll software system designed to automate payroll for small to medium-sized businesses in 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 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… What works in California doesn’t work in Alaska, let alone what works in America doesn’t work in Mexico,” she says.
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… In 2019 we grew 18% month over month and ended the year processing payroll for 50,000 employees,” she said.
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.
Despite these successes, McColgan says that operating in Mexico City presents challenges. For example, local investors- still new to venture- are reluctant to write large 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 difference… 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,” she says.
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… 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,” she says.
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… It’s a really amazing opportunity that doesn’t exist in the valley now, because we’ve sort of passed that point,” McColgan stated.
Colombia is Now the 37th Full Member of the OECD
Colombia has now completed its domestic procedures for ratification of the OECD Convention and deposited its instrument of accession, culminating a process that began in 2013 by former President Juan Manuel Santos.
The Paris-based Organization for Economic Cooperation and Development (OECD) is an international organization that states its mission as promoting policies to improve the economic and social well-being of people worldwide. The OECD provides a forum in which member governments can work together to share experiences and seek solutions to the economic, social and governance challenges they face.
As reported by Finance Colombia, OECD member countries formally invited Colombia to join the Organization in May 2018, following a five-year accession process during which it underwent in-depth reviews by 23 OECD Committees and introduced major reforms to align its legislation, policies and practices to OECD standards.
“These spanned the breadth of policy fields including labor issues, reform of the justice system, corporate governance of state-owned enterprises, anti-bribery, trade and the establishment of a national policy on industrial chemicals and waste management.”
Beyond the technical aspects, the accession process has served as a catalyst for Colombia to proceed to important reforms to improve the well-being of its citizens, including the reduction of informality in the labor market, improving the quality and relevance of education and training, and long-term sustainability of the health system.
OECD Secretary-General Angel Gurría stated,
“We are delighted to welcome Colombia as the 37th member of the OECD. Colombia’s accession is tangible proof of our commitment to bring together countries who strive for the highest standards in global public policy in order to improve the well-being and quality of life of their citizens. Given its recent history, Colombia can be rightly proud of what is truly an exceptional achievement.”
Colombia’s accession will extend the OECD’s membership to 37 countries. Colombia marks the third Member country from the Latin America and Caribbean region to join, following Mexico and Chile. A fourth Latin American country, Costa Rica, is entering the final stages of its accession process to the Organization.
“The accession process has offered Colombia the opportunity to address major policy issues and challenges multilaterally and to learn from the experiences of fellow OECD countries. Engaging Colombia has also served to enrich the OECD’s knowledge and policy experience,” Mr Gurría said.
The OECD’s 37 members include: Austria, Australia, Belgium, Canada, Chile, Colombia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea, Latvia, Lithuania, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States.
Brazil’s Embraer Says Boeing ‘Wrongfully Terminated’ Deal for $4B Tie-Up
Last Saturday, Brazilian aircraft manufacturer Embraer said that Boeing “wrongfully terminated” a deal for a $4.2 billion tie-up, as both companies face a dismal market for commercial jets amid the coronavirus pandemic.
Earlier on Saturday, Boeing said it ended talks that would have given the aerospace giant an 80% stake in Embraer’s commercial jet unit. As reported by CNBC, Boeing stated that Embraer did not satisfy conditions under the agreement, which expired late Friday.
“It is deeply disappointing. But we have reached a point where continued negotiation within the framework of the [merger transaction agreement] is not going to resolve the outstanding issues,” said Marc Allen, president of the Embraer Partnership and Group Operations, in a Boeing news release on Saturday.
Embraer said the deal was “wrongfully terminated” and vowed to “pursue all remedies against Boeing for the damages incurred.” According to a company filing, Boeing is required to pay $100 million if antitrust approvals for the deal aren’t secured. A Boeing spokeswoman said the company doesn’t believe that the termination fee applies in this case.
According to CNBC, Embraer stated that,
Boeing “manufactured false claims as a pretext to seek to avoid its commitments to close the transaction and pay Embraer the US$4.2 billion purchase price… We believe Boeing has engaged in a systematic pattern of delay and repeated violations of the MTA, because of its unwillingness to complete the transaction in light of its own financial condition and 737 MAX and other business and reputational problems.”
The deal, which would have given Boeing control over Embraer’s commercial jet arm, was intended to help Boeing expand its commercial aerospace presence, to better compete with European rival Airbus.
The collapse of this deal comes as the aerospace industry is in crisis because of the COVID-19 pandemic. Thousands of jets around the world are grounded as air travel demand has plummeted amid shelter-in-place orders. The current crisis has put airlines on unstable financial footing, therefore obliterating demand for new jets and accelerating retirements of older planes.
“When nobody is flying and jets are on the ground it’s hard to hard [to designate] winners and losers” in the collapse of the deal, said Richard Aboulafia, vice president of analysis at Teal Group.
Without Boeing, Embraer will compete against Airbus, which has a lower cost structure, for some segments of the smaller passenger-jet market, Aboulafia added.
Boeing is expected to provide more detail about the deal and further plans to cut costs when it reports first-quarter results before the market opens on Wednesday.
Frubana Raises $25M Series A Led by GGV and Monashees
Frubana provides restaurants and small retailers with fresh produce from farmers across Colombia. The startup has seen a boost in demand following the COVID-19 pandemic, as local grocery retailers become increasingly essential.
As reported by LatAm List, Frubana will use the funds to improve technology and to make the supply chain more efficient. Since the COVID-19 outbreak, the startup also started supplying local shops with groceries as more people turned to alternative routes to source their food.
SimpliRoute Plans Latin American Expansion Following $3M Series A
As online purchases become increasingly prevalent, the demand for efficient ways to move goods from one place to another has logistics companies, such as Chile-based SimpliRoute, in the right place at the right time. SimpliRoute recently secured a $3 million Series A round led by TheVentureCity.
In 2015, the company was created as an urban logistics solution applied on delivery, retail, e-commerce or any other field in which vehicles need to go to places with some degree of routing planning.
As reported by Crunchbase News, Alvaro Echeverria started SimpliRoute after experimenting with response time intelligence applied to vehicles.
“I was inspired by my master’s thesis at the University of Chile, where I developed a logistics model to reduce the response time for the fire department of Santiago, Chile… That model reduced their response time by 40 percent, improving dramatically their efforts when saving people’s lives,” Echeverria said.
Efficient Urban Delivery
In addition to the recent capital infusion, SimpliRoute has raised $1.5 million over the past five years, most recently in September 2018, from different U.S. and Chilean investors, including 500 Startups’s Batch 15 event and Wayra Chile.
However, because SimpliRoute turned profitable in August 2019, Echeverria said, the company has shifted focus towards building, rather less about fundraising. The company currently works with large companies such as Walmart and Unilever, as well as third-party logistics companies, he added.
“We make efficient urban delivery a reality by using advanced machine learning, route optimization and AI models to reduce our customer’s logistics costs by up to 30 percent, and improve their real-time tracking, across their last-mile chain,” Echeverria stated.
The company plans to use the new funding to expand its logistics intelligence platform that uses artificial intelligence to reduce logistics costs for global brands and companies.
SimpliRoute proclaims itself as one of the biggest logistics intelligence platforms in Latin America, with a presence in Mexico, Chile, Peru and Uruguay. The new round of capital will also help the company expand to other countries.
“We have experienced high demand in the last year, and that’s why we are prioritizing growing our engineering teams and local presence in Colombia, Brazil and Argentina… We already have customers in the U.S. and Europe, and we are going to invest in our product so that we can accelerate growth in those markets,” Echeverria said.
Recently, other logistic startups have had success in raising venture funds, such as India-based FarEye, which secured a $25 million Series D round in April. Likewise, Swedish tech company Instabox also closed a €36 million (about $39 million USD) financing round in April, while Colorado-based Outrider, brought in $53 million in funding in February.
Since inception, SimpliRoute has grown to 47 employees in four countries, with future plans to grow its team to about 65 people with the expansion into new countries, Echeverria said. The company is also experiencing two-and-a-half times the growth in year-over-year revenue.
“We are looking for talent to join our engineering, data science and machine-learning teams… As we will also open Colombia, Argentina and Brazil, we will also need sales teams on the ground in those areas, so we will be also looking for sales and customer success teams in those countries,” he said.
Argentina Quits All Future Mercosur Trade Talks Amid COVID-19 Pandemic
Argentina has sparked controversy and dismay among its Latin American neighbours after announcing it will withdraw from all future negotiations over free-trade deals involving the Mercosur trade bloc.
Argentina’s government, which announced its decision late Friday evening via a statement from the Foreign Ministry, said its decision was part of a move to concentrate fully on the ongoing coronavirus pandemic and its economic fall-out on the nation.
The Ministry said Argentina’s participation in talks was impossible, given the “effects of the pandemic,” adding that the government is focused on “protecting companies, employment, and the nation’s poorest families”.
In its statement, the government complained that some of the bloc’s members had proposed "an acceleration of the negotiations for free-trade agreements with South Korea, Singapore, Lebanon, Canada and India, among others,” against Argentina.
“International uncertainty and the state of our economy suggest halting progress on those negotiations,” the statement added (Buenos Aires Times).
The government said its decision only applied to talks on future Mercosur trade deals, adding that it would continue to work with its fellow members – Brazil, Paraguay and Uruguay – on deals already on the table, such as the yet-to-be-finalised trade deal with the European Union.
The historic Mercosur deal, agreed in principle last year by all parties, still awaits ratification from both Latin American and European Parliaments.
Currently, President Alberto Fernández looks to be in an ideological minority, with right-wing administrations in office in Brazil, Paraguay and Uruguay.
As reported by Buenos Aires Times,
“Upon learning of the decision, the Paraguayan government (which currently holds the bloc’s pro-tempore rotating presidency) said the Mercosur would evaluate what ‘appropriate legal, institutional and operational measures" to take to ensure the decision does not “affect … ongoing trade negotiations.’”
Uruguay’s Foreign Minister Ernesto Talvi, said the decision would not "slow down progress of ongoing negotiations or others that may be launched in the coming months.”
“We wish them a prompt return to the table. Together we are more,” he said in a post on Twitter.
On Monday, Foreign Minister Felipe Solá said that Argentina remained part of the Mercosur, despite the decision.
Government officials briefed journalists over the weekend that the government’s decision was based on realism rather than ideology, given the problems facing Argentina and its economy.
In an interview granted to El Destape Radio on Monday, President Alberto Fernández argued that he wanted “a bigger Mercosur,” before training his ire on his predecessor, Mauricio Macri, and Brazil’s controversial leader Jair Bolsonaro.
“I am concerned that the Macri government allowed Mercosur to be distorted,” he said, referring to attempts to allow each member of the bloc to negotiate individual trade deals. “If everyone can negotiate what they want for what Mercosur exists for?”
dataPlor’s Case Study and Analysis on Small Businesses Impacted by COVID-19 in Mexico Published in Grupo Expansión
dataPlor has been featured in Grupo Expansión in the following article, which discusses how small businesses in the restaurant and retail sectors implement new strategies to try to maintain revenue.
Photo Courtesy of Grupo Expansión
Social isolation measures to contain COVID-19 infections spur new dynamics among microenterprises in different sectors, including restaurants, markets or bars, seeking ways to lessen the economic impact of the health crisis.
Microenterprises are among the first to face the social restrictions that came with the contingency and influence their sales, for which they implemented changes in shipping methodologies or joined forces with communities to diversify opportunities and avoid lowering the curtains of their business.
There are 4.06 million microenterprises in the country, to which 111,958 small and medium-sized companies are added, according to data from the latest National Survey on Productivity and Competitiveness of Micro, Small and Medium-sized Enterprises (Enaproce), published by the Inegi in the last year.
75% of these micro and small entrepreneurs will be affected by their operations at the end of May, due to sanitary restrictions and quarantine, according to an analysis by dataPlor, a data collection company.
“Businesses are beginning to diversify the way they deliver their products to their customers. More than 75% are introducing home delivery and that is a revolution in the way they conducted their businesses. Half have started using internet activities to start this transition”, comments Aldo Bucio, dataPlor’s General Manager.
To ‘flatten the curve’ of financial impact, businesses reinvent the ways of marketing their products and services, and these are some examples of small companies looking to turn the contingency around.
The Obligatory Step to E-Commerce
Two of the segments that have most resented the effects of quarantine are restaurants and retail. Due to mobility restrictions, some inns and cafes offer takeout or have implemented home delivery, while stores join e-commerce channels.
Bucio highlights the SoyGDL portal, where residents of Guadalajara uploaded data on restaurants that offer take-out or home delivery. In addition, a map of the city was added to the page so that users can easily identify the premises that are close to their homes.
Another option that some small restaurants have taken is to upload their menu to home delivery platforms. Added to this strategy is the use of social networks to maintain a relationship with diners, such as the Lovecraft Café, a place that seeks to honor HP Lovecraft and other classic horror writers.
Rubén Vázquez, owner of the cafe, comments that for home delivery platforms, the business put together packages that have a value up to 30% lower than the traditional menu, while on social networks he promoted the sale of products such as mugs, stuffed animals or T-shirts on topics related to the cafeteria, arm of the business that grew 100% in demand with the contingency.
“For me it is complex because it is a themed café and we sell an experience for the music and the way we serve desserts; reproducing this experience in the takeaway service is very complex. Now we are diversifying because through social networks we have sales of our souvenirs ”, shares Vázquez.
Before the closure of its stores, which are located in shopping centers, the Coyote and Olivia shoe store had to bet on electronic commerce and social networks to maintain sales.
Víctor Barajas, business administrator, comments that in some places they must continue to pay for services, such as water and electricity, and in order to pay salaries to their workforce, which is around 30 employees, he decided to join the electronic channels and give greater weight to digital communication.
“We had no social media and we opened our online store. It is a strong investment, but we know that internet sales will prosper and, once they trust this channel, sales through this channel will continue. People are going to return to the squares, but that does not mean they are going to buy, “says Barajas.
Coupons, the Resource of Bars and Restaurants
The small bars were the first to lower the curtain on their premises from the moment the government declared the first phase of the contingency. This is the case of El Gato Calavera, which is located in the Zona Rosa, in Mexico City.
Administrators of the place through social networks, offer their regular attendees discount coupons in exchange for a donation to finance the operations of the business, which has been operating for 10 years. These rewards can be paid on site once the health emergency in the country ends.
This coupon system also went viral with a proposal from the Culinary Mexican gastronomic portal, which called on restaurants across the country to offer gastronomic vouchers to their diners to cover their expenses during the pandemic. The initiative is disseminated on social networks through the hashtag #SalvemosRestaurantes where you can consult the list of places and the promotions they offer to consumers.
“These community efforts are replicated. For example, in Monterrey, there is the Instagram account como_comi , which works as a coupon. Diners acquire the coupons that will be effective in the future. This scheme is seen in sectors such as retail, restaurants and entertainment ”, comments Bucio.