Mexico's new economy starts to take off

MEXICO CITY — With a master’s degree in business administration from MIT and spotless English, Hernán Fernández could have taken his skills to Silicon Valley or landed a cushy job with a Mexican bank.

Instead, he runs a small team of analysts in an office in the Polanco neighborhood of his native Mexico City, looking for Mexico’s next big tech breakout and helping forge his country’s new economy. The tech fund created by Fernández, 36, and his partners, Angel Ventures Mexico, started in 2008 with a handful of employees and personal investments from friends and family.

Today, the fund, which helps finance mostly tech companies in Mexico and the region, has grown to $20 million, with 29 employees spread through offices here and in Bogotá and Lima, Peru. The firm is currently fundraising to grow the pot to $100 million.

“The new generation of Mexicans are tech savvy, more connected with the U.S., often U.S. educated,” Fernández said. “It’s impossible not to feel the … attraction of the start-up economy that goes on in the U.S.”

Mexico is emerging as one of the fastest-growing tech hubs in Latin America, with more than $1 billion in investments last year and more than 500,000 IT professionals.

Cartel violence and immigration issues hog most of the recent headlines out of Mexico. But residents say Mexico’s burgeoning start-up scene and gradual shift from traditional industries — like manufacturing and banking — to more entrepreneurial ventures is one of the country’s biggest under-told stories. This capital city — with 21 million residents and proximity to the United States — is at the center of Mexico's tech boom.

“It all started very grass roots, with a few start-ups,” said Santiago Zavala, partner and co-founder of 500 Startups, a Mexico City-based network of start-ups, tech entrepreneurs and investors. “Now it’s a full-blown ecosystem.”

Challenges persist. Mexico continues to struggle with corruption at all levels of government, investors tend to be risk-adverse, and recent tax reforms have bruised the tech sector. But the country’s relatively stable, $1.3 trillion economy and thousands of tech-trained recent grads make it fertile ground for the new economy — and U.S. investment.

Paul Ahlstrom, a Utah-based venture capitalist, studied the economies of dozens of emerging markets around the world before zeroing in on Mexico. He moved himself and his family to Mexico five years ago to run Alta Ventures Mexico, a venture capital fund investing in entrepreneurs and tech companies.

During his time here, he saw Mexico go from one tech-sector venture capitalist group to more than 42 today, he said. His fund helped launch more than 80 companies. “The industry has taken off,” Ahlstrom said.

When Manolo Diaz and his partner decided in 2011 to launch Yogome, a Web-based educational tool for children, the only start-up money around was “asking rich guys” in their hometown of San Luis Potosi, he said. Instead, they waited a year, connected with 500 start-ups and scored a $150,000 investment. Last year, they received $1.2 million from other investors.

Today, Diaz splits his time between Mexico City and San Francisco and employs 60 people, up from 20 in 2014. His goal is to grow the business enough where he could, in turn, start investing in other Mexican start-ups.

“The ecosystem in Mexico is growing,” he said. “It’s easier today to get a $100,000 to $2 million or $3 million investment without the trouble we had a few years ago.”

There’s no sign at the street entrance to Startup Mexico, an "innovation campus” in an industrial corner of northwest Mexico City. Like many firms in Mexico, the property is protected by a sliding metal gate manned by a security guard.

Once inside, however, the cavernous former warehouse glimmers like a Silicon Valley tech giant: laptops opened on rows of tables, two putting greens, hammocks stretched over a small beach section with actual sand, foosball and ping-pong tables, glass walls scrawled with programming code and a rooftop urban garden growing organic vegetables and spices.

If it's reminiscent of Google’s headquarters in Mountain View, Calif., it should be: Startup Mexico’s co-founder and chief executive, Marcus Dantus, was so struck by a visit to the tech giant’s campus a few years ago, he designed the Mexico City space to look like it.

A mix of entrepreneurs, venture capitalist funds, advisers and angel investors all work within the space. When it opened in 2008, initially no one showed up, Dantus said. Last year, his firm fielded 4,500 applications and helped start 130 new companies.

“The time has come for the world to realize innovation doesn’t come from the U.S. alone,” he said. “I think you’ll be surprised what Mexico and Latin America in general will be offering the world the next few years.”