Startup Business in Mexico
Risky Business: The Success and Challenges of Running a Startup Business in Mexico
Throughout this year, 10 million dollars have been invested from venture capital firms into startup businesses in Mexico, indicating a growth five times greater compared to the figures of the previous year. Data from the Mexican Association of Private Capital (AMEXCAP) indicate that the pandemic did not limit the injection of capital for Mexican startups.
Mexico is a popular destination for startup businesses due to its close proximity to the United States and Mexico’s role as an entryway into Latin America. Mexico has a stable business environment for startup businesses, so international investors are more comfortable investing in Mexican startup businesses when expanding their investments into Latin America.
As more businesses are created in Mexico, they face the challenges of navigating confusing and extensive regulations. A study by LA Capital details that for 14% of foreign entrepreneurs, regulation is a major obstacle, since the country has an “old-school system, in which you have to go through many offices and paperwork.”
Starting a business in Mexico is not an easy process. There are many documents companies have to submit to be recognized as a legal business. It takes weeks, even months, to process these documents through the government and during this time the business is not allowed to operate. Businesses have to be registered to be taxed by the government, and are required to open a bank account through a Mexican bank. This can cost some businesses up to 18,000 dollars.
Besides navigating regulation, the three greatest challenges for start-up businesses are finding a legal representative, following the correct tax laws, and qualifying for legal operation of their business through an electronic signature.
Tax laws are very complicated, so most companies need a legal representative to help them navigate Mexico’s tax laws and incorporate an electronic signature into their business so that they can certify documents online rather than wait for them through the mail. An electronic signature makes certifying documents efficient, but a lawyer is needed for the official process. It is almost impossible to complete these steps without proper legal representation. In Mexico, the specialized law firms that can assist startup businesses with this process are few.
Investors originate from everywhere around the world, and they usually work in companies that focus on investing in other businesses. Many entrepreneurs are unclear on how to negotiate with investors, particularly when it comes to their first approach with mutual funds.
However, the first meeting is key, since the development or stagnation of a project will depend on it. According to Víctor Aguirre López, founding partner of the firm BlackBox Startup Law, the nature of these companies is to be in constant growth and bet on disruptive innovation, but they cannot do it alone, they require financing to achieve their objectives:
“I have come across entrepreneurs who had the possibility of raising more capital because their startup really has a scalable and disruptive model, but out of fear or mistrust they bet on low amounts that are not what their company needs. Having the perspective of asking for the least is inappropriate, the ideal is to ask for the largest amount possible and have the highest possible valuation, thus obtaining the greatest number of economic resources,” he told Entrepreneur.
Startups and entrepreneurs are essential to Mexico’s economy. A study found that in Mexico City alone, startup businesses created 9,800 jobs and raised 1.72 billion dollars in capital. Capital is funding from investors in exchange for ownership in the company.
Investors give their own money to startup businesses when they first begin in exchange for ownership. Once the business grows, their initial investment is worth a lot more and they can sell their ownership to make a profit. Startup businesses use the money from investors to grow their business. It is necessary for a startup to raise large amounts of capital to obtain funding for projects.
Entrepreneurs want to focus on their business; however in order to operate and prosper they have to deal with investors, regulations, and legal paperwork. Luckily, in Mexico City BlackBox startup law firm guides international startups on the set-up process in Mexico. They also assist Mexican startups with launching their operations abroad.
The law firm specializes in advising startups in Mexico and servicing startups expanding to Latin America. For Mexican based startups, BlackBox provides assistance through all stages, including management of stakeholders, such as founders, angel investors, venture capital firms and investment funds.
Guiding the Growth of Mexican Startup Businesses: BlackBox Startup Law
BlackBox startup law firm was created in 2014 by Victor Aguirre and Carlos Aguerrebere to advise Mexican startup businesses as well as international startup businesses looking to do business in Mexico. They help startup businesses file legal paperwork with the government to be recognized as an official business. Unlike other law firms, they also help startup businesses meet with investors to help raise funding.
The firm helps startups develop a clear business plan and business model to ensure they receive the funding they need. Working with startups requires BlackBox to take a non-customary approach to the law. When creating BlackBox, Aguirre and Aguerrebere focused on being able to provide business services beyond the legal sphere to ensure the success and vitality of startup businesses in Mexico.
Beyond the legal sphere they focus on meeting with investors, registering the business with a tax agency, and creating legal contracts to give to employees. Aguerrebere describes their services,
“Victor sought me out to provide comprehensive service to startups, which was not only from a corporate and financial point of view, but was also an arm for the resolution of disputes and fortunately we have had the trust of several clients with innovative business models.”
Part of their full services include, helping to develop creative ways for startups to pitch their businesses to investors. This allows for startups to receive more funding and grow faster. No legal firm had been able to specialize in helping entrepreneurs through all these layers, and BlackBox was created to fill this void.
Startups require more legal paperwork than already established businesses because they are required to register their business initially with the government. Most legal services in Mexico do not cover this area, nor do they have equal experience in this area compared to BlackBox.
BlackBox handles the legal and accounting mechanics for startups so that entrepreneurs can focus on their business. They offer a variety of services to startups to ensure their success. This includes working with investors, registering with the tax collection agency, office leases, advertising, and employment agreements.
Other law firms solely focus on helping businesses with their legal issues, but BlackBox aids in developing companies so that startups can do their work and not worry about the legal, accounting, employment, and investing side of their business.
“After developing apps and being a lawyer for eight years, I realized all of the needs you have when you are an entrepreneur because nobody was covering them with what was worked in a large firm, nobody said I only attend startups,'” –Victor Aguirre (Co-Founder of BlackBox Law Firm)
Many startups make mistakes in their initial processes due to their lack of knowledge and experience. By working with BlackBox, entrepreneurs receive help in market study, business strategy, and cultural knowledge to ensure their success.
Carlos Aguerrebere is the other Co-Founder of BlackBox. He describes their approach as innovative, “we are not the traditional office because we have a modern point of view and a compatible outlook with today’s industry.”
Time is very valuable to startups because the longer their company is tied up in legal processes, the less time their company has to grow. BlackBox is able to create legal solutions that usually take a traditional law firm months in the matter of days. Victor Aguirre describes the importance of time,
“If the response of a traditional office is to solve legal processes in three months, you are talking about a quarter of the year. For a startup, time is of the essence in a way we haven’t seen it before.”
Traditional law firms are unable to provide the comprehensive services that BlackBox offers startups and entrepreneurs in Mexico. Mexico City is growing into a hub for Mexican and international entrepreneurs and there are many positive implications this growth can have on the Mexican economy.
As more entrepreneurs start their businesses in Mexico, BlackBox will continue to provide expansive services that are out of the reach of traditional law firms.
Michael Davis is a current undergraduate student at Tulane University studying Finance and International Relations through the Altman program in International Studies and Business. His interest in Latin America began when he took his first Spanish class in 6th grade. Since then, Michael has traveled throughout Latin America learning about entrepreneurship, policy, and globalization. He is interested in sharing the stories of young entrepreneurs who work to expand development within Latin America. He believes their stories can inspire others and reshape the narratives of Latin America. In Latina Republic, he is excited to highlight these voices in his stories to deepen his own understanding of Latin America as well as his readers. He looks forward to inspiring innovation with his stories through Latina Republic!