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Mexico has long been known for its big public companies: Televisa is the world’s biggest broadcaster of Spanish-language programming, and wireless telephone group America Móvil has a reach that criss-crosses Latin America. But Mexico falls short in providing financing for start-up firms.
Article:
September 2005 — Mexico has long been known for its big public companies: Televisa is the world’s biggest broadcaster of Spanish-language programming, and wireless telephone group America Móvil has a reach that criss-crosses Latin America. But, with an illiquid stock market, Mexico falls short in providing financing for start-up firms that could be the region’s Amazon.com or Apple, undermining the country’s economic potential and shunning venture capitalists that are some of the most important providers of funding for small companies.
“Mexico’s problem is not a lack of capital or a lack of ideas, but a lack of local investors willing to take the necessary risks,” says Howard Wallack, the recently appointed director of the Latin American Venture Capital Association (LAVCA). “Mexico needs good business plans with the right people to execute them.”
Mexico’s block to venture capital has mainly been because of over-regulation, too few institutional investors and a lack of government policy supporting private-equity investment. According to Eduardo Mapes of Mexican development bank Nacional Financiera, the majority of successful venture capitalist industries are self-regulating, while fiscal incentives stimulate investments and the rights of minority shareholders are protected.
These are international practices that have yet to channel through to Mexico. The result is that Mexico only receives 0.1% of the $100 billion of private equity invested worldwide annually and only 10% of Latin America’s total venture capital, despite attracting 40% of the region’s foreign investment. Local investors only provide 20% of Mexico’s venture capital.
LAVCA is pushing for change, however, and Congress is debating a bill to create an investment promotion vehicle to enable funds to list on the Mexican bourse, giving three years to meet the standards of public companies and permitting financiers to exit their investments profitably. The government is also considering streamlining funding from development banks into one semi-autonomous fund of funds to disburse public money into private equity. Meanwhile, a new law allows Mexican pension funds, which manage about $45 billion, to invest some of their capital in equity for the first time, not just in government bonds, which could provide a significant boost to Mexico’s venture capital market.
But one of the hardest obstacles to overcome will be Mexico’s lack of entrepreneurial spirit, funds say, as many companies are family run and conservatively managed.