Ep. 53: State of the Venture Debt Market in Mexico
Welcome to Miranda Scenius: Your weekly newsletter on technology, innovation, and startups in Mexico.
Some refreshing news in the funding world this week. From startups, Scape and Spakio are showing us that there is more than fintech and AI in the startup world. On the investor side, Mexico gets a new player which is betting on the hybrid half VC, half micro PE model.
Also worth noting is Chilean Manutara Ventures’ soft landing program putting the Mexican market in the same league as Miami as an opportunity worth exploring for LatAm startups looking for international growth, and Stripe announced a new operation center in Mexico, proving that the nearshoring trend is not only about the manufacturing sector.
Follow The Money
Scape raises a US$1.3 million pre-seed round
The on-demand wellness platform operates in 25 cities in Mexico and four in Colombia, offering spa and wellness services through a mobile app. Having already delivered over 85,000 services and with a roster of over 1,000 therapists, Scape aims to generate $6 million in revenue by year-end. The new funding will help to bolster its domestic presence and expansion into Chile and the Dominican Republic, in addition to broadening operations in Colombia.
Sector: Wellness
Total raised to date: US$1.3 million
Founders: Helle Jeppsson, Jose de Murga
Investors: 500 Global, Amplifica Capital, Angel Ventures Mexico
Spakio raises a US$2 million seed round
The startup, targeting the underserved storage market in Mexico City, wants to handle the entire storage process for the customer, saving them both time and money. With a broad reach and a focus on efficiency, Spakio seeks to position itself as a market leader in storage solutions and disrupt the traditional mini-warehouses model.
Sector: Logistics
Total raised to date: US$2 million
Founders: Luis Orestano, Marcos Suárez Martínez, Santiago González Baqué
Investors: Variv Capital, Liverpool Ventures, Cracks Fund, Xochi Ventures, CISA Ventures
Startups News
Momlancers and FORVIA partner to help women relaunch their careers
Momlancers and FORVIA have teamed up to launch the BackOnTrack program, a female job reintegration initiative for women who have taken a professional pause. The program is focused on areas such as purchasing, project management, engineering, control, supply chain, and quality. Participants must reside in Puebla, San Luis Potosí, Querétaro, or Monterrey. This partnership offers a valuable opportunity for women to relaunch their careers and leverage their experience in the working world.
Stripe will open an operations center in Mexico
Over the next three years, Stripe plans to build a team of 100 professionals to meet the needs of local and international customers, taking advantage of Mexico's skilled and cost-effective labor force. The move aligns with the trend of multinational companies setting up operations in Mexico. Stripe expects the nearshoring trend to attract more businesses to invest in Mexico, expanding its client base.
VC - Accelerators News
eNovadoras announces acceleration program for women entrepreneurs with tech-based projects
The selected participants will have access to a four-month training program featuring a company analysis, mentorship, workshops, and networking opportunities. The aim is to increase women's participation in entrepreneurship and provide them with funding and resources. Interested entrepreneurs can apply until July 21, with finalists announced in August. In the previous edition, 10 entrepreneurs received $10,000 each in seed capital.
Manutara Ventures announces a soft landing program for Mexico
The Chilean venture capital fund, with operations in Silicon Valley and Miami, has launched a call for Latin American startups to apply for funding and guidance to soft launch their products in Mexico or Miami. Selected startups could receive an investment of up to US$500,000 and benefit from a three-week online training program and a one-week trip to Mexico or Miami. The application deadline is June 30th. Startups must have a technology-based product or service with sales exceeding US$100,000 in the past year.
Ananda Ventures launches hybrid model
Looking for the best of both worlds, Ananda team opted for a half VC, half micro PE model for their new endeavor. The initiative seeks to fill the financing gap faced by profitable businesses, as they are often overlooked by venture capital firms and private equity firms. This hybrid model is gaining traction in the U.S. and is well-suited for Mexican and Latin American markets as well. A refreshing initiative in the investment landscape!
Rest of the World
US unicorn Harness expands its operations into Mexico
The San Francisco-based company offers an integrated solution for engineering and DevSecOps teams, aiming to enhance efficiency and code delivery. With US$425 million in investments and a valuation of $3.7 billion, Harness has already established a dominant presence in markets like the US and Europe. The company plans to further expand into emerging markets like Mexico and Latin America.
Argentine startup Brevity expands to Mexico
The LegalTech aims to improve the efficiency of legal teams by offering a digital management platform for companies. Brevity's expansion into Mexico is part of its sustained growth strategy, which has already reached Chile, Uruguay, Peru, Paraguay, and Bolivia. By adapting to the specific legislation and practices of each country, Brevity aims to enhance the efficiency of legal departments in managing data and collaborating with internal and external stakeholders.
The Venture Debt Financing Trend in Mexico
Before the tech funding crunch began, startups used to include debt and equity venture capital announcements in the same funding round. This not only helped to make the funding round more impressive, but it also obscured the venture debt part of the round. Pre-funding crunch era, equity was king, and debt remained the startup’s semi-kept secret. At the time, the venture debt market was more mature in the U.S. and Europe, remaining underdeveloped in Mexico and Latin America. But the panorama has shifted, and venture debt has become, in some cases, the only option for many late-stage companies.
But what is venture debt and how does it differ from regular loans?
First of all, it’s cooler than regular debt because it has venture in the name. Joke aside, as described by YC: “Venture debt is a loan to companies that have raised money from venture capital investors. Traditionally, banks only loan money to companies that have collateral (i.e. assets, cash flow, profits); venture debt is different in that venture debt lenders will offer debt financing to promising companies that are not cash flow positive, without existing collateral, provided that these emerging companies have raised money from VCs and show strong growth potential.”
However, to hedge against the extra risk, venture debt providers combine their loans with warrants, or rights to purchase equity, and most often these loans come with high-interest rates (10-15%) and are expected to be repaid in shorter periods (18 to 24-months), or from the proceeds of the next funding round.
Pros & Cons
Venture debt can extend a startup’s runway without diluting equity, it can complement existing funds through quick access to cash, and it acts as an insurance policy to avoid down runs. The immediate aim is to stimulate growth and expansion before the next funding round or, as has been the case lately, to survive a challenging macroeconomic situation.
It is not an option for all start-ups due to the high-interest rates, and quick rate of repayment that can put heavy pressure on a company’s financial metrics. Defaults are common and Silicon Valley Bank Non-Performing Loans is a clear example of where debt financing can go wrong (although the root of SVB’s problems were in deposits feeling not Venture Debt).
State of the market in Mexico & LatAm
For Latin America, and Mexico over the last year, we have seen venture debt providers more risk-averse than their counterparts in the U.S. 2022 marked an all-time high for venture debt investments, totaling $1.3 billion and surpassing the $823 million raised in 2021. Nevertheless, access to these loans has been reserved for a small number of late-stage companies, mainly unicorns. In Mexico, 5 out of 8 unicorns contracted debt in 2022 (Clara, Clip, Kavak, Konfio and Stori). Outside of Mexico, Colombia’s Rappi, Argentina’s Mercado Libre, and Brazil’s Nubank also raised cash through debt financing. In a show of how the funding market is changing, Kavak, the used-car sales platform, raised $810 million in debt last year, surpassing the $700 million it raised in its last venture capital round. Stori last month continued the trend, receiving $50 million from Community Investment Manager (‘CIM’).
Below, we did our best to map the Venture Debt providers operating in Mexico. If you feel we missed something, please let us know.
See you for the next edition. Have a question or any feedback? Just hit reply. We'd love to chat!