Is Equity Crowdfunding Coming To Mexico?

I have a long-standing love affair with Mexico. As a surfer who’s lived there in the past, I’ve come to love the culture, the people and the incredible countryside.

But Mexico has more than just great beaches, food and rich culture. It has a booming economy with positive GDP growth, a bustling engineering and innovation community, and an ecosystem ripe for entrepreneurial growth.

Roughly a year ago, my company, Crowdfunder.com, was invited by top leadership in Mexico to come discuss the opportunities for crowdfunding in Mexico. Many in Mexico had seen Crowdfunder’s success in the U.S. and our role in U.S. JOBS Act legislation, and because of this I was invited by business leaders in Mexico to look at creating something similar to the JOBS Act for the small-business ecosystem there.

Fast forward many months, and we launched Crowdfunder.mx to bring access to capital to Mexican entrepreneurs, while creating an online network for existing Mexican investors.

It’s been a pleasure to spend more time in the country with an eye toward supporting and developing the Mexican entrepreneurial community, and I wanted to share with you what I’ve learned about the fascinating state of startups and small business down in Mexico…

The Story Of Mexican Small Business
You may be surprised to learn that Mexico has an existing & innovative entrepreneurial culture. The country that brought us tequila (thank you, Mexico) has a large and growing technical and software development/hacker community, which is providing a fertile breeding ground for startups. It’s also a little known fact that Mexico is Startup Weekend’s largest market outside of the U.S., and that between 60,000 to 110,000 new engineers graduate in Mexico annually.

Small business is a powerful force in the Mexican economy. Small and medium businesses (SMBs) account for 52% of GDP and 72% of job creation in Mexico, making up an even more significant portion of the economy than does small business in the U.S.

The amount SMBs contribute to the Mexican economy is impressive, especially considering the incredible fact that 79% of all Mexican SMBs are essentially self-financed. See the stats below.

MexicanSMBs1
Sources:
Ministry of the Economy
National Development Bank
http://eleconomista.com.mx/industrias/2011/06/15/las-cifras-financiamiento-pymes

46% of SMBs fund their ventures with personal savings, and vendor agreements ( e.g., business practices such as factoring). 33% receive loans from family members. Only 18% of SMB entrepreneurs access financing via commercial banks, with an additional 3% gaining financing from the National Development Bank.

Even though SMBs create nearly three-quarters of the jobs in Mexico, the mortality rate for SMBs is still high. Three out four Mexican SMBs fail within two years, and the failure rate is even higher for micro-businesses. In Mexico, as in the U.S., one of the major causes of SMB failure is financing challenges. While there is plenty of capital available inside Mexico that could be put to work, the ecosystem and investment markets haven’t shaped up to put more of it into play for business owners.

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