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Don't worry, we speak : Español (Spanish), too!

Mexico is the go-to market for expanding Latin American startups

Don't worry, we speak : Español (Spanish), too!

Today’s Soapbox opinion was written by Jia Li Tan, an Investment Professional at ALLVP.

Contxto – On September 16, Mexicans around the world celebrate “Día de la Independencia”; the anniversary of the country’s independence from Spain. 

It is the day when the whole of Mexico celebrates and takes a day off work. It was on this day that a few of us in a team of non-Mexicans, who decided to move to Mexico, got pensive and started reflecting on the love that brought us here.

Ultimately, this wonderful research piece was produced within 36 hours upon ideation.

Since all of us have been feeling that cabin fever due to our Covid quarantine, we got creative and came up with this beautifully designed air travel route map of Latam startups flying and landing in the region’s countries. We call it the Latin American TechXplorers Destination Map

Why’s Mexico the hot location for Latin American startups to scale?

“Why Mexico?”, is a question only someone who has not visited the country before would ask.

Mexico City alone has a population of 20 million. It is, in my opinion, the “heart” of Latin America, where ideas from all over the whole of South and Central America are brought in, tested, or launched. 

Mexico City is merely a three-hour plane ride from Silicon Valley—the traditional birthing ground of many breakthrough innovations, large tech companies, and venture capital (VC) firms.

To be in Mexico, the country, is an advantage due to its closeness to the US and beyond, providing easier access to capital and talent from all over the world. 

This is true even in times of Covid.

Although many sectors have to be shut to contain the pandemic, many companies are still somehow “Business As Usual” but with facemasks on. And now more than ever, we are seeing many businesses across Latin America looking towards Mexico as a launchpad for their business expansion. 

To prove our hypothesis, we decided to dig deeper into the data we’ve collected over the years and started researching deeper.

The question we asked is; where are Latam startups expanding within Latin America?

We nailed down 360 regional startups that have raised more than US$1 million since 2015.

To determine whether these startups were to be considered TechXplorers, the criteria we used was that they needed to have “boots on the ground”. That is; these companies needed to have made local hires and launched local operations dedicated to growth and management.

Some of our findings: 

Out of the 360 startups, we identified that less than one-third of these companies, (104 out of 360; 29 percent) had expanded to another country in Latin America.

Amongst these 360 companies, Mexico is the top destination for expansion. The top three expansion routes that regional startups have taken all lead to Mexico.

A special shoutout goes out to the #1 expansion route: We saw 17 Colombian startups (Rappi, Frubana, Laika, Muy, to name a few) launch into Mexico as their first expansion. 

Top 3 expansion routes in Latin America

  • #1 Colombia to Mexico (17 startups)
  • #2 Brazil to Mexico (16 startups)
  • #3 Argentina to Mexico (13 startups)

Mexico is the most targeted destination for startups expanding their operations. It is followed by Colombia, and then Brazil. In our research, we also made a few interesting observations concerning the push and pull factors within each Latin American country:

Argentina

Argentinian startups have expanded to Mexico and Brazil, 68 percent and 63 percent of them respectively.

They were some of the earliest to scale beyond their home countries, as well. Think back to Mercado Libre’s times.

We did some research on the “Latam US$100 million club last year, and Argentinan and Brazilian startups make up most unicorns in this region. And there is no doubt that once a company achieves unicorn status, they are far more likely to have expanded into more than one country in the region. 

Brazil

Brazilian startups mainly focus on their home market. A mere 11 percent of them have expanded to another country in Latam.

But when they do look to expand, the majority choose Mexico (80 percent of Brazilian expanding companies) followed by Argentina (50 percent).

Chile

Chile has the highest regional expansion rates. 76 percent of Chilean startups have expanded in one or more Latam countries.

But in this case, one may notice a heterogeneity of destinations, yet Mexico is still the top destination for 63 percent of regional expansions.

It’s worth mentioning the example of Cornershop, a Chilean on-demand grocery startup that expanded into more than one Latam country. They are currently in Mexico, Peru, Colombia, Brazil, Costa Rica, and looking unstoppable since Uber acquired a majority stake in the company late last year.

Colombia 

Colombians are the most daring entrepreneurs, achieving a 65 percent expansion rate. The highest we have seen amongst her neighbouring countries.

Out of these Colombian startups who sought expansion out of their home country, about two-thirds of them picked Mexico to launch. 

Mexico

It is interesting to see that Mexican startups are venturing out of their home market more than the Brazilian startups (23 percent of Mexican “TechXplorers” vs. 11 percent of Brazilian startups).

For our Mexicans TechXplores, Colombia and Argentina are their top destination choice, at 44 percent and 39 percent. Recently, it was in the latter market where we witnessed Kavak’s acquisition of Checkars to expand into Argentina.

If you know of any startups we might have missed, ping us, and help make our research better. Lastly big shoutout to my teammates, Alexandra and Anne-Charlotte for making this happen. 

Jia Li Tan is an Investment Professional at ALLVP. She geeks out on food, consumer, startups, and all things Mexican. In her free time, she can spend hours watching dog and cat videos— “A crazy dog lady” she calls herself, so watch out.

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