Silicon Valley Grows South: Mexico’s Emergence as a Startup Hub

North America’s center of technological innovation is moving south. The trek started over a generation ago, when hi-tech firms began moving away from the Boston area to Seattle, and to Research Triangle Park in North Carolina. Since then, Austin, Texas, has coalesced into a tech hub, as has Salt Lake City, Utah.
Of course, the tech hub by which all others measure up is Silicon Valley, but even that isn’t immune to the trend. Since 2013, there’s been a steady trickle of relocations further south, with some tech firms settling on the Westside of Los Angeles, while others headed down to San Diego. Of the 10 largest tech hubs in the United States, as ranked by the San Diego Regional Economic Development Council, three are in “the South” (Raleigh, Austin and Atlanta) and three are in California (San Jose, San Francisco and San Diego).
Now, startups are jumping the border entirely, setting up shop in Mexico. Andy Kieffer was one of the first. After Kieffer sold his VC-backed Silicon Valley company in 2008, he relocated to Guadalajara, where he runs a software development firm and a VC fund called AgaveLabs. More recent arrivals include brothers Isaac and Joel Phillips. Last year Isaac moved to Mexico City to launch the mobile app Pig.gi, affectionately known by its users as “piggie.”
Why Mexico, Why Now?
Mexico is becoming a locale for startups for at least three reasons. First, engineering talent abounds in Mexico, and top-notch software programmers can be hired for a fraction of the salary commanded by their colleagues north of the border. A startup in Mexico can hire three or four software programmers, and possibly five, for what it would cost to hire just one in a place like Austin, Boston or New York City. This is hardly a surprise. IT outsourcing firms have long exploited the arbitrage opportunity offered by hiring Mexican coders and programmers to help develop software. That sort of cost saving is critical in pushing tech innovators to explore new geographies.
Second, until recently Mexico had an unusually lopsided economy. Its export economy, centered around advanced manufacturing, was globally competitive by any metric, yet the country’s domestic economy remained the domain of oligopolies. Domestically, the firms that controlled the banking, energy, and telecommunications sectors worked to keep new entrants out while at the same time they neglected customer service. “People here would rather go to the dentist than the bank,” says Kieffer.
However, thanks to a reform drive by the Mexican government aimed at injecting more competition into the domestic economy, this trend is now changing. Tech entrepreneurs sense immense opportunity by, as The Economist put it, “attacking the old economy.”
David Garcia Aceves is a 25-year-old tech entrepreneur from Guadalajara. “There are a lot of industries in Mexico that haven’t innovated in a long time, maybe ever,” he says: “They really need a lot of improvement.” Garcia is working on a solution to e-commerce fraud with a product called PagoSafe, which, he says, results in dramatic drops in online credit card fraud and higher credit card usage. Today, really for the first time, entrepreneurs have the opportunity to fashion technology solutions around the sort of high volume, low value transactions that are part of daily life in Mexico.
Third, as Isaac Phillips explains, Mexico is “great place to grow and test products” because the country is in many ways a microcosm of the developing world. The Pig.gi app Isaac and Joel launched in 2015 effectively subsidizes mobile access with sponsored ads that the user sees whenever they open their phone. Each time they view an ad, they accrue points, which they in turn redeem against the cost of a renewal plan.
Solutions like Pig.gi are crafted for Mexican consumers, but they can be deployed in Colombia and Peru, not to mention parts of Africa and Asia, because the ICT infrastructure in those places is similar to Mexico’s (The Pew Research Center’s recent study on mobile and Internet usage globally is a must read). Moreover, these are middle-income countries where, like Mexico, people have discretionary income but gaining rich-world connectivity often involves trade-offs.
So, as the center of U.S. tech innovation is diffusing, Mexico stands to benefit more and more. Mexico will play an ever-greater role in the development of software, both as a delivery site for IT outsourcing operations, but also as its own hub. Andy Kieffer at AgaveLabs sums it up well: “Sure, Mexico is a cheap place to hire engineers. But there’s a huge opportunity to target Mexico as a consumer economy, and from there on to the rest of Latin America.”