Carlos Slim is richer than Bill Gates, why should a VC care about this when investing in a Mexican startup?
Mexican law is essentially different from US law, nevertheless at some points very similar and at others almost totally incompatible. In Mexico our commercial laws have roots in European monarchic/aristocratic values, which do not care about startups or innovation, but that love big old-fashioned businesses, like mining, real estate development, public works, factories, banks, and container shipping.
Our current commercial laws were made (in 1889 AD) favoring businesses that require enormous amounts of investment; which, at such moment were sourcing from monarchical endowments or antique warfare spoils. Such age-old laws were made not considering people that could bring innovative ideas to the world, and disrupt existing markets; otherwise, they were made to protect the status quo, where few people had access to money and glory (whether earned or inherited).
You might laugh at this but if a Mexican corporate lawyer slept in 1889 for 125 years and woke up today, a lot of the provisions he studied would be exactly the same and others would have minor changes; so she would be able to start advising again almost immediately (actually, things that were nationalized in the 20th century, are now on this 21st century privatized and open to international investment as they once were, so this person would see no change from that part). (I would love to think that a physician or a physicist could do the same, could live in the same world as they once lived so many years ago.)
As mentioned, these commercial laws are somewhat favorable to good old-fashion investments and businesses in Mexico, so many alike investments American corporations do, tend to flourish and generate great revenue; and you can see these type of investments since the late 19th century.
When you look at Forbes World’s Billionaires list and find out that a Mexican is number one, it makes you think, that its like having two neighbor households, one is a MTV-crib where things are totally cool, flowing with technology and luxury, and the other one is a trailer home, aged and stingy, nevertheless a member of the family of the trailer ends up summing more money than the richest family members of the crib.
Today new technologies are bringing light to unknown horizons and nontraditional markets, to which Mexican laws will need to take a big jump in order to catch up. One big benefit is that we have a Mexican principle of law that states that “whichever activity is not regulated, it may be freely engaged by particulars” (no matter if it goes against common sense).
Ok, so get to the point, why when a Venture Capital firm (VC) invests in a Mexican startup, it should care that Carlos Slim is richer than Bill Gates?
Because we gather two things in one same place, old-world laws and large spaces of no-regulation, that allow a VC to have the protections of a 19th century investor in a new-world market where startups can grow fast (Mexico is number 14 in the GDP rank and 11 in the world's population list). When a VC invests in a Mexican startup, it can be sure that Mexican commercial laws (which by the way are all Federal, no such thing as state commercial laws) are favorable to investors, and that in most cases the high-tech or innovative service/product offered by the startup will not be regulated (so there would be a very low regulatory expense/risk), and therefore freely exploited.
The VC should only be worried of not pushing so much the lawyer drafting the investment documents that they are done not in full accordance with the Mexican commercial laws (because such lawyer is trying to satisfy the VC's requests). Nevertheless, there is a great margin to adapt Mexican deals to standard VC terms.
I am positive that Mexico is a great place to invest, to do business and to prosper startups, notwithstanding the laws are slightly old; just remember that investing in "traditional" businesses (that have a lower growth rate than startups) a man became the richest person in the world.
I would like to finish by saying, that I really look forward for the investments that MITA, Alta Ventures, IGNIA, and others will start and continue to do in Mexico.
Author: Victor Aguirre