This is another in the Latin America Startup Blog’s continuing series of exclusive interviews with key figures in the Latin America tech startup scene. Alta Ventures partner Rogelio de los Santos generously agreed to talk to us about his firm’s recent closing of a USD $70M fund to invest in early-stage companies in Mexico.
LASB: Although small by Silicon Valley standards, $70 million is a huge amount of money in terms of venture capital in Mexico, dwarfing even NAFIN’s recent announcement of a $20M seed fund. How long do you expect it to take to get the fund fully invested? Are you concerned that there will not be enough candidate companies that really need relatively large sums of money (i.e. > $100K) as investments?
Rogelio de los Santos: Mexico is a 1.4 Trillion dollar economy with more than 110 million people where more than 50% of them are younger than 27 years old. This is a BIG market and opportunities are abundant to the point that in some sectors the Mexican market is leapfrogging more developed markets. The Mexican government is very supportive of developing early stage investments and their initiatives include, among others, a seed fund of funds, a venture fund of funds and many initiatives that are aimed at aligning the players of the innovation and entrepreneurship ecosystem by creating in it technology commercialization offices, and helping entrepreneurs in their patenting efforts outside the country. We believe that the Government’s role helps jump start the industry but local Families will push it to the next level. Alta Ventures Mexico expects to deploy the $70 M USD fund in the next 9 years by building a diversified portfolio of 12-14 venture stage companies and opportunistically add 2 to 3 early growth companies as well. Deal flow in Mexico not only comes from within but also the opportunity attracts companies raising money to access Latin America through Mexico with the right partnerships, these companies are looking for growth. Yearly 400+ deals go through our deal systems and the investment opportunities demonstrate there is abundant low hanging fruit. For example, just the incubation and acceleration infrastructure within the Monterrey Tec university serves more than 2,000 companies at different stages.
LASB: You note at the outset of your recent press release that Mexico is set to overtake Brazil in terms of GDP growth. Are you in the camp (e.g. with Nomura) that believes that Brazil has peaked as an innovator, and will soon be supplanted by Mexico?
Rogelio de los Santos: Latin America as a region is poised to provide better risk adjusted returns to investors; just track the peso and the Mexican Stock Exchange performance. Indeed Mexico’s growth is more dependent on the US economy and last year and currently, it will grow at a faster pace than Brazil. The fundamental drivers of growth are in place and the business prevention teams are taking their foot from the brake pedal. New investment opportunities in energy, telecommunications, infrastructure and mining are spurring high levels of foreign direct investment. Now many Mexican corporations are not only strong in the domestic market but are expanding globally becoming leading players in their markets. There is a high level of belief and energy behind the plan that the next decade is Mexico’s turn to attract investors from around the world.
LASB: You said that the majority of the fund came from family offices in Mexico. How difficult was it to raise money from these rather conservative investors, who are not necessarily accustomed to the US understanding of venture capital?
Rogelio de los Santos: Alta Ventures has also some US and European investors but Mexican Families understand their role in developing their country; they have a triple bottom line drive that perfectly aligns with the opportunity of democratizing capital to nurture a merit based support model based on trust. Raising money from Families is a long term strategy that provides a strong foundation with a network that not only contributes the funding but also access to markets with distribution and commercialization assets unreachable otherwise. Families in Mexico are very sophisticated investors that deeply understand the opportunities at hand and know how to make money in this environment.
LASB: What sectors do you think hold the greatest potential for growth in Mexico specifically?
Rogelio de los Santos: The demographic characteristics of Mexico are driving the demand for goods and services needed to have a good quality of life (education, health, entertainment, etc). The country is developing and adopting technology at a fast pace; an example is that Mexico is the first country in the world whose regulation requires all businesses to invoice electronically by the end of 2012. This regulatory driven opportunity is providing transparency and efficiency into the system which will help increase trust. Mexico is also well positioned to help the US take care of its babyboomers by providing accesible health services. Like all emerging or emerged economies, there is a need for capital to fuel its growth because banks are not lending to SME’s.
LASB: What countries/markets besides Mexico will you be looking to for investment opportunities?
Rogelio de los Santos: Mainly Mexico but Alta’s investment thesis include tier one countries where proven technologies or business models can be imported to Latin America through Mexico.