LDN - Business

Undercover entrepreneurs: fearful Mexican tech startups shun spotlight

[October 16, 2019] By Julia Love and Daina Beth Solomon

MEXICO CITY (Reuters) - In Mexico's burgeoning startup scene, publicity is the last thing many entrepreneurs want.

Unlike plenty of their P.R.-hungry counterparts in Silicon Valley, Mexican startup founders often decline media interviews, avoid public announcements and suppress details of financial success.

One big reason: they do not want to attract criminals.

"You are getting yourself in a position where you could be subject to ransom," entrepreneur Ulises Vazquez said of the drug-fueled violence and kidnappings that have scarred society.

"You want to have a low profile to be able to continue with your freedom," he added. Vazquez twice kept quiet on major startup milestones: when he sold a stake in his advertising agency Ergos in 2010, and when the acquiring firm, Matomy <MTMY.TA>, went public in 2014.

Though understandable, the low-profile approach is holding back Mexico's technology industry, investors and experts say, making it harder to attract talent and money, especially from abroad.

Mexico's tech sector last year drew only $175 million in venture capital, according to the Association for Private Capital Investment in Latin America. That was dwarfed by Brazil, the region's powerhouse, which received $1.3 billion, but also trailed Colombia, which drew $334 million in venture capital though its economy is worth about a quarter of Mexico's.

Reuters spoke with two dozen investors and startup founders who acknowledged that security concerns were widespread in the tech community and had even pushed some entrepreneurs abroad.

Illustrating the concern, most declined to speak on the record.

Without publicity, entrepreneurs struggle to recruit the best, bring in money and inspire the next generation, said Daniel Green, a partner at Silicon Valley law firm Gunderson Dettmer who advises startups across Latin America.

"It certainly stunts the growth," he said.

"LIVING AT RISK"

To be sure, violence is rampant elsewhere in Latin America, from drug-torn Colombia to crime-ridden Brazil.

But the issue is especially acute in Mexico due to an escalation of violence from over a decade ago when the government sent armed forces into the streets to crack down on the cartels. Around the same time, drug gangs began branching into extortion.

A string of high-profile kidnappings and murders, including the death of an executive at broadcaster Televisa killed on his bike during a shootout in 2017, rattled the elite.

That has generated business for executive protection firms, who provide bullet-proof vehicles, GPS trackers, armed bodyguards and real-time monitoring.

For startups, the fears may be more perception than reality: there are no known cases of tech entrepreneurs being attacked after sharing their company's success.

And some do still announce their deals.

Bismarck Lepe, chief executive of software company Wizeline, believes his peers are being over-cautious, despite the horrors Mexico has suffered.

"Communicating more about your success helps the community, helps the company, helps the investors," said Lepe, who divides his time between Silicon Valley and Mexico.

"As long as you are not involved in the drug trade, nothing is going to happen to you."

Mexican entrepreneur Domingo Guerra, who founded cybersecurity startup Appthority in California, said he is not generally worried about safety when he returns home. But he did feel uncomfortable after announcing a funding round.

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A woman takes aim with an automatic rifle during the Expo Seguridad Mexico 2015 security fair in Mexico City April 29, 2015. REUTERS/Henry Romero/File Photo

"Folks were asking how I was going to spend the money, what I was going to buy first," said Guerra, now a senior director at cybersecurity giant Symantec <SYMC.O> after the acquisition of his company in 2018. "I spent a lot of time explaining that really none of that money was for the founders."

One startup founder, assigned a U.S. Army veteran trained in anti-kidnapping maneuvers by a firm acquiring his company, became fed up of having to take a different route home every day and eventually relocated with his family to the United States.

Another who founded his startup in the San Francisco area said American colleagues were frustrated by his quiet approach due to fears for his relatives back in Mexico.

"There's an unofficial tax for operating and living in Mexico - and that tax is living at risk," he said.

FROM SCOOTER TO SUV

Some entrepreneurs have simply faded from public view.

Adolfo Babatz, the chief executive of Mexican payments company Clip, was once a staple of the local business press. In 2018, he gave at least five published interviews and graced the cover of business magazine Expansion beside the headline: "Think big."

He took a different tack this year after SoftBank <9984.T> pumped about $20 million into his company, making him among the first Mexican entrepreneurs to win the Japanese conglomerate's stamp of approval. Babatz did not announce the deal and appears to have given few interviews so far in 2019.

SoftBank, which plans to pour $5 billion into Latin America, declined to comment.

Some entrepreneurs advocate workarounds.

Gabriel Leon, who recently launched fintech company Oyster Financial in Mexico, plans to disclose company funding rounds on an online database, rather than via the media.

"We never talk about money," he said. "We talk about the product we're building, the opportunity in the market, our competitors. That's how you get attention from investors."

Some entrepreneurs say the political climate, with leftist President Andres Manuel Lopez Obrador frequently crusading against the elites, has made it an additionally awkward time to tout multi-million deals in a culture that frowns on bragging.

Mexico's Economy Ministry did not respond to Reuters requests to discuss the startup sector's security concerns.

Sergio Romo, chief executive of Mexican scooter startup Grin, followed a similar trajectory to Babatz after a $45.7 million funding round last year.

Earlier this year, Romo, who was known for tooling around the capital in his company's neon green scooters, left a meeting with Mexico City regulators in a large SUV with tinted windows, according to someone who participated in the meeting.

Romo told Reuters that was unusual and he still uses scooters, but acknowledged keeping a low profile was advisable.

"People outside the startup world tend to think that founders who raise a lot of money become rich themselves, but sometimes that's not the case," he said.

"We are just founders trying to make it happen."

Once active on Twitter, his posts have been deleted.

(Reporting by Daina Beth Solomon and Julia Love in Mexico City; Additional reporting by Sam Nussey in Tokyo; Editing by Frank Jack Daniel and Andrew Cawthorne)

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