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Alta Group's Emerging Market Research - "Why Mexico?"
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Transcript of Alta Group's Emerging Market Research - "Why Mexico?"
ALTA VENTURES MEXICO IGNITING INNOVATION
Summary of Emerging Market Research ROGELIO DE LOS SANTOS, MANAGING DIRECTOR, ALTA VENTURES MEXICO PAUL AHLSTROM, MANAGING DIRECTOR, ALTA VENTURES MEXICO
Q2 2012
2
Outline: Emerging Market Research
¨ AVM Research Timeline and Team
¨ Emerging Market Research
¨ Investment Hypothesis - Mexico
¨ Drill down Primary Market Research
¨ Investment thesis is working…
¨ Behind the Scenes at Alta
¨ Appendix
3
Alta Market Research Timeline 2005-2010
Emerging Market
Research Started
Select Mexico as Top Choice, Research PE
Market
Indentify Partners and Launch Alta
Growth Capital
Industry Advocacy-
Capital Formation and Innovation
Report; International
Investor Summit; Key Relationships
2005 2006 2007 2008
4
Alta Market Research Timeline 2005-2010
• U.S. Ecosystem Tours and Best Practice Transfers
• Rogelio and Paul Partnership • What about VC? VC Market
Drill Down and Strategy Formulation
• Key Partner Identification • Open Office in Monterrey, U.S.
Team Moves to Mexico
Build sustainable deal flow systems, distribution and exit paths.
• E|100, MVCC, iTuesday, WIN Kickstart, etc.
• Building the team
2/11/11
Launch Alta Ventures Mexico
2009 2010
5
Alta Ventures - Team
Paul Ahlstrom, Managing Partner l Co-Founder & Managing Partner, Alta Ventures l Co-Founder, Alta Growth Capital and Kickstart Seed Fund, Co-Founder vSpring Capital l Business Dev. Director Folio Corporation division of Lexis-Nexis/Reed Elsevier l Founder/CEO of Knowlix sold to Peregrine Systems 1999 (now HP NYSE: HPQ) l Other Exits include: MyFamily.com/Ancestry.com (NASDAQ: ACOM), GlobalSim www.globalsim.com sold
to Kongsberg Maritime (KOG - Oslo Stock Exchg), Senforce sold to Novell (NASDAQ: NOVL) Altiris IPO (NASDAQ:ATRS) Altiris was then bought by Symantec (NASDAQ: SYMC), Aeroprise sold to BMC (NASDAQ: BMC), Rhomobile sold to Motorola Solutions (NYSE: MSI)
l Advisory boards: Univ of Utah Tech Commercialization, (Previously Motorola VRB), Endeavor Mentor l BA, Brigham Young University, Honorary Doctorate Netanya Academic College l Venture Investments: The American Academy, Public Engines, Convert.com, Juxta Labs
Rogelio de los Santos Calderon, Managing Partner l Co-Founder & Managing Partner, Alta Ventures l Co-Founder, Kickstart Mexico l Founder of 7 startups; exits Xtreme Cinemas, Dalus l Co-founder and CEO of Generacion Empresarial Mexicana l Master in Business Leadership, DUXX Graduate School of Business Leadership l BS, Instituto Tecnologico y de Estudios Superiores de Monterrey l Directorships: Energryn, Diverza, Juxta Labs, MFM l Boards: Babson College, Tech de Monterrey - ITESM, Endeavor, Enlace E+E
6
Rob McMillen, Principal l VP Sales Rhomobile l Associate, vSpring Capital l JD MBA Brigham Young University l BA Liberal Arts & Sciences Utah State University l v100 member
Alem Muminovic, Associate l MBA; International University of Monaco, with Honors l Experienced entrepreneur; sold to Strategic Buyer l Managing Director for Guadalajara Angel Investor Network l Founding member and Team leader for iTuesday and E|100 in the western region of Mexico
Alta Ventures - Team
Christian Aguirre, Senior Analyst l Founding Member and Team Leader for E|100 Program l Research and consultancy assistant at SME chair in EGADE l MS in Finance; EGADE Business School with Honors l BS Mechatronics; ITESM Magna Cum Laude
Lorenzo Barrera, Analyst l Consultant at SINTEC l Experience in the snack & confectionary, processed meats and steel industries l BS Mechanical Engineering; University of Notre Dame
7
Outline: Emerging Market Research
¨ AVM Research Timeline and Team
¨ Emerging Market Research
¨ Investment Hypothesis - Mexico
¨ Drill down Primary Market Research
¨ Investment thesis is working…
¨ Behind the Scenes at Alta
¨ Appendix
8
The Ring of Fire
Source: Data from World Economic Outlook Database 2012, The Ring of Fire, PIMCO, 2009
Macroeconomic Fundamentals (2011)
-15.0%
-12.5%
-10.0%
-7.5%
-5.0%
-2.5%
0.0%
2.5%
5.0%
7.5%
10.0%
12.5%
0.0% 50.0% 100.0% 150.0% 200.0% 250.0%
Publ
ic S
ecto
r D
efic
it (%
of
GD
P)
Chile
Australia
Sweden
Mexico
Finland
Norway
Brazil
Netherlands
Spain
Germany
UK
Canada
France
USA Ireland
Portugal
Italy
Greece Japan
Public Sector Debt (% of GDP)
Argentina
Denmark
Colombia
9
Gross External Debt as a Percent of GDP: Averages for Selected 59 Countries, 2003-2009 (in percent)
Sources: International Monetary Fund, World Economic Outlook, World, Bank, Quarterly External Debt Statistics (QUEDS).
10
Continued Growth in Emerging Markets Supports Private Equity
Emerging Markets
Source: IMF, World Economic Outlook Database, 2009
GDP Growth In Emerging Markets Predicted to Outperform Developed Countries
GDP Growth Predicted to Remain Positive in Most Emerging Markets
11
Continued Growth in Emerging Markets Supports Private Equity
Emerging Markets
Source: IMF, World Economic Outlook Database, April 2012
GDP Growth In Emerging Markets Predicted to Outperform Developed Countries
GDP Growth Predicted to Remain Positive in Emerging Markets
-2
0
2
4
6
8
2010 2011 2012
Developed vs Emerging Markets
United States
Euro Zone
Emerging & Developing Economies
0
2
4
6
8
10
12
2010 2011 2012
Africa Central & Eastern Europe
Commonwealth of Independent States Developing Asia
Latin America Middle East
12
The centers of rapid wealth creation are shifting from Developed to Emerging Markets
Source: IMF, World Economic Outlook Database, April 2012, Data for years 2012-‐2019 are esBmates
Contribution to Global GDP Growth (Share of World Total)
Key Drivers are: • Rapid industrialization • Significant income
growth • Improved long-term
household financial confidence
Emerging Markets Pace Global Economic Growth
Advanced Economies Emerging & Developing Economies
30% 35% 40% 45% 50% 55% 60% 65% 70%
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
13 13
Albania Chad Grenada Lesotho Papua New Guinea Swaziland Algeria Chile Guatemala Liberia Paraguay Sweden Angola China Guinea Libya Peru Switzerland Antigua and Barbuda Colombia Guinea-Bissau Lithuania Philippines Syrian Arab Republic Argentina Comoros Guyana Luxembourg Poland Taiwan Province of China Armenia Costa Rica Haiti Madagascar Portugal Tajikistan Australia Croatia Honduras Malawi Qatar Tanzania Austria Cyprus Hong Kong SAR Malaysia Republic of Congo Thailand Azerbaijan Czech Republic Hungary Maldives Republic of Yemen The Bahamas Bahrain Dem. Rep. of Congo Iceland Mali Romania The Gambia Bangladesh Dem. Rep. of Timor-Leste India Malta Russia Togo Barbados Denmark Indonesia Mauritania Rwanda Tonga Belarus Djibouti Iraq Mauritius Samoa Trinidad and Tobago Belgium Dominica Ireland Mexico Saudi Arabia Tunisia Belize Dominican Republic I. Rep. of Afghanistan Moldova Senegal Turkey Benin Ecuador I. Rep. of Iran Mongolia Serbia Turkmenistan Bhutan Egypt Israel Montenegro Seychelles Uganda Bolivia El Salvador Italy Morocco Sierra Leone Ukraine Bosnia and Herzegovina Equatorial Guinea Jamaica Mozambique Singapore United Arab Emirates Botswana Eritrea Japan Myanmar Slovak Republic United Kingdom Brazil Estonia Jordan Namibia Slovenia United States Brunei Darussalam Ethiopia Kazakhstan Nepal Solomon Islands Uruguay Bulgaria Fiji Kenya Netherlands SÒo TomÚ and PrÝncipe Uzbekistan Burkina Faso Finland Kiribati New Zealand South Africa Vanuatu Burundi F. Y. Rep. of Macedonia Korea Nicaragua Spain Venezuela Cote d'Ivoire France Kosovo Niger Sri Lanka Vietnam Cambodia Gabon Kuwait Nigeria St. Kitts and Nevis Zambia Cameroon Georgia Kyrgyz Republic Norway St. Lucia Zimbabwe Canada Germany Lao People's D.R. Oman St. Vincent &Grenadines Cape Verde Ghana Latvia Pakistan Sudan Central AfricanRepublic Greece Lebanon Panama Suriname
Countries of the World
14 14
Albania Chad Grenada Lesotho Papua New Guinea Swaziland Algeria Chile Guatemala Liberia Paraguay Angola China Guinea Libya Peru Antigua and Barbuda Colombia Guinea-Bissau Lithuania Philippines SyrianArabRepublic Argentina Comoros Guyana Poland Armenia Costa Rica Haiti Madagascar Tajikistan
Honduras Malawi Tanzania Malaysia Republic of Congo Thailand
Azerbaijan Hungary Maldives Republic of Yemen Dem. Rep. of Congo Mali Romania The Gambia
Bangladesh Dem. Rep. of Timor-Leste India Russia Togo Barbados Indonesia Mauritania Rwanda Tonga Belarus Djibouti Iraq Mauritius Samoa
Dominica Mexico Tunisia Belize DominicanRepublic I. Rep. of Afghanistan Moldova Senegal Turkey Benin Ecuador I. Rep. of Iran Mongolia Serbia Turkmenistan Bhutan Egypt Seychelles Uganda Bolivia El Salvador Morocco Sierra Leone Ukraine Bosnia and Herzegovina Equatorial Guinea Jamaica Mozambique Botswana Eritrea Myanmar Brazil Jordan Namibia
Ethiopia Kazakhstan Nepal SolomonIslands Uruguay Bulgaria Fiji Kenya SÒoTomÚ and PrÝncipe Uzbekistan Burkina Faso Kiribati South Africa Vanuatu Burundi F. Y. Rep. of Macedonia Nicaragua Venezuela Cote d'Ivoire Niger Sri Lanka Vietnam Cambodia Gabon Nigeria St. Kitts and Nevis Zambia Cameroon Georgia KyrgyzRepublic St. Lucia Zimbabwe
Lao People's D.R. St. Vincent &Grenadines Cape Verde Ghana Latvia Pakistan Sudan Central African Republic Lebanon Panama Suriname
*Based on IMF Information
Narrow the Field: Emerging Markets Per capita GDP below $14k in 2009
15 15
Algeria Chile China Peru Colombia Philippines
Argentina Poland
Malaysia Thailand Hungary
Romania Bangladesh India Russia
Indonesia
Mexico Turkey
I. Rep. of Iran Egypt
Morocco Ukraine
Brazil Kazakhstan
South Africa Venezuela Vietnam
Nigeria
Pakistan
*Based on IMF Information
Narrow the Field: Larger Economies GDP over $75 billion in 2009
16 16
China Philippines
Thailand
Bangladesh India Russia Indonesia
Mexico Turkey
I. Rep. of Iran Egypt
Brazil
Vietnam Nigeria
Pakistan
*Based on IMF Information
Narrow the Field: Larger Populations Population over 50 million in 2009
17 17
Country Population GDP 2009 (billion) GDP per capita
China 1,334.74 $ 4,909 * $ 3,678 India 1,199.06 $ 1,236 * $ 1,031 Indonesia 231.55 $ 539 $ 2,329 Brazil 191.48 $ 1,574 $ 8,220 Bangladesh 165.71 $ 95 * $ 574 Pakistan 163.77 $ 167 * $ 1,017 Nigeria 151.87 $ 173 * $ 1,142 Russia 141.39 $ 1,229 * $ 8,694 Mexico 107.55 $ 875 $ 8,135 Philippines 92.23 $ 161 $ 1,746 Vietnam 87.21 $ 92 * $ 1,060 Egypt 76.70 $ 188 * $ 2,450 Iran 74.10 $ 330 * $ 4,460 Turkey 70.54 $ 615 $ 8,723 Thailand 66.98 $ 264 $ 3,940
Source: International Monetary Fund
Narrowed Field
*Estimated
18
Source: Goldman Sachs
BRICS and N-11 Goldman Sachs Growth Environment Score (GES) 2009
Narrow the Field Goldman Sachs Growth Environment Score
¨ Launched in 2005, GES was developed to capture the factors that crucially affect the ability of an economy to grow.
¨ This tool helps Goldman to predict if their BRIC theory will become a reality in the next 20-40 years. (Variables include inflation, government deficit, external debt, investment rate, penetration of phones, PC’s, and Internet, education, life expectancy, political stability, rule of law and corruption)
19
Analysis of Key Indicators (as of 2005)
20
Source: World Bank; Ease of Doing Business Rank Data for 2011
Country Starting a
Business-Rank
Dealing with Construction
Permits – Rank
Getting Electricity
-Rank
Registering Property-
Rank
Getting Credit-Rank
Protecting
Investors-Rank
Paying Taxes-Rank
Trading Across
Borders - Rank
Enforcing Contracts –
Rank
Resolving Insolvency
- Rank
Brazil 120 127 51 114 98 79 150 121 118 136 China 151 179 115 40 67 97 122 60 16 75 India 166 181 98 97 40 46 147 109 182 128 Russia 111 178 183 45 98 111 105 160 13 60 Mexico 75 43 142 140 40 46 109 59 81 24
Ease of Doing Business Rank 2011 (Higher = worse)
Brazil 126
Russia 120
India 132
China 91
Mexico 53
Ease of Doing Business (updated 2011 Analysis)
21
Source: Frontier Strategy Group, 2010 figures Disposable Income: The amount of money that households have available for spending and saving after income taxes have been accounted for
CONSUMER Personal Disposable Income 2010
Latin American Consumer
22
Other markets we considered…
23
¨ Strengths/Opportunities ¤ Economic stability ¤ Political stability ¤ Market opportunity
n Demand for Telecom products and services n Cost reduction
n Many US businesses use India as tech support/call center
¤ Skilled labor n SW development Center n Managerial and manufacturing expertise
¤ Ease to transfer profits back to US headquarters
¨ Weaknesses/Risks ¤ Social issues
n Poverty level n Infra-structure n Corruption
¤ Competitive Market
Summary Analysis: India*
* Snapshot of 2005 analysis
24
¨ Strengths/Opportunities ¤ Market Size
¤ Fast paced economy
¤ Low cost of labor
¤ Time required to start a business (48 days)
¨ Weaknesses/Risks ¤ Political regime
¤ Hostility against US
¤ Social issues
n Severe human rights issues including child exploitation
n Corruption
¤ Trade barriers
¤ Severe Intellectual Property/Copyright issues
¤ Competition – local and foreign
Summary Analysis: China
* Snapshot of 2005 analysis
25
¨ Strengths/Opportunities ¤ Improving economy ¤ Political stability ¤ Infra-structure ¤ High literacy rate (99.4%) ¤ Time required to start a business (36 days!)
¨ Weaknesses/Risks ¤ Payment terms and collection risks ¤ Work ethics ¤ High taxes
n Large corporations not affected as much ¤ Social Issues
n Corruption still a serious problem n 10% of population suffers from alcoholism n Violence directly related to alcoholism (33% of violent crime)
¤ Slow decision making process n Deadline is a foreign concept
Summary Analysis: Russia
* Snapshot of 2005 analysis
26
¨ Overview ¤ Vast territory
n Each country has a unique set of values n Two predominant languages n Two large markets n Several smaller markets with high opportunities
¤ Fertile Soil n Rapid Infrastructure build up n Flourishing IT and Telecom sectors n Solid US business presence n Overall economic growth n Gradual political stabilization n Commodity markets play well into trends
Latin America Region
* Snapshot of 2005 analysis
27
¨ The Two Giants ¤ Brazil ¤ Mexico
¨ Small Market ROI Opportunities ¤ Chile
¨ Up and Coming ¤ Argentina ¤ Colombia ¤ Peru
¨ Other Options to Be Evaluated ¤ Ecuador, Venezuela ¤ Central America & Caribbean*
n Panama, Dominican Republic, Guatemala, El Salvador, Costa Rica ¤ *= Puerto Rico not included (US Hispanic market)
Latin America Rank
* Snapshot of 2005 analysis
28
Summary Analysis: Brazil
¨ Strengths/Opportunities ¤ Market Size (largest in LAR) ¤ Economic stability
n Economic indicators improving considerably ¤ Political stability ¤ Trained IT labor ¤ Strong US business presence ¤ Strong exit markets/liquidity
¨ Weaknesses/Risks ¤ Regulated economy ¤ Bureaucratic government and legal system ¤ Time required to start a business (58 days) ¤ Difficulty to transfer profits back to US headquarters ¤ Trade barriers (high import taxes, etc.) ¤ Cost of capital ¤ Government is the largest IT/Telecom customer – via bids ¤ Social discrepancies and high crime rate
* Snapshot of 2005 analysis
29
¨ Pros ¤ Best ROI, Relatively low competition ¤ Fast-growing IT/Telecom market, Skilled labor ¤ Open to foreign investment, Friendly nation ¤ On par with regional leaders in its tax treatment, corporate governance requirements,
protection of minority shareholder rights and restrictions on local institutional investors ¤ Strong public and private universities ¤ Huge capital gap for small to medium size companies
¨ Cons ¤ Weak framework for fund activity, with larger funds setting up offshore ¤ Bankruptcy procedures & judicial system remains inefficient ¤ Perceptions of corruption and concerns about ongoing drug trade which affect FDI
confidence
Latin America: Best ROI Mexico
* Snapshot of 2005 analysis
30
¨ Strengths/Opportunities ¤ Ease to do business ¤ Very low trade barriers ¤ Economic stability ¤ Political stability ¤ Highly trained IT/Telecom labor ¤ Strong US business presence ¤ US dollar largely accepted ¤ Channel of distribution follows US models ¤ Port of entry for Asian parts, components, products ¤ Great base of operations for South America
¨ Weaknesses/Risks ¤ Small Internal Market ¤ High shutdown costs ¤ Business permitting process
Summary Analysis: Chile
* Snapshot of 2005 analysis
31
¨ Strengths/Opportunities ¤ Market opportunity
n Demand for technology/telecom products & services ¤ Undergoing positive economic changes ¤ US business presence (although growing leftist leaning sentiments) ¤ World class software and design talent ¤ High level of sophistication and quality of life
¨ Weaknesses/Risks ¤ Relatively small corporate market in spite of US presence ¤ Current economic situation
n Currency fluctuation n Government debt & perceived government corruption
¤ Bureaucratic environment ¤ Social Issues
n Social discrepancies n High crime rates
* Snapshot of 2005 analysis
Summary Analysis: Argentina
32
¨ Strengths/Opportunities ¤ Market opportunity
n Demand for technology/telecom products & services n Government sector offers good opportunities
¤ Channel of distribution ¤ Some US business presence ¤ Dramatically improved public safety (addressed drug cartels)
¨ Weaknesses/Risks ¤ Social issues
n Social discrepancies ¤ Columbian peso fluctuations ¤ Relatively high cost of labor ¤ Perception of safety (although it is not the reality)
* Snapshot of updated analysis
Summary Analysis: Columbia
33
¨ Strengths/Opportunities ¤ Low competition ¤ Some US business presence ¤ Governments open to foreign investments
¨ Weaknesses/Risks ¤ Small markets ¤ Social issues
n Social classes discrepancies ¤ Weak economies ¤ Infrastructure
Note: some LAR prospective customers have subsidiaries or sales offices in CA and other smaller markets. In some cases, contracts include support to those offices.
* Snapshot of 2005 analysis
Summary Analysis: Peru, Ecuador, CA&C
34
¨ Strengths/Opportunities ¤ Market opportunity
n Demand for technology/telecom products & services n Government opportunities – large deals
¤ Skilled labor ¤ Bright engineering talent ¤ Some US business presence ¤ Proximity to US (Miami)
¨ Weaknesses/Risks ¤ Small market ¤ Foreign exchange controls (Impossible to transfer money in and out of the country) ¤ Social issues
n Social discrepancies n Violence, poverty, crime rate
¤ Political instability n Leftist/dictator president`
* Snapshot of 2005 analysis
Summary Analysis: Venezuela
35
Outline: Emerging Market Research
¨ AVM Research Timeline and Team
¨ Emerging Market Research
¨ Investment Hypothesis - Mexico
¨ Drill down Primary Market Research
¨ Investment thesis is working…
¨ Behind the Scenes at Alta
¨ Appendix
36
Top Choices: Mexico + the BRICS
¨ Trending First choice*: Mexico ¨ Second place: Brazil ¨ Solid option: India ¨ Largest market: China ¨ Trending: Russia
* based on market PE/VC attractiveness and underserved capital
37
5500 6500 7500 8500 9500
10500 11500 12500 13500 14500 15500
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Mexico Market
NAFTA; Central bank
independence
Peso crisis; floats currency; receives
US bail-out;
EFTA; Investment
Grade
OECD entry
First wave of Privatizations
AFOREs; stricter accounting standards;
repays U.S. bailout
Sale of troubled portfolios and
intervened banks
GDP (PPP) per Capita from 1990-2010: 3.32% CAGR
Mexico’s rising GDP is paralleled by an improving political and regulatory environment
MX Stability and Increased Purchasing Power (U
S$)
Source: IMF World Economic Outlook Database, April 2012 Note: Data for 2011 is an estimate
Global Recession
Calderon elected
First PAN governor elected;
PRD created
Independent Electoral Institute
established
PRI loses majority in Chamber of Deputies
PRD wins D.F. vote
Fox elected; PRI loses majority in
Senate
First 30-year fixed rate Peso
bond issue
38
Sovereign Debt Rating (2012)
Source: Fitch analysis
Mexico within the Regional Sovereign Risk Environment
Mexico is tied for the second best Sovereign Debt Rating in Latin America and is also tied for second best among the BRICs
China
India
Russia
Brazil
Mexico
39
Sovereign Debt Ra/ng as of 2012
Source: Standard & Poor’s
Mexico within the Regional Sovereign Risk Environment
Country Debt Rating
Chile A+
Mexico BBB
Brazil BBB
Peru BBB
Columbia BBB-
Uruguay BBB-
Country Debt Rating
Paraguay BB-
Venezuela B+
Bolivia B+
Argentina B
Ecuador B-
Country Debt Rating
China AA-
Russia BBB
India BBB-
Investment Grade Non-Investment Grade
Non-Latin America Countries
40
Source : IMF Outlook April 2011, CIA World Fact book, EIU
Fast and sustainable growth
Growing Population and Urbanization
0.85
1.04
0.88
1.17 1.29
1.43
05 07 09 11 13 15
GDP (USD tr)
4.0% 4.0%
5.3%
3.6%
3.0% 3.0%
05 07 09 11 13 15
Inflation (Avg CPI)
12.5 14.2 13.7
15.1 16.4
17.6
05 07 09 11 13 15
GDP /capita (USD thds)
23.9%
24.7%
23.2%
25.6%
25.8%
25.9%
05 07 09 11 13 15
Savings rate
103 105 107 110
112 114
05 07 09 11 13 15
Total popula/on (million)
2.2 2.3 2.3 2.4 2.4 2.5
05 07 09 11 13 15
Urban popula/on growth (million)
Healthy population pyramid with increased aging
Age
ran
ges
2030 2010
Percentage of total population
10% 5% 5% 10%
6%
55%
39%
11%
59%
30%
Mexico’s Solid Foundation Mexico’s growth expected to continue
0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85-89 90-94 95-99 100+
Increasing Spending Power
41
81%
4% 15%
0%
20%
40%
60%
80%
100%
US Canada Other
Mexico’s export products In %
Commodities Automotive Electronics Other 0%
10%
20%
30%
40%
Mexico’s export partners (2011 in %)
(18%): oil, fruits and vegetables,
coffee, coAon
(22%): vehicles, auto parts
(23%): TVs, mobile phones, refrigerators & appliances
(37%): Other manufactured
goods
Mexico’s New Advantage in three key manufacturing areas (cost-time-quality) Mexico’s export oriented manufacturing industry will continue to fuel growth
Source: Worldbank, 2012
* 2010. 53 foot container from Mexico to Chicago and 40 foot container from China to Chicago
Mexico’s Export Advantages
Transporta/on cost* USDs
Lead /me* Days
Mexico China
$3058
5 22
$5239
Mexico’s Export Products and Partners With Significant Export Upside
Labor Unit Cost USDs $4.40 $4.50
0.00
2.00
4.00
6.00
01 03 05 07 09
China
Mexico
Labor unit cost USDs
42
Source: Emerging Markets Private Equity Association, IMF
Opportunity
0.04% 0.05% 0.14% 0.15% 0.15% 0.16%
0.21% 0.27% 0.29%
0.37% 0.37% 0.41%
0.58% 0.61%
1.03% 1.06%
1.41%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
Private Equity Penetration, 2010
PE Investment / G
DP (%
) 2010 Capital Gap Mexico has low private equity participation compared to the BRIC’s.
43
0.01% 0.01%
0.04%
0.08% 0.09%
0.10% 0.10% 0.10%
0.12% 0.13%
0.14%
0.00%
0.10%
0.20%
0.30%
Mexico MENA S Korea
Russia SSA Brazil Japan Turkey S Africa
Poland China India UK US Israel
Source: Emerging Markets – EMPEA, United Kingdom – Centre for Management Buy-Out Research, United States – PitchBook, Israel – Israel Venture Capital Research Center, Japan – Asia Private Equity Review, All GDP data – International Monetary Fund
Opportunity PE
Inve
stm
ent /
GD
P (%
)
.98% 2.05% .75% .33% … … … …
MX PE Penetration dropped in 2011 Mexico has low private equity participation compared to the BRIC’s.
Private Equity Penetration, 2011
44
E&Y VC/PE Country Attractiveness Score 2011
Source: The Global Venture Capital and Private Equity Country Attractiveness Index 2011, Ernst & Young
0 20 40 60 80 100
Kyrgyzstan (80) Argentina (66) Colombia (47)
Brazil (43) Mexico (42)
India (30) Chile (29) China (20)
South Korea (17) UK (2)
USA (1)
VCPE Country Attractiveness Score 2011
45
2010 AT Kearney FDI Confidence Mexico #8 Jumps 11 Places
* Mexico dropped significantly in 2012 rankings
46
76 74
78 76 76
59
65
75 75 75
35
40
45
50
55
60
65
70
75
80
2006 2007 2008 2009 2010
Tota
l Sco
res
(Max
= 1
00)
Chile
Brazil
Mexico
Colombia
Latam Average
Costa Rica
Peru
Argentina
Total Scorecard ratings (Select Latin American Countries)
2010 LAVCA Scorecard Results Over Time
INT’L BENCHMARKS
UK 93 Israel 81 Spain 76 Taiwan 61
SCORECARD COUNTRIES
Chile 76 Brazil 75 Mexico 63 Colombia 60 Uruguay 57 Trinidad & Tobago 56 Latin America Average 55 Costa Rica 54 Peru 51 Panama 49 Argentina 43 El Salvador 43 Dominican Republic 38
Source: 2010 LAVCA – EIU Scorecard Report.
47
2012 LAVCA Scorecard
Evolution of Select PE/VC Markets
48
38 43 43
49 51
54 56 57
60 61 63
75 76 76
81 93
0 10 20 30 40 50 60 70 80 90 100
Dominican Republic El Salvador
Argentina Panama
Peru Costa Rica
Trinidad & Tobago Uruguay
Colombia Taiwan Mexico
Brazil Chile
Spain Israel
UK
2010 LAVCA Scorecard Results
Rank / Y-o-Y (scores)
International Benchmarks
Latin America
1 a
2 ↔
3 ▼2
4 ↔
5 ↔
6 ▲5
7 ▼2
8 ▲3
9 ▲3
10 ▼7
11 ▲1
12 ▲1
13 ↔
=14 ▼3
=14 ▼3
16 ▲5
Chile, Brazil and more recently Mexico have been able to break out of the pack and get closer to the international benchmarks from more developed markets. Source: 2010 LAVCA – EIU Scorecard Report.
49
2012 LAVCA Scorecard
Click to edit Master title style 50
Structural Transformations and Shifting Consumer Habits Creating Significant Opportunities & Challenges for PE/VC investments in MX
• Per Capita Income expected to grow at 4% over next 5 years
• Continued willingness to spend reflected in stable savings rate
• 55% of the population is currently in active economic life
Opportunities: • Leisure & Lifestyle
• Advertising • Consumer goods
• Logistics/transportation
Opportunities:
• Non Banking Finance to business
• Services to manufacturing industry
• Tech manufacturing
• Investment expected to remain at 26% of GDP (highest in Latin America after Chile
• Increased urbanization will drive the need for housing, transportation and infrastructure
• The 2012 5-year plan includes $88 bn investments in energy
Growing Consumption
Rapid Infra. Development
• Rapidly growing middle class and upper class
• Maturing population pyramid (pop. above 65 years old will be 11% in 2030)
• Technology orientation
• Growing environmental awareness
Opportunities:
• Healthcare, Housing
• Education
• Non banking Financial Services to consumers
Structural Transformation
51
* Bank credit in Latin America weighted by GDP share. Includes mortgages, credit to consumers and to firms Source: EMPEA, EIU, LAVCA, Banco de México and S&P Ratings Service; Vander Capital Partners analysis;
PE/VC
penetration Avg. 2008-2010
Busi
ness
env
ironm
ent f
or P
E/V
C
Scor
e (0
to 1
00)
Mexico within the Regional PE/VC Attractiveness Environment
Mexico is very underpenetrated despite its overall good business environment to conduct PE and VC
0.00%
0.02%
0.04%
0.06%
0.08%
0.10%
0.12%
0.14%
0.16%
0.18%
0.20%
0
10
20
30
40
50
60
70
80
Chile Brazil Mexico Colombia Uruguay Peru Argentina
Business Environment vs. PE Penetration
** In addition, bank credit* in Mexico is much lower than in the region. Bank credit was 12% of GDP in 2010, vs 51% for Brazil and 37% average for Latin America
52
Business lending has experienced negative growth and has not kept pace with consumer credit. Companies are starved for growth capital to keep up with the market demand.
SOURCE: Comision Nacional Bancaria y de Valores
Significant Business Lending & Investment Gap
53
Companies are starved for growth capital to keep up with the market demand. As a rule consumer lending has far outstripped new business lending save for a short period during the financial crisis.
SOURCE: Comision Nacional Bancaria y de Valores
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Year
-ove
r-ye
ar g
row
th
Loan Growth in the Mexican Banking System
Business
Consumer
Housing
Still significant Lending Gap for SME’s
54
Mexico’s Current Situation – Only large Mexican businesses have access to financing
Source: AMB Report: “Lending in Mexico” February 2011 and Banco de México; Vander Capital Partners analysis.
$-
$10
$20
$30
$40
$50
$60
$70
$80
2006 2007 2008 2009 2010
Other
Large
12%
13%
12%
12%
13%
US$
Bill
ion
BANK CREDIT TO MEXICAN FIRMS BY SIZE
55
No Financing for Small & Medium Mexican Businesses 1% of firms get 87% of the financing
Source: AMB Report: “Lending in Mexico” February 2011 and Banco de México; Base de datos ahorro y financiamiento CNBV, diciembre 2010; Endeavor Mexico; Vander Capital Partners analysis.
12%
13%
12%
12%
13%
$56.07
$74.69
$8.38
$11.16
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
ABM CNBV
Small & Med
Large
408,884 small and med firms
3,033 large firms
BANK CREDIT TO MEXICAN FIRMS BY SIZE $U
S Bi
llion
56
Mexico’s Current Situation
Source: AMB Report: “Lending in Mexico” February 2011 and Banco de México; Base de datos ahorro y financiamiento CNBV, diciembre 2010; Endeavor México; Vander Capital Partners analysis.
BANK CREDIT TO MEXICAN FIRMS BY SIZE IN 2010
Firm size Loan per firm ABM
Loan per firm CNBV
Distribu/on % of GDP Employees
S & M US$20.5K US$27.3k 13% 40% 5-‐499
Large US$18.5Mn US$24.6Mn 87% 54% 500+
57
Outline: Emerging Market Research
¨ AVM Research Timeline and Team
¨ Emerging Market Research
¨ Investment Hypothesis - Mexico
¨ Drill down Primary Market Research
¨ Investment thesis is working…
¨ Behind the Scenes at Alta
¨ Appendix
58
On-The-Ground Research
59
There Are Many Mexicos
60 60
Border Issues Obscure America’s view of Mexico
¨ Violence ¨ Drug Cartels
¨ Immigration
61
Market Drill Down Process On-The-Ground Research
• Federal Competition Commission; Economic Bureau; Undersecretary of the Treasury; ProMexico; Economic Bureau, Foreign Investment; Telecommunications and Transportation Bureau; Mexican Senators; Governor of State of Mexico; Former Ambassador to US; Mayor of Mexico City; Undersecretary of North America; Mexican Legislature; Executive Director, NAFINSA; ProMexico; FOCIR
Government
• GE Mexico, Cisco, Corporate and Investment Bank of Banamex (Citigroup), Intel Capital Mexico, IXE Grupo Financiero, American Chamber of Commerce—Mexico, Cavlemas, US Hispanic Chamber of Commerce; Banorte Insurance, Deutsche Bank Mexico
Industry
The Alta team has held 100+ meetings that have enabled us to understand the opportunities and challenges of doing business in Mexico. Below are a few representative meetings…
62
Market Drill Down Process On-The-Ground Research
• Visited with more than 12 Mexican families who are among the most influential in Mexico.
Mexican Families
• Tecnologico de Monterrey (TEC) , UNAM, CEPII, Conacyt, Pan American Univ (CEPii)
Research/ Universities
• More than 20 limited partners and 3 institutional investors and multilaterals including IFC, NAFIN, CMIC, IADB/MIF
Limited Partners, Financial
63 Tijuana Population: 750,000 Key Industries: beverages, processed foods, metalworking, radio and television manufacture, electrical machinery Hermosillo
Population: 600,000 Key Industries: automotive, meat, cement and derivatives, electrical machinery
Culiacán Population: 600,000 Key Industries: food processing, cereal milling, sugar, beverages, edible oils and fats
Aguascalientes Population: 500,000 Key Industries: electronics, automotive, dairy, textiles, carpets
León Population: 1 million Key Industries: refining, footwear, leather and tanning, bakery goods, beverages
Guadalajara Population: 4 million Key Industries: high-technology, edible oils and fats, plastic products, chemicals, dairy products, processed foods, textiles, footwear
Mexico City Population: 20 million Key Industries: retail, financial services, food, automotive, plastic products, paper and cellulose, chemical derivatives, basic chemicals
Puebla Population: 1.5 million Key Industries: automotive, textiles, iron and steel, bottled water, chemicals, meat processing
Veracruz Population: 450,000 Key Industries: petrochemicals, refining, basic chemicals, iron and steel, sugar, beef, processed foods, tourism, transportation services (maritime)
Ciudad Juárez Population: 800,000 Key Industries: electrical machinery, transport equipment, meat, electronics, dairy products
Chihuahua Population: 650,000 Key Industries: electrical machinery, automotive, meat, electronics, dairy products, timber
Torreón Population: 880,000 Key Industries: automotive, bricks, clay, refractory, general machinery, cement and derivatives
Toluca Population: 850,000 Key Industries: automotive, plastics, paper and cellulose, chemical derivatives, basic chemicals
Monterrey Population: 3 million Key Industries: oil refining, iron and steel, electrical machinery, glass and derivatives, breweries, meat products, cement, banking
San Luis Potosí Population: 670,000 Key Industries: iron and steel, non-ferrous metallurgy, tobacco products, electrical machinery, automotive, livestock
Tampico-Madero-Senderomira Population: 340,000 Key Industries: chemical, industrial machinery, electronic & electrical equipment, oil and refinery, agriculture, cattle, fishing
Source: SE-NAFTA.
* Snapshot of 2005 analysis
Widespread Development
64
Major Oil Suppliers of the United States
¨ 1. Canada – 2.53 million barrels per day (bpd)
¨ 2. Mexico – 1.26
¨ 3. Saudi Arabia – 1.08
¨ 4. Venezuela – 1.07
¨ 5. Nigeria – 1.05
¨ 6. Algeria – .512
¨ 7. Iraq – .464
¨ 8. Angola – .422
¨ 9. Colombia – .360
¨ 10. Brazil – .289
Source US Department of Energy: ftp://ftp.eia.doe.gov/pub/oil_gas/petroleum/data_publications/company_level_imports/current/import.html
65
Querétaro VISTAR VITROMATIC (2)
Cuernavaca NEC
Torreón THOMSON
Monterrey PIONNER DANFOSS COMPRESSORS VITROMATIC (3) MABE (2) KODAK NIPPON DENSO (Automotriz) AXA YAZAKI (Automotriz)
Mexicali
SONY DAEWOO (SLRC) MITSUBISHI GOLDSTAR
Aguascalientes WHITE WESTINGHOUSE MEX* TEXAS INTS. XEROX SIEMENS
Querétaro CLARION DAEWOO BLACK & DECKER MABE (2) SINGER SIEMENS
Estado de Mexico MABE BRAUN ELECTROLUX SUNBEAM KOBLENZ ERICSSON ALCATEL/INDETEL AMP
Puebla GESTAR SINGER VITROMATIC
Saltillo MABE HAMILTON
BEACH*
Reynosa
VITROMATIC NOKIA
DELCO (Automotriz) PHILIPS SONY MATSUSHITA (Automotriz)
LUCENT TECHNOLOGIES FUJITSU (Automotriz) CONDURA (Automotriz) DELNOSA (Automotriz)
SanLuis Potosí MABE GE MABE SANYO
Chihuahua MOTOROLA ALTEL KIOCERA JABIL
Juárez
KENWOOD ELECTROLUX 7 ACER
TOSHIBA PHILIPS THOMSON
ELAMEX PLEXUS
Tijuana SANYO SONY HITACHI MATSUSHITA JVC SAMSUNG PIONNER
SANYO ELECTRODOMÉSTICOS PHILIPS CASIO KODAK CANON KIOCERA INTERNACIONAL RECTIFIER
MITSUBISHI SHARP
Guadalajara 7 I.B.M 7 H.P. NEC
LUCENT TECHNOLOGIES MOTOROLA KODAK CUMEX SIEMENS SOLECTRON DE MEXICO FLEXTRONICS JABIL CIRCUIT MTI ELECTRONICS SCI SANMINA
Estado de México
ELECTROLUX FILTER QUEEN HOOVER IMAN KOBLENZ MABE PHILIPS SUNBEAM OLIVETTI
PANASONIC
OLIMPIA
AUDIO & VIDEO
Home Appliance
7 Computer Equipment
( Telecommunications
Other
Electronics Industry in Mexico
* Snapshot of 2005 analysis
66
Mexico’s Dynamic & Growing Industrial Base
• 40+ Home appliance manufacturers • Dozens of automobile manufacturers and parts suppliers
• World Class Mexican Companies
Merrytech TIMCO
67
Merging of Consumer Habits
68
The U.S. exports more to Mexico than to any other country besides Canada
U.S Exports in 2007
1.Canada $248.9B
2. Mexico
$136.5B
3. China $65.2B
4. Japan $62.7B
5. U.K. $50.3B
Not in the Top 10 Brazil
$24.6B India
$17.6B Russia $7.4B
69
Mexico, China & Brazil increase purchase of US goods and all others flat
Source: http://www.ustr.gov/countries-regions
U.S Exports in 2010
1.Canada
$248B
2. Mexico
$163B
3. China
$91.9B
4. Japan
$60.5B
5. U.K.
$51B
BRICS 2010 Brazil
$35B
India $19.2B
Russia $6B
70
Heavy Trade and Growing
¨ There is more than $1 billion in trade every single day between the U.S. and Mexico.
¨ $400 billion of imports and exports between the US and Mexico each year.
71
Mexico is the Number One Foreign Market for California Goods
California Exports in 2007
1. Mexico
$18.3B 2.Canada $16.1B
3. Japan $13.5B
4. China $10.6B
5. South Korea
$7.4B
Not in the Top 5 Brazil $2B
India $1.9B
Russia $.5B
72
8 Californian Industries Sold Over $1B in Goods to Mexico in 2007
• Computers and Electronic Products $4.4B
• Transportation Equipment $2.1B
• Machinery Manufacturers $1.8B
• Fabricated Metal Products $1.1B
• Processed Foods $1.1B
• Chemical Manufacturers $1.0B
• Plastic and Rubber Products $1.0B
• Electronic Equipment, Appliances and Parts $1.0B
73
Large, stable and growing economy. Mexico’s Huge Potential
¨ Large and growing market ¤ 113,000,000 inhabitants, half of the population under the age of 26 ¤ High rate of new family formation and emergent middle class. ¤ GDP (PPP): $1.74 trillion; world’s 11th largest economy ¤ Forecasted to be 6th largest by 2050 (Goldman)
¨ Macroeconomic stability ¤ Stable macroeconomic policies and pro-growth
political leadership ¤ 5%+ GPD Growth, Low public sector deficit, debt
and 3-5% inflation rate over the last decade ¤ Goldman Sachs Growth Environmental Score (3 out of
15, BRICS and N-11) and AT Kearney FDI Confidence Index (jumped from 19 to 8 place)
¤ Stability and growing middle class has increased consumer-oriented lifestyles
74
In 2005 Venture Capital in Mexico was almost Non Existent
SOURCE: Capital IQ, country websites *In 2009 limited early-stage VC or seed capital in Mexico (5 VC firms as of 2011 and four in fundraising mode)
100
40 16 1020
20406080100120
China India Brazil Russia Mexico
# of Local VC firms by Country
75
Mexico VC Precedents
2000
Lack of a clear policy
Inadequate legal frame work
Limited industry knowledge within the country and limited number of specialists
Limited impact in the market of the efforts done by development banks
Few institutional investors
Lack of deal flow and venture capital oriented entrepreneurial culture
2010
~ Government innovation committee run by SE
ü Amendment to Mexican Securities Law in 2006, SAPI structure
ü Growing interest: University VC Classes, MVCC, Capital Emprendador Conf DF, Incubators/accelerators
ü MIF Inter American Development Bank, IFC World Bank, CAF
ü Fondo de Fondos, CMIC, NAFIN, AFORES/CKDs, LAFP, & other Int’l Funds
~ Early, but growing interest and sophistication
76
U.S. VC History
¨ Influential Families (1900-1960) ¤ Pre WWII- Wealthy families begin conducting
first PE transactions: Carnegie and Phipps (Bessemer Ventures), Vanderbilts, Whitneys (Whitney and Co.), Rockefellers (Venrock) and Warburgs (Warburg Pincus)
¤ 1957- Georges Doriot- “Father of Venture Capital”, Dean of HBS and founder of ARDC invests in DEC which returns 500X
¤ 1958- Small Business Investment Act
¤ 1959- Rockefeller family (later Venrock) funds Fairchild Semiconductors and launches the integrated circuit industry
77
U.S. VC History
¨ Institutional Capital (1960-2010) ¤ 1960s- PE/VC Industry formalizes and develops
fund model
¤ 1972- KPCB and Sequoia launch in Silicon Valley, built deal flow, distribution and exit networks and sustainable competitive advantage
¤ 1978- Allows pension funds to invest in the asset class; fundraising jumps 14X in one year
¤ 1980-2000- Apple, Genentech, FedEx, Cisco, Microsoft, Amazon, Ebay, Intuit, Sun Micro
¤ 2000+ Tech bubble bust, beginning expansion to emerging markets in search of growth
¤ 1997-2007- Average early-stage venture returns were *40% compounded annually
* Thomson Venture Economics – NVCA (early stage Funds)
78
Impact: VC-Backed Job Creation
Sector Jobs %
Software 817,166 80.99%
Telecom 736,961 74.08%
Semiconductors 309,437 73.85%
Networking and Equipment
392,505 58.75%
Electronics and Instrumentation
271,224
51.35%
1.60%
0.20%
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
1.60%
1.80%
VC-Backed
Total Private Sector
Job Growth ’06 - ’08
• 11% of all private sector jobs Source: NVCA Venture Impact 5th Edition
79
Impact: VC-Backed Revenues
Sector Rev. %
Electronics/Instrumentation
$129.6 B 67.00%
Semiconductors $86.8 B 55.04%
Telecom $256.1 B 51.05%
Biotech $209.4 B 47.15%
Computers and Peripherals
$315 B
44.29%
5.3%
3.5%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
VC-Backed
Total Private Sector
Revenue Growth ’06 - ’08
Source: NVCA Venture Impact 5th Edition
80
Impact: New Industry Creation
¨ Industries Created with VC ¤ Information Technology ¤ Biotechnology ¤ Medical Devices ¤ Network Security ¤ Online Retailing
¨ Newest Creations ¤ Social Media ¤ Clean Technology
81
Impact: U.S. VC in 2008
“Opportunity and Innovation defines America’s advantage”
- David McCullough
82
Impact: U.S. VC in 2008
$1.09
$2.90
$14.30
21%
$-
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
$16.00
Mexico GDP U.S. VC-Backed Revenue U.S. GDP
USD
(Tr
illio
ns)
Economic Comparison and VC Impact (2008)
Source: NVCA Venture Impact 5th Edition, IMF
83
Source: INEGI Preliminary 2009 results
Enterprises by size and participation (2008)
84
All US Job Growth is from Startups
Source: http://www.kauffman.org/newsroom/u-s-job-growth-driven-entirely-by-startups.aspx
85
Funding Continuum – Mexico’s Funding Gap
SEED/START-UP FUNDING
DEVELOPMENT FUNDING
EXPANSION FUNDING
OPPORTUNITY DEVELOPMENT
CONTINUED GROWTH
ANGELS, FOUNDERS & SEED FUNDS
VENTURE CAPITAL – GROWTH EQUITY
PE - PUBLIC MARKETS
VALUATIONS INCREASE
BUSINESS RISKS DECREASE
MENTORING NEEDS DECREASE
$5M-20M $500K-5M $50K-500K >$20M Sweat
Financing Gap in Mexico
86
Funding Continuum – Filling the Gap
SEED/START-UP FUNDING
DEVELOPMENT FUNDING
EXPANSION FUNDING
OPPORTUNITY DEVELOPMENT
CONTINUED GROWTH
ANGELS, FOUNDERS & SEED FUNDS
VENTURE CAPITAL – GROWTH EQUITY
PE - PUBLIC MARKETS
VALUATIONS INCREASE
BUSINESS RISKS DECREASE
MENTORING NEEDS DECREASE
$5M-20M $500K-5M $50K-500K >$20M Sweat
MEXICO
87
Alta’s Target Investment Region
Alta Growth Capital • Headquartered in Mexico City • Regional Office in Monterrey • Support for Alta Ventures Mexico
Alta Ventures Mexico Fund I • Headquartered in Monterrey • Regional Office Mexico City
Kickstart Seed Program • Headquartered in Monterrey • Guadalajara program Q3 ’12
MEXICO
Alta Group Americas • Headquartered in Salt
Lake City, Utah
GROUP AMERICAS
88
Consumer Technology
Security
Clean/Energy
Healthcare Non-banking
Alta Ventures Mexico Focuses on high growth Mexican sectors
89
Outline: Emerging Market Research
¨ AVM Research Timeline and Team
¨ Emerging Market Research
¨ Investment Hypothesis - Mexico
¨ Drill down Primary Market Research
¨ Investment thesis is working…
¨ Behind the Scenes at Alta
¨ Appendix
90
Technology Clean/Energy Non-banking Financial
Alta Portfolio by Investment Focus
91
Wave 1: Technology
Mexico Leapfrogging to Next Generation Technologies • Mobile and internet penetration growing quickly
• Leapfrog to cloud computing SaaS, other on demand services
• New Hacienda Electronic Invoice
• Need to automate in order to reduce corruption
Source: COFETEL. *Penetration rate for Apr-10, self calculated
# of Total Users 14078 21758 25928 30098 38451 47129 55395 66559 75303 83528 85277 88797
Penetration Rate 14% 22% 25% 29% 36% 45% 53% 63% 70% 77% 78%* 80%*
14078 21758
25928 30098
38451 47129
55395
66559 75303
83528 85277 88797
0 10000 20000 30000 40000 50000 60000 70000 80000 90000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 0%
20%
40%
60%
80%
100%
Num
ber o
f Use
rs (T
hous
ands
)
Pene
trat
ion
Rat
e
Mobile Users in Mexico
92
Wave 2: Clean Tech
High Potential in Clean Energy Production • Current law prohibits private sale of energy • Pending shift in law will allow for private generation and sale of clean energy. • President Calderon is pushing for 8% of power to come from renewable sources by 2012 • Solar potential: 3rd in world • 3rd largest geothermal producer in world • High potential in wind, biomass & Solar
93
Wave 3: Non Banking Financial
Small and Medium Enterprises (SME) lack access to financial services • Business lending has been growing negatively and companies are starving for capital to keep up with market demand • Banks have strict and bureaucratic lending processes • Specialized financial services entities are offering agile and flexible value propositions to the underserved SME market
94
Wave 4: Consumer
10+ Million entering working in next decade • Rapid family formation • Family size dropping • Disposable income rising • Growing demand for :
• Education • Healthcare • Housing/appliances • Consumer products • Entertainment
95
Wave 5: Healthcare (US Grey Hair Tsunami)
Retiring US Baby Boomers Creating Insatiable Demand for HC Services • California and Texas alone have over 14
M baby boomers • Concerned with retirement budgets and
healthcare • Mexico can deliver services under a more
cost effective system; this will require more nurses and lower cost infrastructure
• Changes to US healthcare will be a huge win for Mexico
96
Outline: Emerging Market Research
¨ AVM Research Timeline and Team
¨ Emerging Market Research
¨ Investment Hypothesis - Mexico
¨ Drill down Primary Market Research
¨ Investment thesis is working…
¨ Behind the Scenes at Alta
¨ Appendix
97
Entrepreneur Ecosystem Support
Entrepreneur activity
1. E|100 www.e100.mx
2. Endeavor and Enlace mentor networks www.enlacee.org, www.endeavor.org.mx
3. NISI – MX Entrepreneur education
4. Business plan competitions: Clean Tech Challenge, Estudiante Emprendedor
Innovation capacity
1. iTUESDAY www.ituesday.mx
2. Western Innovation Network www.sci.utah.edu
Investment capacity
1. MVCC – Mexico Venture Capital Conference www.mvcc.mx
2. MX Kickstart Seed Program
3. Mexican Family Offices & Strategic Partnerships
4. Strategic Corporate Partnerships: Spin-Ins/Spin-Outs
MEXICO
98
Venture Capital: Version1.0 - Silicon Valley
99
Everyone Wants to be Silicon Valley
¨ Silicon Alley – New York, England
¨ Silicon Sloboda - Moscow
¨ Silicon Gulf – Davao Philippines
¨ Silicon Slopes, Utah
¨ Silicon Oasis- Dubai
¨ Silicon Wadi – Israel
¨ Silicon Beach – Australia, Brighton England
¨ Silicon Glen – Scottland
¨ Silicon Gorge – Bristol, England
¨ Silicon Forrest – Portland Oregon
¨ Silicon Prairie – Illinois, Dallas
¨ Silicon Sandbar – Cape Cod
¨ Silicon etc….
¨ But can Silicon Valley be replicated?
100
What Makes Silicon Valley work?
¨ Innovation Capacity. Significant Intellectual Capital (Stanford, Xerox PARC, IBM Research Labs)
¨ Capital. Robust Investment Capacity (Full Funding Continuum)
¨ Human Capital. Critical Mass (Significant Entrepreneurial Activity & Culture, Deep Bench Strength, Social Dynamics: OK to Fail, OK to be Rich)
¨ Trusted informal Networks (Trusted Service Providers, Shared Community Vision, Predictable & Supportive Government)
1. Critical Mass of Capital, Human Capital and Innovation Capacity tied together with
2. Trusted Informal Networks in an 3. Entrepreneur Friendly Environment
101
Trusted Informal Networks Drive Positive Outcomes (can we bring the best of SV to LA?)
102
MX Entrepreneurial Ecosystem Stakeholders
Industry
Financial
Entrepreneurs
Government
Research Universities
Innovation Capacity
Investment Capacity
Entrepreneur Activity
104
The US VC Industry Correction
105
Alta Ventures Mexico
Rogelio de los Santos Alta Ventures Mexico
Paul Ahlstrom Alta Ventures Mexico
106
Outline: Emerging Market Research
¨ AVM Research Timeline and Team
¨ Emerging Market Research
¨ Investment Hypothesis - Mexico
¨ Drill down Primary Market Research
¨ Investment thesis is working…
¨ Behind the Scenes at Alta
¨ Appendix
107
Summary Research of Emerging Markets
108
Mexico & the BRICs
BRICs vs Mexico (2011 Values)
Source: World Economic Outlook Database, April 2012, Alta Ventures Calculations
Country 2011 GDP (PPP) ($bn)
Population (mm)
GDP/POP (usd)
Brazil 2,493 195 12,789
Russia 1,850 142 12,993
India 1,676 1,207 1,389
China 7,298 1,348 5,414
BRIC Mean 3,329 723 8,146
Mexico 1,155 113 14,708
Mexico/BRIC 50% 16% 181%
109
Brazil vs. Mexico
Indicator Brazil Mexico
Population (Millions) 194.0 113.7
GDP PPP Per capita 12,789 14,708
Exports $250B $336B
Unemployment 5.97% 5.23%
Days Required to Start a Business 119 9
Inflation 6.5% 3.5%
Homicide Rates (per 100,000 People) 21.97 11.59
GDP Real Growth Rate 2.7% 3.8%
110
Source: Bloomberg; The Rohatyn Group. Data as February 9,2012
Market Performance
Country 2007 2008 2009 2010 2011 YTD
(2012) 5 Years
MSCI EM -66% -66% -66% -66% -66% 14% -66%
MSCI EMEA 26% -57% 63% 21% -23% 14% -5%
MSCI Asia 38% -54% 70% 17% -19% 13% 14%
MSCI LatAm 47% -53% 98% 12% -22% 15% 35%
Mexico & the BRICs
111
Source: The Rohatyn Group, 2012
Mexico & the BRICs
112
Exits: M&A Sources
36%
33%
21%6% 5%
Acquirers of Mexican Companies (’07-‐’09)
Mexico
U.S./Canada
Europe
Source: Zephyr
113
Other (45)
Food
Specialized Retail
Housing develop.
Mining
Financial
Media
Const. Matls.
RetailBeverage
Telecom
Conglomerates
9
8
6
4
4
7
3
10
61314
# of companies
130 Companies
US$310 bn Market Cap
Publicly Traded Companies by Market Cap
Source: IXE
Publicly Traded Mexican Companies
The Mexican market for traded securities remains relatively small and concentrated: Its largest three companies (America Movil, Walmex and Telmex) account for 37% of the total market capitalization.
114
Exits: Mexico IPO
The Mexican IPO market has traditionally been very limited and not a viable exit option for most PE investments, however… • Potential for a new small-cap online Mexican stock exchange to provide liquidity to early-stage investors and expansion funds for growing companies
• Triple B rated companies can raise debt on the Bolsa today
115
Build regional innovation capacity and link to global networks
• Mexican business opportunities with local and international distribution partners (Leveraging national & international IP)
• With limited IP in
Mexico, how do we make Mexican companies more competitive?
116
o IDC
o Bloomberg
o World Bank
o USDOC
o AMB Report
o LAVCA - Latin America Venture Capital Association
o EMPEA – Emerging Market Private Equity Association
o CIA World Fact book
o DOE
o US State Department
o CNBV
o International Monetary Fund
o IMF
o Goldman Sachs Economic Research
o Amnesty International
o Latin Trade Magazine
o Core Strategies
o Taminez Marketing International, The Rohatyn Group
o Vander Capital Partners, Alta Ventures Mexico, Alta Growth Capital
* All rights reserved. Brands above are trademarks or registered trademarks of their respective companies.
Sources