ENDEAVOR REVIEW ENTREPRENEURIAL ECOSYSTEM RESHUFFLE
Challenges & Opportunities in the Post-COVID-19 World
2020
An interactive dashboard with the complete survey results can be found at: https://bit.ly/DaaS_Economic_Impact
2 1 INTRODUCTION
Since its unexpected and unprecedented outbreak, the COVID-19 pandemic has sent profound shockwaves around the world, causing one of the greatest global economic downturns in history. With a projected decline of 10.5% in real GDP in 2020, Mexico is facing one of the sharpest declines in Latin America, only second to Venezuela. The country also has the 4th-highest death toll in the world with over 70,000 lives lost, which is bound to cause serious economic upheavals.1
Every crisis, however, is also an opportunity. The COVID-19 pandemic has been a game-changer for businesses—a quasi- game-over for some and a level-up for others, depending on their readiness to adapt and evolve. Social distancing protocols have changed consumer behaviors as people realize the possibility of taking their daily activities online, including work, studies, and groceries. New market trends such as the rise of tele-industries (tele-health & tele-education), greater digitization efforts, and automation of processes (including the use of AI and robots) to minimize physical contacts.
1 Mexico’s total COVID-19 death toll stands at 74,348 as of September 23, 2020. COVID-19 Dashboard by the Center for Systems Science and Engineering (CSSE) at Johns Hopkins University.
2 Given these radical changes, special participation of Endeavor Entrepre- this Review seeks to expand neurs, whose first-hand insights and honest upon how the pandemic will perspectives help readers understand compa- transform Mexico’s social and nies’ resilient responses in times of crisis. economic fabric. In particular, what obstacles and oppor- While the development of the pandemic is highly tunities does this crisis hold unpredictable, clearly mapping out industry for entrepreneurs? And what trends and outlook through quantitative and lessons can they take away qualitative analysis will allow entrepreneurs to better position themselves to identify upcoming challenges and opportu- in the post-COVID world? To nities to stay proactive. In these dark times, do so, this Review will first Endeavor hopes to shed light on the best provide an overall context practices that entrepreneurs and other by examining the nature of stakeholders in the ecosystem can adopt to COVID-19, the macroeconom- support each other and move forward. ic landscape in Mexico, and the changes in consumption patterns in the aftermath. Next, we will zoom in on the sectors most affected, both negatively and positively, by this disruptive crisis, including tourism, retail, entertainment, healthcare, and more.
Drawing on public sources and Endeavor’s proprietary customer relationship man- agement (CRM) of Mexico’s entrepreneurship ecosystem, we performed an in-depth data analysis on key information such as sales, employment, and capital raised to holisti- cally evaluate the economic impact of COVID-19. Further- more, this Review involves the
3 CONTEXT entered into the pandemic with a faltering economy hindered by endogenous factors, and COVID-19 only further exposed the deficiencies of the country’s quality healthcare and engines for inclusive growth, casting doubt on its potential recovery to Macroeconomic Landscape a “new normal”. in Mexico Before & After COVID-19
As the 2nd largest economy in Latin America and the 10th-most populous country in the world with 128 million inhabitants, Mexico is an economic powerhouse. Its rise and fall have significant repercussions on the region and the world. It’s worth noting that even before the pandemic, the country had already entered a recession with a negative growth of 0.1% in 2019, marking its first contraction in a decade. Mexico
Quarterly GDP Growth YoY
10 4.1 3.3 3.2 2.7 2.7 1.7 3.1 3 3 1.8 2.6 2.8 2 1.6 2.2 1.2 0.1 0 0 -0.5 -0.8 -2.2
-10
-20
-18.9 -30 Q1 Q1 Q1 Q1 Q1 Q1 Q3 Q3 Q3 Q3 Q3 Q2 Q2 Q2 Q2 Q2 Q2 Q4 Q4 Q4 Q4 Q4
2015 2016 2017 2018 2019 2020
GDP YoY Primary Activities Secondary Activities Tertiary Activities
Source: Endeavor Intelligence, 2020. *The information corresponds to data collected by INEGI. Accessed: July 2020.
4 As the country entered a nationwide Mexico’s real GDP is expected to contract by 10.5% in 2020, lockdown, the severe impact caused by the worst decline in Latin America only second to Venezuela. A this near-total activity freeze is evident— gradual recovery will follow with a projected growth of 3.1% in in Mexico’s GDP for the second trimester 2021.3 According to the National Council for the Evaluation of there was an 18.9% contraction compared Social Development Policy, by the hour, 13,700 Mexicans lose to last year, the steepest decline on their jobs, seven companies shut down permanently, 1,366 record.2 And the contraction is particularly people enter poverty, 256 people get infected with COVID-19, pronounced for secondary (-26%) and 25 Mexicans will die of it.4 and tertiary (-15.6%) activities such as manufacturing, construction, and retail. According to the projections by the IMF,
GDP Forecast in Millions of Pesos
18, 465, 007 18, 483, 472 17, 285, 979 GDP 2019
Outlook Early 2020
Median of contraction
Maximum of contraction
16, 526, 181 Outlook 2021
2019 2020 2021
Source: Endeavor Intelligence, 2020. *The information corresponds to data collected by IMF, Citibanamex and INEGI. Accessed: 18/06/2020. **The forecast for 2021 is calculated based on the 9.6 % contraction projected for 2020.
3 “World Economic Outlook Update, June 2020”. International Monetary Fund. Accessed July 9th, 2020. 2 “Estimación Oportuna del PIB trimestral”. National Ins- titute of Statistics and Geography (INEGI). Accessed Au- 4 Joan Borbolla. “Cada hora en México se contagian 256 personas de COVID-19 y más de gust 30, 2020. 13 mil pierden su empleo”. Vanguardia. July 31, 2020.
5 The pandemic constitutes a perfect Looking at the Mexican labor market, 7,580 establishments storm for Mexico as it takes specific aim were closed from March to May 2020 alone, resulting in at its economic pillars: trade, remittance, around 1M jobs lost, according to the Mexican Social Security tourism, and oil. In 2019, 80% of the Institute (IMSS). But signs of recovery are showing as 2,823 country’s $461 billion USD in exports establishments opened up again in June. By INEGI’s estimates, went to the United States, mainly in the the economically active population was 45.5 million in May form of automobiles, auto parts, and while the economically inactive population was 19.4 million, of computers. Similarly, Mexico is the top which 9.5 million stopped working as a result of the temporary recipient of U.S. remittances with $38.5 suspension of their employment without receiving salaries.8 billion USD processed in 2019.5 Mexico’s Keep in mind that these figures only account for the formal heavy reliance on the U.S. is beginning employment sector, and over half of the labor force (51.8%, up to have serious consequences as the 4.1% since April) pertains to the informal sector, whose data is U.S. struggles to rein in the pandemic, not readily available. This demographic group is the most vul- registering over 6 million cases so far nerable to the impacts of the crisis due to their lesser capacity and forecasting a massive 8% decline to work from home and the lack of a safety net such as health in 2020’s real GDP. Mexico has already insurance and social security. seen a sharp YoY drop of 11% in exports to the U.S. from January to April of 2020. In addition, as one of the world’s most visited countries, Mexico attributes 8.7% of its GDP to tourism, a sector which is seeing significant losses due to COVID-19. Mexico’s INEGI reports 78.5% fewer international tourists in April 2020 than in the same month last year, which translates to a 93.7% loss of its foreign exchange earnings.6 Lastly, with a third of its fiscal revenues coming from petroleum-related taxes, Mexico is susceptible to the weak demand for fuel consumption globally. The state oil company Pemex reported a $23.6 billion USD loss in the first quarter, one of the worst in history, although the loss was narrowed to $1.9 billion USD in the second quarter as oil prices recovered.7
5 Remittances. Migration Data Portal. June 10, 2020.
6 “International Tourism In Mexico Fell 78.5% In April; Tourism Will Not Recover Until 2023” June 10, 2020.” Puerto Vallarta Daily News.
7 Shannon K. O’Neil. Council on Foreign Relations. “Mexi- co’s Oil and Taxes”. May 28, 2014. David Alire Garcia, Adriana Barrera. Reuters. “Mexico’s Pemex narrows losses in second quarter, but debt rises”. July 28, 2020. 8 “Encuesta Telefónica de Ocupación y Empleo” INEGI. June 2020.
6 Formal Employment Monthly Growth
200, 000 5, 000 4, 452 2, 823 2, 404 123, 139 68, 955 0 0 -83, 311 -130, 593
-200, 000 -3, 295 -5, 000
-6, 689 -344, 526 -400, 000 -10, 000
-555, 247
-600, 000 January February March April May June 2020
Formal Employment Employer Registration Monthly Growth
Source: Endeavor Intelligence, 2020. *The information corresponds to data collected by the IMSS. Accessed: July 2020.
In response to the unparalleled challenges (13%), Professional, Scientific, and Technical Services (13%), presented by the pandemic, countries Construction (12%), and Manufacturing (11%)9. across the globe have witnessed governments responding with various In contrast, the Mexican government so far has done little in degrees of vigor to reactivate the terms of economic relief plans to offset the adverse impacts of economy. Notably, the U.S. enacted the the pandemic. Primarily, assistance is provided in the form of Coronavirus Aid, Relief, and Economic payroll subsidies, debt moratorium, and direct loan to micro, Security Act (CARES) that authorized a small, and medium-sized enterprises—a rather limited tool $2.3 trillion USD (around 11% of GDP) kit compared to the wide-ranging support packages available economic stimulus package to provide in other major economies. The government assistance direct economic assistance to American programs, representing only 1.41% of its GDP (around workers, families, and small businesses. $14B USD), place Mexico as the second-lowest in terms of Within the package, over $510 billion USD government spending on economic support among the G20 was allocated to the Paycheck Protection countries, whose average spending is 9.7% of their GDP.10 Program to provide forgivable loans to small businesses affected by COVID-19, to keep their employees on the payroll. The industries that received the most loans 9 “Paycheck Protection Program (PPP) Report” SBA. May 2020. were Health Care and Social Assistance 10 “Policy responses to COVID-19” International Monetary Fund. July 2020.
7 CONSUMER BEHAVIORAL CHANGE ventures. On the savings side, despite minimum investment in marketing, there is an exponential growth in new savings & INDUSTRY TRENDS accounts as consumers now seek a safe place to keep their money amidst economic uncertainty.
In addition to financial impacts, consumer preferences are On a personal level, the far-reaching also heavily influenced by other elements such as social economic shockwaves are certainly felt distancing measures and sanitary considerations. Some of the in the pockets of Mexican households. shifts in consumer behavior may even be permanent given the According to McKinsey’s survey on widespread, prolonged nature of COVID-19. According to the Mexican consumer sentiment, 70% Imperial College COVID-19 Response Team, in the absence of reported having felt the impact of interventions, this pandemic would have claimed 40 million COVID-19 on their job or income, which lives globally. As such, mitigation strategies will need to be has caused many to delay purchases. The maintained in some manner until vaccines become available, reduction in income, spending, and savings which could be well into mid-2021 by most experts’ estimates.12 is coupled with the overall pessimism that And even beyond COVID-19, the aforementioned survey by the impact on their routine finances will McKinsey indicates that consumers expect to reduce in-person last well beyond two months, as reflected activities such as traveling (-37% and -25% respectively for by more than 90% of the respondents. international and domestic travel, in net intent), attending Not surprisingly, consumers reported a events (-29%), and going to the mall (-23%). decrease in expected spending across all categories, particularly the discretionary Dubbed by many as “the worst crisis in a century”, the ones such as accessories, travel, pandemic has touched a nerve across industries, provoking ups 11 and entertainment. and downs that closely mirror the shift in customer behavior. Analyzing the net utility of publicly traded companies in Mexico Kubo Financiero, a digital financing plat- in the first half of 2020 and their changes relative to 2019, we form that specializes in savings, personal found that the sectors most negatively affected are: Airlines loans and term deposits, and is launching (-2845%), Department Stores (-178%), Logistics (-137%) a wallet app and debit card, however, has and Industrial (-114%); whereas two sectors have come out seen two interesting trends according to stronger: Pharmaceutical and hygiene products (+20%) its Chief Savings and Deposits Officer and Energy (+13%). Alicia Ortiz. On the credit side, there’s an uptick in loan requests for home im- provements as people spend more time at home, as well as for businesses, as people prepare themselves to launch new
11 “Survey: Mexican consumer sentiment during the coro- navirus crisis”. Data collected from May 22-31, 2020. Mc- 12 “The Global Impact of COVID-19 and Strategies for Mitigation and Suppression”. Impe- Kinsey & Company. June 25, 2020 rial College COVID-19 Response Team. March 26, 2020
8 Net Income Growth of Mexico’s IPC Companies (Q1 & Q2, 2020 vs 2019)
Pharmaceutical/Hygiene 34 % 20 % Food/Restaurant 53 % -25 % Financial Services 1 % -11 % Energy -54 % 13 % Sel-service stores 17 % -71 % Industrial 51 % -114 % Logistics 29 % -137 % Construction -169 % -33 % Department stores -83 % -178 % Telecommunication -287% -13 % Airlines -432 % -2845 %
-3000% -2800% -2600% -2400% -2200% -2000% -1800% -1600% -1400% -1200% -1000% -800% -600% -400% -200% -0% -200%
Q1 2020 Q2 2020
N= 44 companies. Source: Endeavor Intelligence, 2020. *The information corresponds to the financial reports of companies quoted in the IPC. Accessed: July 2020.
The silver lining is that this extraordinary alternatives that avoid physical contact: tele-work, tele-health, time has catalyzed a new wave of inno- tele-exercise, distance learning, online shopping, and other vation among businesses and propelled activities free from distance concerns. The positive side-effects greater adoption of digital solutions of this pandemic should not be overlooked. Hot Sale, an online among consumers. Clip, for instance, is shopping holiday promoted by the Mexican Association of a Mexican startup known for its porta- Online Sales (AMVO), managed to pull off the highest sales ble POS terminals that help business- yet totaling $1.05 billion USD, which represents an 81.9% es accept card payments. To help push growth compared to 2019. The 159 participating companies in through COVID-19, the fintech company Hot Sale registered a total of 525.1 million visits in the span of a launched a new feature “Pagos a Distan- week (May 22 to June 1), doubling the previous year’s amount, cia Clip” to make remote, contactless with the most popular categories being Fashion, Electronics, payments possible. Through the Clip’s Appliances, Beauty and Personal Care products.13 app, SMEs can simply send buyers a link (via text, WhatsApp, email, etc.) that Conekta, a Mexican fintech that powers online payments takes them to a secure portal, where for businesses, has noticed an uptick in the number of SMBs they can complete the transaction with- adopting digital payments to adapt to the new reality. More out having to download an app—a rather and more people are willing to give digital banking a chance, user-friendly solution. and it is estimated that the adoption of digital financial services
Social distancing measures are forcing and encouraging people to turn to 13 “Reporte de Resultados de Hot Sale 2020”. Mexican Association of Online Sales.
9 in Mexico has gone up by 70% since the While the retail industry had been struggling to keep up with pandemic started.14 This trend of digitali- the rise of e-commerce before the pandemic, this crisis has zation can become a powerful engine for simply made things worse. Over 11,000 stores have closed in Mexico’s long-term growth in both public 2020 so far, which is starkly higher than 9,879 and 5,700 stores and private sectors. By McKinsey’s esti- in the U.S. that were closed in 2019 and 2018 respectively.16 mate, GDP can potentially be boosted by up to 15%, thanks to greater productivity, Unsurprisingly, for retail businesses that rely on a brick-and- the emergence of new businesses, and mortar model, the impact has been particularly severe. On April the growth in the information and com- 1, Mexican authorities ordered a shutdown of non-essential munication technology (ICT) sector.15 business activities, which affected most shops not related to food or health. Consequently, shopping malls and other retailers One thing is for sure, COVID-19 has had to close their physical locations. While most retail stores, completely reshuffled and restructured especially for non-essential goods whose sale is facilitated by the world economy and few companies in-store visits, such as apparel and jewelry, have suffered across will come out unchanged, that’s if they the board, other interesting trends are also noted. Grocery manage to remain afloat at all. Meanwhile, stores stand as major beneficiaries as people reduce dining- companies that can adapt to the “New out expenses and turn to homemade meals. Furthermore, Normal” have the potential to ride the uncertainty drove consumers to stock up on food and cleaning winds of change and soar higher than ever. supplies, which registered an increase of 22.3% and 16% Next up, this Review will examine some of respectively in Mexico in March. This panic-buying pattern the most affected sectors to present the has gradually subsided, as supply chains remain robust so far.17 challenges and opportunities ahead. Chilim Balam, a popular Mexican candy store chain (and franchise), is one example of a retail business that has felt the Retail shock of COVID-19. Its founder and director Enrique Osoviecki shared with us that due to the pandemic, the company had The COVID-19 pandemic has deeply to close down 85% of its stores, and sales had a 95% drop in roiled the retail sector, affecting big April, right after the lockdown took effect. Osoviecki expects and small companies alike. No one a long and gradual recovery, which can take more than 18 is immune from this earthshaker, not months to return to the 2019 level. In the meantime, the even the seemingly untouchable giants. company has made detailed contingency plans anticipating JCPenney, Neiman Marcus, J. Crew, and different recovery scenarios and is re-strategizing to account GNC are a few of many who have filed for the reduced size. Through the buildup of omnichannel for bankruptcy. Other household names sales—especially its strengthened delivery services, both such as Chanel, Hermes, and Rolex have in-house and in collaboration with other platforms such as discontinued production. Rappi, Uber Eats, and Amazon—and intensified digitization efforts, Chilim Balam is redefining its image as a traditional retailer to come back as a “modern, tasteful, and tasty brand”.
14 Alejandro Chavez. Banca digital: Tres tendencias que van a cambiar para siempre el futuro de esta industria. Mer- ca2.0. July 1st, 2020. 16 Walter Loeb. “More Than 11,000 Stores Are Closing In 2020 So Far—A Number That Will Surely Rise”. Forbes. Updated July 23, 2020. 15 Mauricio Hernández Armenta. “Digitalizar a México empujaría al PIB hasta en 15%: McKinsey”. Forbes. Jan 23, 17 Ana M. López. “Mexico: wholesale grocery sales growth due to COVID-19 by product 2020. 2020”. Statista. May 12, 2020.
10 Notwithstanding the grave challenge Association of Online Sales (AMVO) estimates that 6 out of 10 ahead, the fast-changing retail landscape SMEs sell their products via the internet, representing a 94.6% is also presenting an opportunity for the growth compared to 2019. In fact, 2 out of 10 SMEs joined online industry to reimagine and reinvent itself. sales as a result of this pandemic20. Among the many adaptation strategies, stores are compelled to digitize their Prior to COVID-19, Luuna, a Mexico City-based company sales and marketing channels, pay specializing in bedding products, had centered its growth in the extra attention to craft a personalized opening of physical stores—closing 2019 with 10 stores, and 9 experience, cultivate customer loyalty new ones in Q1 of 2020 alone. When the pandemic hit, Luuna beyond a transactional relationship, pivoted promptly to strengthen its online presence, working and rethink the role of their physical with Amazon and Mercado Libre in addition to its own B2C stores. For instance, brands may start channel to have mattresses and pillows delivered to customers’ considering the idea of developing AR/ doorsteps. The quarantine has also driven up the sale of home VR technology to deliver the full shopping products as people are confined to their residence, which experience to customers’ homes. As further boosted Luuna’s growth. Daniel Espinosa, the founder of the eponymous jewelry store, commented, Looking at the mid and long term, COVID-19 may also leave a “In the current climate, companies’ positive legacy for certain business categories as consumers efforts should be directed at improving contemplate different factors in their purchase. SoftBank- the process of brand building, which backed Kavak, an online marketplace for second-hand vehicles, comes from the product, the design, and had to initially slow down its operations when the emergency customer experience.”18 first hit. The company was able to regain sales, however, as consumers are now prioritizing social distancing and choosing private vehicles over public transportation. The preference for E-commerce used vehicles is also more pronounced under harsh economic conditions.21 In short, while Kavak’s sales fell 28% in April from Notably, the retail sector has turned into the prior year, they recovered to pre-pandemic levels in June a two-tiered economy where businesses and began to pull even higher in August. The company is even with robust online channels are holding up preparing its expansion into Argentina in a recent merger with much better or even reaching a new height, another second-hand auto firm called Checkars.22 Offering a riding the strong winds of digitization. contactless experience backed by superb customer service, Understandably, with physical stores off- Kavak is positioned to capture the growth from a narrowing limits, online shopping is having its golden digital gap. era. In Mexico, retail e-commerce sales are expected to grow 20.9% by year- Even some more traditional sectors such as groceries have end, up from the previous estimate of seen an impressive transformation. Although supermarkets 18.0%.19 Companies, big and small alike, remain open, consumers are opting to shop online as a safer are accelerating their digitization efforts to adapt to the new reality. The Mexican 20 “Estudio sobre Venta Online en PyMEs 2020”. Mexican Association of Online Sales. July, 2020.
18 “Casa de plata: entre moda, lujo y resiliencia.” Endeavor 21 Alejandro Enríquez. “KAVAK, Transforming the Used-Vehicle Market for Good”. Mexico Media Lab. Business. June 17, 2020.
19 Matteeo Ceurvels. “Hot Sale 2020 Helps Revitalize 22 Daina Beth Solomon. “Mexican Used Car Startup Kavak Announces Argentina Expan- Mexico’s Battered Economy”. eMarketer. Jun 22, 2020. sion.” The New York Times. August 26, 2020.
11 and more convenient option. In the span Mobility & Logistics of just two weeks—comparing the week of March 9-15 to the week of 16-22— Simply put, the tremendous outbreak of COVID-19 has the average number of unique visitors paralyzed the world, freezing nearly all movement in just a few to online grocery stores in Mexico rose weeks’ time. In Mexico, according to the Community Mobility by approximately 15%, to 1.5 million.23 Report made available by Google, there was a nosedive in This habitual shift is likely to stay. A traffic to just about every destination after the lockdown order recent Nielsen study found that 11% of took place: retail & recreation (-56%), grocery & pharmacy respondents had purchased fresh food (-22%), parks (-50%), transit stations (-62%), and workplaces online for the first time in 2020, with (-50%). The only exception was residential areas that saw a 70% of those surveyed saying they 23% increase as people became homebound.25 would do it again within the year.24 Companies that provide mobility as a service (MaaS) are Jüsto, Mexico’s first online supermarket, now facing a drastically different reality, one where people has seized the opportunity and recently are reducing their commute and rethinking their options, with raised a $12 million USD bridge round, sanitary considerations being a top priority. Uber has cut 6,700 hitting over $20 million USD in funding employees—roughly 25% of its staff—since the pandemic in less than a year. Ricardo Weder, Jüsto’s started. The multinational ride-hailing company reported an founder and CEO, noted in an interview 80% drop in ride requests worldwide in April and may close that the competitive intensity is stronger up to 45 offices should the lockdown persist.26 Conversely, than ever as everyone tries to capitalize home delivery apps such as Uber Eats, Rappi, and Didi Food on the new digitization trend. Based in have grown significantly in Mexico, each seeing their orders Mexico City, Jüsto has a collaborative increase by 24.06%, 44.34%, and 15.12% respectively in vision and is working with Uber Eats, Didi April.27 In fact, according to Uber’s second-quarter report, its Food, and Rappi to accelerate its growth. delivery business is now larger than its original ride-hailing It is poised to expand into other Mexican division, based on adjusted net revenue.28 cities and eventually other parts of Latin America. “As entrepreneurs, we have the As a key player, Uber has adopted several important changes opportunity to transform our companies to stay resilient and support the ecosystem. For instance, the with new added value and look for new tips option is now made more prominent to support delivery forms of collaboration, while maintaining personnel, and an option to donate directly to restaurants the status quo can be fatal,” Weder was added, which generated more than $500,000 USD in shared his thoughts in regards to the donations in Mexico by July.29 Uber Eats is also seeing a pandemic’s impact, “Every crisis carries an opportunity, and now is the best time 25 COVID-19 Community Mobility Report - Mexico. Google. Data from March 26 to May 7, 2020. for entrepreneurs to activate ourselves.” 26 “Uber despedirá a 3,000 trabajadores, su segundo recorte laboral del mes”. Forbes Mé- xico. May 18, 2020.
27 Andrea Villar. “Mexicans Increase Spending on Rappi and Uber Eats By 40 Percent”. 23 José Gabriel Navarro. “Average number of unique vi- Mexico Business. June 03, 2020. sitors of online grocery stores during the COVID-19 out- break in Mexico in March 2020” Statista. May 26, 2020. 28 Kirsten Korosec, Alex Wilhelm. “Uber’s delivery business is now larger than ride-hai- ling”. TechCrunch. August 6, 2020. 24 Jonathan Shieber. “Mexico City’s Jüsto raises a $12 mi- llion bridge round for its delivery-only grocery stores”. Te- 29 Sheila Sánchez. “25 apps mexicanas preparan su ‘debut’ para competir con Didi Food, chcrunch. July 1, 2020. Uber Eats y Rappi”. Forbes. July 20, 2020.
12 growing enrollment of new restaurants, highest sanitary standard: vehicle cleaning after every trip, zero who in many cases have to adapt their contact between the driver and passengers, antibacterial gel, operations and menus to be more temperature check before boarding, dividers between seats. delivery-friendly. With the ride-hailing According to Matos Albino, implementing these measures services, Uber Eats, and its recent deal and making them visible to passengers is the key to regain with Cornershop to expand grocery consumer confidence in the MaaS sector. As a result of this deliveries, Uber is now building a strategy, Urbvan started working with over 30 multinational strategic narrative of becoming an companies and SMEs to ensure operational personnel can still “Operating System for Everyday Life” for commute to and from work safely. people who move around or want things moved around for them. COVID-19 Lastly, Cabify, a Spanish ride-hailing company with operations undoubtedly served as an accelerator for across Latin America, is supporting the entrepreneurship Uber and other mobility companies to ecosystem in its own way. Agustín Jiménez, the Country diversify their offerings. Manager of Mexico at Cabify, suggested that the company’s operations in Europe, where the outbreak started several In Mexico, we have witnessed a similar weeks earlier, had prepared Cabify Mexico for the contingency. strategic resilience manifested by In addition to providing drivers a COVID-19 kit with sanitary companies who continue to evolve and supplies to address safety concerns, joining other MaaS stay innovative. In the words of Alejandro companies in launching a package delivery service Cabify Morales, co-founder of Econduce, “We Envíos to diversify its revenue source, Cabify is working with are in times of great uncertainty, but we fintech Lana to provide soft loans to its drivers facing financial must prepare ourselves for the worst hardships. Jiménez noted an increasing preference for cash while hoping for the best.” A startup instead of credit card payments when drivers charge their of shared electric scooters, Econduce passengers, a reflection of people’s need for immediate recently launched Econduce Go as a liquidity amidst all the uncertainty. new business line focused on delivery to adapt to the new consumption trend. With Econduce Go, users can now rent Tourism & Hospitality electric scooters weekly at an affordable price to perform delivery services.30 Of all the sectors, the tourism and hospitality industry likely took the worst hit from the sudden halt of movements domestically Similarly, Urbvan, a Mexican daily and internationally. As a result of COVID-19, the World Travel commute transportation system startup, and Tourism Council projects a global loss of 75 million jobs faced adversity when ridership suddenly and $2.1 trillion USD in revenue.31 Brian Chesky, the CEO of plummeted, especially given that many of Airbnb, summarized the wrecking ball effect of the pandemic: its passengers were commuters traveling “It took us 12 years to build Airbnb, and we lost almost to their workplace. The company’s co- everything in four to six weeks.”32 The company, the world’s founder Joao Matos Albino shared with largest in community-driven hospitality, saw its bookings fall us some important adjustments that by 90% and was on the verge to be wiped out by the pandemic. help Urbvan continue adding value to its customers. Urbvan is holding itself to the 31 Elizabeth Becker. National Geographic. “How hard will the coronavirus hit the travel in- dustry?” April 2, 2020.
30 Endeavor Media Lab. “Emprendedores, las manos detrás 32 “Airbnb CEO: It Took Us 12 Years to Build, and We Lost Almost Everything in 6 Weeks”. de la reinvención de la movilidad.” Entrepreneur. June 25.
13 But signs of recovery are showing gave the grim estimate that it could be as late as 2023 before starting from June, as Airbnb welcomed the sector fully recovers.37 an uptick in travelers, road-tripping, and remote workers that seek getaways at Still, the rebound is happening as the country gradually reopens mountain towns, beach houses, and following the COVID-19 Traffic Light Monitoring System. lakeside camps. Despite a $400 million Key tourist spots such as Los Cabos and Cancun began their USD adjusted loss in the second quarter, phased opening in June, although occupancy rate remains low Airbnb is preparing to go public and for hotels and resorts compared to the pre-COVID-19 level. make one of the largest market debuts According to the tourism minister of Quintana Roo, arrival this year—a telling representation of the numbers have been increasing, and the numbers are expected tourism industry’s roller coaster ride in to climb to around 60% capacity at hotels by December.38 the COVID-19 period. 33 According to a Consumer Sentiment Survey by BCG, consumers As the most visited country in Latin consistently rank leisure travel as the activity they miss the America and 7th in the world, Mexico most while waiting out the pandemic, with over 60% agreeing has a vital tourism sector that brought that they “can’t wait to start traveling again.” In particular, in 45.2 million foreign visitors and young people and frequent travelers are expected to hit the generated $24.6 billion USD in revenue road again first, with a strong preference for domestic over in 2019.34 Yet, the hard landing of international destinations. Price remains a key factor that COVID-19 has been so destructive that favors budget travel, seeing that people’s pockets are badly the sector is losing over $180 million hurt. Flexibility for cancelation or changes makes another huge USD per day according to estimates by appeal to travelers amidst all the uncertainty surrounding researchers at Anahuac University.35 the pandemic. 39 Tourists arriving by air decreased by 98.1% in April, dropping from over 1.6 In a webinar hosted by Endeavor, top executives from Grupo million to fewer than 31,100 travelers.36 Presidente, Reservamos, and VivaAerobus shared their Mexico’s largest airline Aeromexico insights on the industry’s outlook. The panelists highlighted the has filed for Chapter 11 bankruptcy in importance of human resources, maintaining communication the U.S., joining an increasingly larger and motivation among the team to foster unity especially in club of airlines in restructuring amid times of adversity. Additionally, they called on the government the unprecedented crisis for the global to step up to assist, including financial and regulatory support aviation industry. Miguel Torruco, the such as a friendlier visa process for foreign visitors. Mexico’s head of Mexico’s Ministry of Tourism, Ministry of Tourism recently announced a $500 million USD loan program aimed at rescuing hotels, travel agencies, and other tourist service providers during COVID-19 contingencies,
33 Olivia Carville. “Here’s Why Airbnb Is Going Public in the but the extent to which the sector finds relief remains to be seen. Middle of the Pandemic”. Bloomberg. August 26, 2020.
34 “International Tourism Highlights 2019 Edition”. World Tourism Organization (UNWTO). 37 “Turismo se podría recuperar hasta 2023, estima Torruco”. Milenio. August 5, 2020.
35 Jonathan Kracer. “Refocused outlook for the Mexican tourism industry”. Hotel News Now. July 14, 2020. 38 Donald Wood. “Mexican Tourism Hotspots Slowly Recovering From Coronavirus Im- pact”. Travel Pulse. July 28, 2020. 36 “International Tourism In Mexico Fell 78.5% In April; Tourism Will Not Recover Until 2023” June 10, 2020.” 39 Lara Koslow, Jean Lee, Jason Guggenheim, and Pranay Jhunjhunwala. “COVID-19 Con- Puerto Vallarta Daily News. sumer Sentiment Snapshot #10: The Trip Back”. BCG. May 18, 2020.
14 Just as people’s desires to explore new health resources, daring entrepreneurs have stepped up to do places will never stop, we have witnessed their part in tackling the challenge. the determination of entrepreneurs and service providers to remain resilient and Just like other sectors, healthcare products and services are rise from the ashes. To address the press- trending towards tech-driven solutions. For instance, Mexican ing issue of liquidity, an initiative called healthtech Prescrypto is building a platform that offers an all- CuandoVolvamos sprang up organically around approach for creating, storing, accessing, and managing to allow SMEs to pre-sell their products medical prescriptions for the ease of doctors and patients—a and services. A customer, for instance, helpful tool with enormous potential given that only 36% of can support local restaurants by pre-pur- public hospitals in Mexico have an electronic health records chasing meals at a discounted price to be system. Additionally, Prescrypto’s founder and CEO Everardo used once the restaurant reopens. Busi- Barojas spoke to us about the need to build an interconnected ness owners can then use this money to healthcare ecosystem with greater interoperability across pay for expenses and avoid a permanent different platforms. closure. Within the hospitality sector, there are also talks of a potential “immu- Sofía Salud, a health and technology company aiming to nity passport” that facilitates travel and become a health insurer, is optimizing the tech space much investment in more automation technolo- like Prescrypto. They currently provide telehealth services to gies—perhaps the age of Robot Hotels, as patients through virtual consultation and started providing already seen in Japan and the U.S., is not services free of cost during the COVID-19 period. The far for Mexico. company’s co-founder Manuel Andere noted a soaring interest in video consultations since the pandemic started and believes that this adoption trend is likely to stick around in the future. He Healthcare acknowledged that telehealth has its limitations and is mainly suited for simple consultations that do not require in-depth As COVID-19 upended everyone’s physical inspection. Still, most patients are happy with the everyday life, the sector of healthcare service for having saved time and minimized risks of infection. now finds itself in the spotlight under Despite the benefits of a virtual world, Andere also commented intense scrutiny. The current crisis on the regulatory obstacle when it comes to obtaining a license has exposed the fragility of existing for the insurance business. The pandemic has slowed down public health infrastructure in Mexico the paperwork processing speed of the Ministry of Health and highlighted the urgent need for and health insurance companies, which could impede the innovation. By and large, Mexico still development of telehealth services. lags behind other developed countries in terms of public health. Only 5.5% of Mexico’s GDP is spent on health, and Entertainment only 2.4 doctors are available per every 1,000 habitants, much lower than the Movie theatres, concerts, and sporting events businesses are OECD averages of 8.8% and 3.4. The experiencing a freeze as most are not allowed to operate at all. unparalleled challenge brought by And with social distancing measures in place, it’s expected that COVID-19 requires concerted efforts by even when operations resume, the capacity limit will inevitably both the public and private sectors. As prevent these physical-venue-based activities from maximizing the pandemic severely strains public their profit. Event organizers will have to be creative to turn the
15 tide around. For instance, the NBA is now director-general indicated that 95% of the moviegoers felt safe hosting its games in Disney World in an about their experience. Miguel from Cinépolis concurs that risks isolated environment, and numerous associated with cinemas can be mitigated by maintaining social events have gone online, including the distancing, disinfecting the room after every show, and training One World: Together At Home concert employees to practice strict hygiene protocols. The key lies in re- that convened dozens of celebrities who storing consumer confidence and convincing both government performed from home, and UK’s first authorities and the public through actions with high visibility. socially distanced concert where groups of up to five are placed at platformed On the digital side of the Entertainment industry, a very different private viewing areas.40 story is unfolding. Since the pandemic took place, streaming services have boomed as people stuck at home are consuming “Imagine your company was having more media content. Netflix added 15.8 million new subscribers around 30 million visitors, building 400 in the first trimester of 2020; Disney Plus’ users jumped from screens a year, and all of a sudden your 23 million at the beginning of 2020 to over 50 million by the income practically dropped to 0 as end of May; Apple and Amazon are also aggressively vying for people stopped visiting movie theatres.” viewership, with the former gifting a free one-year Apple TV+ That’s the reality faced by the in-person subscription along with the purchase of its devices, and the section of the Entertainment industry, latter making the rental of recently-screened movies available as summarized by Miguel Mier, COO even to non-Amazon Prime members.41 of Cinépolis. Cinépolis is the largest cinema chain in Latin America with over In the context of a growing demand for media consumption, 700 theatres and nearly 6,000 screens the popular saying “content is king” has even more relevance in 17 countries. A whopping 98% of the during the pandemic when people have extra time at chain’s operations paused due to the home to choose a streaming platform, TV series, or movie. pandemic. The urgency to adapt and For Lemon Studios, a leading production company in the transform is very present, as Miguel Spanish-speaking world, the only way forward is constant commented, “This brutal hit is pushing and forward-thinking innovation. “As a content producer, we us to innovate and generate projects are accustomed to improvising with creativity, especially now that allow us to position ourselves in a in crisis mode, ” the company’s co-founders Billy Rovzar and changed world”. Fernando Rovzar commented. Social distancing measures have been an obstacle to the filming process that requires According to the newly released statis- the participation of an entire crew. For example, for the final tics by Mexico’s National Chamber of scene of Monarca season 2, the Rovzar brothers shared that the Film Industry (CANACINE), 106,000 a wedding scene that originally involved three hundred viewers showed up in the first five days people had to be rewritten to protect the crew’s safety. of movie theatres’ reopening (August 12 to 16) in Mexico City, which represents a To mitigate risks while ensuring the continuity of filming 97.5% drop compared to the 3.7 million projects, the studio engaged in negotiations to acquire their tickets sold during the same period last own production facilities with onsite living spaces, allowing for year. On the bright side, CANACINE’s a safe and controlled setting for the team to carry on its work. This is something that would have taken 6 years to complete, 40 Amy Woodyatt. “UK’s first socially distanced concert shows what the future of live music might look like”. CNN. 41 Víctor Millán. “Las ‘Streaming Wars’ en tiempos de pandemia: qué plataforma está sa- August 13, 2020. liendo más reforzada”. Hipertextual. May 10, 2020.
16 but was achieved in just 6 months with the COVID-19-induced acceleration, according to Billy. While it was originally named Lemon Films because of its specific focus on films, Lemon Studios is now working on its transition to becoming a more versatile studio. It has taken on a wide range of projects, including animation and digital podcasts, whose production is more easily accomplished remotely. This diversification further empowers the company to weather the impact of COVID-19 and remain resilient. Looking ahead, virtual 3D locations and green screen technology are areas of innovation that will help overcome the limitations of physical barriers.
17 IMPACTS ON ENTREPRENEURIAL The survey addressed various aspects of entrepreneurs’ busi- nesses, including revenue, employment, access to finance, ECOSYSTEM COVID-19-related obstacles and opportunities, and contingen- cy responses. Specifically, the survey defines three important periods: “During Lockdown,” the period of confinement; “After Lockdown,” the transition period from the end of confinement Endeavor conducted a comprehensive to December 2020; and “New Normal,” the period when the survey to study the impact of COVID-19 market is expected to regain stability, from January 2021 on- in Mexico’s entrepreneurship ecosystem. ward. An important caveat is that the exact duration of these In total, 60 responses were collected periods could well vary depending on a host of factors, includ- from entrepreneurs across different ing government responsiveness, the threat of a second or third 42 sectors. These startups reported a total wave, and the progress on vaccine creation. Of all the business revenue of $400 million USD, employing aspects affected by COVID-19, respondents rated Product/ more than 11k people. Taking the median Service Demand as the major obstacle (level of disruption: 10), values, a “typical” company in the sample followed by Funding (8) and Sales (7). generated $4 million USD, employed 97 workers in 2019, and was founded in 2012.
COVID-19 Related Obstacles Companies by Industry Company Profile
Product/Service Demand 10 Health 17 % 60
Agriculture, Food & Beverage 15 % Funding 8 97 Enterprise, Software & Services 13 % Sales 7 Mobility & Supply Chain 13 % 4 M () 2019 Consumer, Retail & Consumer Tech 13 % 2012 Suppliers 5 Financial Services 8 % Salaries 3 Marketing, Media & Entertainment 7 %
Education 7 % Technological limitations 2 Energy, Infrastructure & utilities 7 % 0 2 4 6 8 10 0 % 5 % 10 % 15 % 20 % 42 An interactive dashboard with the complete survey N= 60 companies results can be found at https://bit.ly/DaaS_Economic_ Source: Endeavor Intelligence, 2020. Percentage of respondents Impact
18 N= 60 companies Source: Endeavor Intelligence, 2020. Looking at the impact on revenue in different time periods, while most sectors reported a decline during lockdown, Marketing, Media & Entertainment (-60%), Commerce & Retail (-60%), and Energy, Infrastructure & Utilities (-50% appear to be the sectors most negatively affected by COVID-19. All three reported a greater than 50% decline as a result of the lockdown and an expected negative impact that lasted through the “After Lockdown” period.
Impact on Revenue
Agriculture, Food & Beverage 10 20 20
Education 5 50 35
Financial Services 30 30
Enterprise, Software & Services -30 30
Health -40 5 35
Mobility & Supply Chain -15 -40 30
Energy, Infrastructure & utilities -30 -50
Commerce: Retail & Consumer Tech -15 -60
Marketing, Media & Entertainment -25 -25 -60
-150% -100 % -50 % 0 % 50 % 100 %
During Lockdown After Lockdown New Normal
N= 60 companies Source: Endeavor Intelligence, 2020.
19 The survey results conform to the above- expected growth in the “New Normal” period, an indicator of mentioned industry-specific analysis. businesses’ optimism in the transformative benefits brought In particular, the Marketing, Media & by the accelerated wave of digitization. Entertainment sector can suffer great- ly as social distancing measures will In terms of employment, while some sectors such as Marketing, limit venue capacity for all the physical Media & Entertainment (-25%), Energy, Infrastructure & events, thereby reducing their efficiency Utilities (-25%), and Enterprise Software & Services (-15%) and profitability. Similarly, traditional re- reported a reduction during lockdown, many respondents were tail brands are facing an uphill battle as determined to keep their workforce. Several entrepreneurs people frequent brick-and-mortar stores highlighted the human element in the interviews, that it’s less and less, especially with the looming even more crucial to treat employees with kindness and sanitary shadow cast by COVID-19. On understanding in such a high-stress environment due to the bright side, most sectors reported an COVID-19.
Impact on Employment
Education 5 5
Mobility & Supply Chain 10
Commerce: Retail & Consumer Tech 10
Financial Services 10
Health 10
Enterprise, Software & Services -15 15 25
Marketing, Media & Entertainment -10 -10 -25
Energy, Infrastructure & utilities -25 20 30
-50 % -25 % 0 % 25 % 50 %
During Lockdown After Lockdown New Normal
N= 60 companies Source: Endeavor Intelligence, 2020.
20 In the case of Luuna, for example, co- to ensure the safety of the personnel. When someone on the founder and CMO Guillermo Villegas operational side falls under the at-risk population category or commented that the company had displays symptoms, he or she must take a leave of 15 days, decided to cut no personnel, even though which forces the company to look for costly substitutes. the shutdown of stores would imply the idle state of some workers. Instead, Luuna The lockdown has compelled companies to create new ways decided to reduce costs by reevaluating of teamwork. In our survey, 52% of respondents said their existing supplier contracts and to train company has shifted to 100% home office during lockdown, the in-store workers for its fast-growing and another 30% reported “mostly home office, and some digital channel. But this has not been a in-person”. This shift is especially prominent in Enterprise seamless transition—Villegas suggested Software & Services, Education, and Financial Services, sectors that one of the most expensive HR- that are less constrained by in-person activities. related costs has been the adjustments
Home Office vs. In-Person Work
100 % home office 52 % 23 % 5 %
Mainly home office, but some in person 30 % 40 % 23 %
Hybrid scheme: 50 % home office, 50 % in person 10 % 22 % 35 %
Mainly in person, but some home office 8 % 13 % 28 %
100 % in person 2% 8 %
0 % 25 % 50 % 75 % 100 %
During Lockdown After Lockdown New Normal
N= 60 companies Source: Endeavor Intelligence, 2020.
21 And when asked about productivity in average of 66% extra travel time stuck in traffic any time of the remote work setting, 41% said their the day, and up to 101% during peak hours.43 The outstanding team was just equally productive, with performance and the time-saving flexibility can partly justify another 37% believing they were more how this new work style could continue well beyond COVID-19. or much more productive. In addition, Even for the “New Normal” period, 63% of respondents said home office saves many workers the they would adopt a hybrid model with 50% or more of the dreadful daily commute—Mexico City team doing home office. Several major tech companies, includ- was ranked the most congested city in ing Facebook, Twitter, and Slack, have said they will allow em- 2017 according to TomTom Traffic Index, ployees to work from home indefinitely. The age of telework is with a chilango expecting to spend an here to stay.
Remote Work Productivity
Percentage of respondents
50 %
40 %
30 %
20 % 41 %
10 % 22 % 20 % 15 %
2 % 0 %
Much more More productive Equally Less productive Much less productive productive productive
N= 60 companies Source: Endeavor Intelligence, 2020.
43 “TomTom Traffic Index 2017: Mexico City Retains Crown of ‘Most Traffic Congested City’in World”. TomTom. February 21, 2017
22 Still, remote work is not without its chal- Some entrepreneurs also believe in the importance of having lenges as employees can struggle with physical contact and do not think office workspace will be work-life balance (distraction from fami- obsolete anytime soon. Ricardo Weder, co-founder and CEO ly members and housemates), hardware of Jüsto, said “100% Home Office doesn’t make sense to us. and internet limitations, and mental While work should be flexible, at the end of the day people health issues. To compensate for the lack need to be able to co-live and build rapport through face-to- of personal contact and continue enrich- face interactions.” ing company culture, entrepreneurs in our survey and interviews have mentioned As enterprises prepare for their return to the office, they various team-building initiatives, includ- are being abundantly cautious to ensure the safety of their ing routine all-hands meetings, constant workforce. Among the preventative measures cited by our monitoring of employees’ conditions respondents, “provide masks and antibacterial gel to staff” through surveys and virtual sessions, (60%), “mix remote work and office hours” (57%), and “have and other recreational activities such as controlled access with temperature check” (52%) are the yoga and meditation. According to Lemon most popular options. For instance, the fintech Clip has made Studios’ co-founders Billy and Fernando a detailed return plan outlining all the phases of reactivation Rovzar, it is crucial to upkeep a sense of with corresponding safety measures. One such strategy is belonging, camaraderie, and fighting spir- alternating workdays by groups of team members following it among team members. “Job insecurity the 10-4 office plan (10 days quarantine + 4 days office work) can provoke stress, which is a deadweight to minimize the risk of infection. Clip also plans to rearrange for productivity and creativity,” they said, its workspace and modify lunch hours to allow extra distance “In times of adversity like this, vision and between members, and Clippers will be given flexible working leadership are even more vital for us not options should they choose to continue working from home to lose sight of our work.” after the office reopens.
Back to the Office Safety Measures
Provide masks and antibacterial gel to staff 60 %
Mix home office and office hours 57 %
Have controlled access with a digital thermometer 52 %
Do recurring sanitizations 45 %
Reduce venue capacity 45 %
Testing employees for COVID-19 22 %
Make structural changes in workspace to reduce 20 % high contact areas (door handles, coffee makers, etc)
Reduce office hours 20 %
0 % 20 % 40 % 60 %
Percentage of respondents
N= 60 companies Source: Endeavor Intelligence, 2020.
23 When asked about the disruption of supply chain)—are seen more severely impacted than others. operations caused by COVID-19, 42% Additional costs also arise as a result of social distancing, answered “Disruptive”, and another increased sanitation, and personnel rotation, as previously 28% answered “Highly Disruptive” illustrated in Luuna’s case. Although only 15% of all survey during lockdown. Companies whose respondents reported a “Positive” a “Very Positive” impact on operations rely on physical space—retail their operations during lockdown, this percentage went up to stores, storage, distribution centers (not 40% for the “New Normal” period. Some companies noted the to mention the disruption in the global decision to go virtual has allowed them to see new possibilities.
Impact on Operations
Highly Disruptive 28 % 12 % 5 %
Disruptive 42 % 30 % 25 %
Normal 15 % 30 % 30 %
Positive 10 % 23 % 27 %
Very Positive 5 % 5 % 13 %
0 % 25 % 50 % 75 % 100 %
During Lockdown After Lockdown New Normal
N= 60 companies Source: Endeavor Intelligence, 2020.
24 In the case of Uber Eats, to simplify the that did not take the proactive steps to upgrade themselves onboarding process and solve logistics are now taking a particularly heavy hit. “Go digital or die” is issues, Uber has gotten rid of the tablet the cruel reality faced by many educators—Trainor shared that requirement and now allows restaurant 20% of private schools had to close because of a lack of an partners to simply download an app on online alternative. The impact was even greater among public their devices (bring-your-own-device) to schools that lack the necessary infrastructure, not to mention start accepting orders. underprivileged students who don’t have the means (devices and/or internet connection) to go online. COVID-19 served Similarly, for Knotion, a Mexican as an important wake-up call to the education sector, where education enterprise that offers an the incorporation of technology is an unstoppable train and interdisciplinary learning ecosystem for distance learning will continue gaining relevance. K-9 students, COVID-19 has prevented in-person visits previously required for The pandemic has been particularly tough on companies that demos, installations, and follow-ups. have to suspend or significantly scale down their operations. Instead, the company has taken its A study on Latin American startups by the Inter-American operation fully online, which enabled Development Bank provided some bleak statistics: due to it to scale more efficiently, especially COVID-19 half of the aspiring entrepreneurs on route to starting in response to the growing demand for their business ceased the process, 53% of the operational ones tele-education. According to Knotion’s stopped generating revenue, and only half of the startups could CEO & Co-founder Noel Trainor, the last two months without closing down the company. 44 In our pandemic has exposed the technology survey, we found slightly better financial health among the gap in the education system, one of respondents, with 27% reporting a cash runway of fewer than the few sectors that have significantly 3 months and another 30% between 4 and 6 months. lagged in the digitization wave. Schools
Cash Runway
Less than 3 months 27 %
Between 4 and 6 months 30 %
Between 7 and 12 months 13 %
More than 1 year 30 %
0 % 10 % 20 % 30 % Percentage of respondents
N= 60 companies Source: Endeavor Intelligence, 2020.
44 Hugo Kantis, Pablo Angelelli, Juan Federico, Cristina Fernández. “Startups y empresas jóvenes ante el COVID-19: impactos y respuestas desde el ecosistema”. Inter-American Development Bank. May 14, 2020.
25 Companies nonetheless have resorted projects/activities” (85%), “renegotiate rental agreements” to various measures to reduce costs and (82%), and “renegotiate supplier contracts” (82%). Overall, remain solvent facing a changed reality. there is a strong focus on maintaining liquidity and monitoring Notably, the most popular responses cash flows to maximize the remaining runway. Liquidity and include “find new sources of income” solvency are increasingly important due to uncertainty about (85%), “pause or cancel non-essential the future.
Crisis Response Measures
Find new income sources 20% 65% 15%
Adoption of new technologies (digital 22% 52% 27% payments, online sales, among others) Renegotiate rental agreements 8% 73% 18% Defer Payments 8% 62% 30% Advance of vacation leave 8% 15% 77%
Pause or cancel non-essential 7% 78% 15% projects/activities Renegotiate supplier contacts 7% 75% 18% Renegotiate debt contracts 7% 42% 52% Cancel or reduce employee benefits 7% 33% 60% Hiring freeze 5% 67% 28% Cut salaries 5% 52% 43% Lay off staff 5% 50% 45% Reduce marketing expenses 3% 62% 35%
0 % 25 % 50 % 75 % 100%
Plan to implement Currently implementing Will not consider
N= 60 companies. Source: Endeavor Intelligence, 2020.
26 More on the finance side, capital flight continues but response time is longer, and another 15% said as a result of COVID-19 had, to various the search for funding had been paused. Indeed, while startups degrees, an impact on companies’ are seeking more capital to either stay afloat or expand search for funding (equity and/or debt). aggressively, investors are adjusting their modus operandi. According to data from México, ¿cómo According to the report 100-Day Plans in the COVID-19 Era by vamos?, in the first trimester of 2020, U.S. accounting firm Moss Adams, investors in venture are investment only accounted for 19.6% of primarily adopting a sober outlook as companies adjust their Mexico’s GDP, the lowest percentage balance sheet projections. The report notes that “new deals observed since the second trimester are being underwritten to lower return profiles; existing deals of 2003. 45 are being repriced and retraded.” The scrutiny on a company’s financial health is intensifying, and the difference between a The disruption was felt as 27% of the good and a truly great company will soon be delineated.46 survey respondents said the search
Fundraising (Equity/Debt Financing)
During Lockdown After Lockdown New Normal
Continues, but response times are longer 27 % 23 % 30 %
We managed to raise capital/obtain a loan 22 % 12 % 7 %
We are not looking for funding 23 % 22 % 18 %
Funding has been paused 15 % 10 % 5 %
Continues as high priority 13 % 33 % 40 %
N= 60 companies Source: Endeavor Intelligence, 2020.
45 “Inversión en México: La inversión en el 1T2020 repre- sentó el 19.6% del PIB”. México Cómo Vamos. June 19, 2020. 46 “100-Day Plans in the COVID-19 Era” Moss Adams. Accessed August, 2020.
27 Prior to COVID-19, Latin America had And in 2019 alone, over 65 rounds were completed, accounting been experiencing a boom in VC funding, for 55% of the total capital raised in the last ten years48. registering a record of $4.6 billion USD in 2019, which is more than double By July 2020, the Mexican market saw more than 32 fundraising 2018’s nearly $2 billion USD. In total, rounds that amassed a total of $262 million USD, above the there were 18 mega-rounds of more 2018 level, which indicated a good start for the year. Upon closer than $50 million USD and 11 of more inspection, 60% of the capital raised was concentrated in two than $100 million USD47, three of which mega-rounds, one before the pandemic and the other during49. took place in Mexico. In the last decade, Additionally, Endeavor has identified at least five important Mexico City-based entrepreneurs from rounds that were closed under the current circumstances. The the tech sector completed over 700 rest of the capital is distributed among Seed rounds and Series rounds, raising a total of more than A in startups of E-commerce, EdTech, HealthTech, and FinTech. $1.6 billion USD, which represents a These companies have grown from the COVID-19 contingency 70-time increment compared to 2010. and have now raised extended funds from their past rounds, seeking to position themselves more aggressively.
Funding Amount in Mexico
1000 150 135 125
909 750 102 89 100 80 68 500 60
35 50 250 17 30 5 239 142 13 18 92 262 0 6 46 69 53 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Funding Rounds Deal Count
Venture Capital (Seed & Series A, B, C & D) *N = 746 funding rounds from 2010 to 2020. Source: Endeavor Intelligence, 2020. **The information corresponds to data collected by Pitchbook. Accessed: August 2020.
48 “Evaluation and Network Analysis of the Mexico City Tech Sector” Endeavor Mexico, February 2020.
47 LAVCA’s Annual Review of Tech Investment in Latin 49 Updated by the end of july 2020 from the original report “Evaluation and Network America. LAVCA, May 2020. Analysis of the Mexico City Tech Sector”, published February 2020.
28 Debt financing also went up in 2019, Mexico’s ecosystem in the mid-term is local funds struggling totaling almost $500 million USD and to raise sufficient resources and therefore lacking the dry concentrating in just six startups. And so powder to continue supporting their companies. Notably, 44% far in 2020, almost $120 million USD in of the planned rounds that stopped advancing are seed capital. debt financing has been recorded, mainly This aspect is important because most of the companies that concentrated in FinTech just like 201950. managed to scale in the last five years received seed capital along with a robust structure to support their growth, from Similarly, on the side of VC funds, 2019 funds such as Mountain Nazca, ALLVP, Variv, Dila Capital, Angel was a record year for capital raised in Ventures, and Dalus. For the next generation of entrepreneurs Latin America. Regional fund Kaszek to thrive, a similar effect generated by capital and VC funds’ Ventures closed the year with $600 accompaniment will be needed. million USD51 and SoftBank Group launched a $5 billion USD fund to invest While it is still too early to tell what to expect in the in Latin American startups and VC funds. entrepreneurship ecosystem in 2020, the momentum SoftBank has been injecting capital previously seen in capital and debt raised by entrepreneurs can and credibility into the ecosystems be a sign for optimism about the future of the most promising in the region through investment in and consolidated startups and scaleups. The bottom line is that companies like Clip, Kavak, and Konfio there is reason to believe that just like in any other crisis and from Mexico, Rappi from Colombia, Ualá any other complicated economic and political environment, from Argentina, and Creditas, Buser, entrepreneurs will stay resilient and even take advantage of Loggi, and Gympass from Brazil. The the extraordinary circumstances to strengthen their positions. capital provided an important boost to entrepreneurs that led record rounds The impacts brought by COVID-19 are far-reaching and long-last- in seed capital such as Jüsto, Klar, and ing. Around 41% of the respondents believe that it will take lon- Minu. The capital also could serve ger than a year for the market to recover and that the recovery as dry powder (cash reserves that are time can be much longer for the severely impacted industries. maintained in the event of economic stress) for local funds now that SoftBank has shown its commitment to Kaszek Market recovery time outlook Ventures and Valor Capital52.
As a result of COVID-19, it is evident More than 1 year 41 % that there will be a deceleration trend and reduction in the aggregate numbers, with the expectation of a slight recovery 4-6 months 25% in 2021 and growth again in 2022. Another challenge that can affect 7-12 months 22 %
50 Ibid. 1-3 months 12 % 51 Kaszek Ventures raises $600 million in two funds as La- tin America’s startup market booms. Tech Crunch, August 2019. 0 % 10 % 20 % 30 % 40 % 50 % Percentage of respondents 52 SoftBank in talks to invest in Latam venture capital funds. Reuters, September 2019. N= 60 companies Source: Endeavor Intelligence, 2020.
29 During this critical juncture in the world due to COVID-19, entrepreneurs have overwhelmingly—96.4% of all respondents—noted the lack of support for startups, calling on the government and other institutions to do more. “It’s valid for the government to support the poor, but at the end of the day, entrepreneurs are the ones who generate employment for the masses,” Alicia Ortiz from Kubo Financiero commented. Impressively, entrepreneurs have sprung to take up different initiatives to continue supporting the ecosystem in their ways. Education companies Territorium, Kinedu, and Knotion made their platforms free to access for teachers and students; alcoholic spirits company Casa Lumbre has donated over $13,000 USD to support over 200 bartenders through a contest during lockdown; restaurants group Archipiélago led a fundraising campaign that donated all of the proceeds to its staff; and medical company Sohin opened up a free hotline for vulnerable populations to make health consultations without leaving home.53 These are just some examples of how entrepreneurial resilience continues to shine throughout this crisis. As Endeavor’s co-founder and CEO Linda Rottenberg says, “when economies turn down, entrepreneurs turn up.”
53 “#SOMOSMÁSGRANDES”. Endeavor.
30 CONCLUSION At the forefront of this crisis are entrepreneurs who have gone through countless ups and downs in their entrepreneurial journey, and this time, they are just as determined to tackle the challenges and seize new opportunities. While the pandemic served as a “reset button” for many entrepreneurs, “Change is the only constant in life.” The the resulting accelerated digital transformation has the timeless saying by the Greek philosopher potential to propel traditional and avant-garde businesses Heraclitus aptly captures the reality we alike to a new height. As consumers open themselves up to find ourselves in. One may hardly be virtual experiences and companies seek online alternatives, able to plan for the next day in this fast- sectors previously unknown such as telemedicine, e-learning, changing environment (even faster in the and online groceries are braced for golden days. Even for context of COVID-19), but the readiness physical-activity-sensitive companies who are forced to take to adapt and evolve is the steadiest a pause, the activity freeze can be a valuable breathing room anchor an entrepreneur can count on. for reassessment and readjustment. Despite hardships in the present, there is general optimism about the positive changes The Mexican ecosystem has shown to emerge in the “New Normal” beyond COVID-19: leaner remarkable progress towards the and more agile operations, diversified marketing and sales development and growth of startups channels, and greater efficiency led by automation, etc. and scaleups, which have gained international recognition and attracted The economy has been reshuffled by COVID-19 and is now significant investment from foreign. The ready to be reactivated. With great uncertainty ahead, earnest confluence of interventions in terms of entrepreneurs who have a clear vision but at the same time are public policies, the contribution from flexible enough to adapt will likely fare the best. Entrepreneurial a reduced group of pioneer founders spirit will be the key to drive unfaltering innovation, adaptation, of e-commerce, the increase in the and transformation. incorporation of technology, and the validation from high-profile investments, have all led to an unprecedented level of startup activities. Nevertheless, important challenges for the ecosystem still exist. Companies in the tech sector still struggle to secure key talents and face major political and macroeconomic risks. Only a few successful entrepreneurs are re-investing their knowledge, credibility, and profits in the next generation of Mexican entrepreneurs, resulting in a scarcity of essential support for their successors. The ecosystem has built an entire infrastructure of support, digital talent, and capital that will contribute to the impacts of this sanitary, economic, and social crisis seen in 2020, and with a new inflection point in 2021.
31 RECOMMENDATIONS ● Only focus on key hiring: the current environment can be favorable to talent recruitment, which can be done through equity compensation. ● Growth-at-all-cost mentality: develop new prod- uct lines or explore key markets to expand, but con- Endeavor has conducted a series of servatively strategic sessions with investors and entrepreneurs54 such as Reid Hoffman, ● Raise capital from existing investors: the way to Founder of Linkedin, and Nicolas Szekasy, explore the best conditions is with current investors; Co-Founder of Mercado Libre and now emphasize the importance of now and not waiting Managing Partner at Kaszek Ventures until liquidity is nearly lost, thereby keeping the team (among others) to provide relevant motivated and strengthening the company now. A for- information to entrepreneurs. All of the tified enterprise will be able to take better advantage resources are available on the Endeavor of the opportunities found in a critical juncture website and below are some lessons ● Raise capital with new investors: ideally one and advice for entrepreneurs who are should prepare the fundraising strategy when the seeking to raise capital in a completely market improves; given that investor relationships altered world. are long-term, ideally, entrepreneurs should start building relationships with funds and do due diligence to investigate the company affinity and track record of ● Maintaining liquidity is key55: investors out there. Maintaining active communication it is vital to extend liquidity to se- about the company’s achievements and progress can cure 18 or more months of cash be conducive to future investments. runway. Approaches include re- negotiating contracts, seeking advance payments from clients, reducing marketing costs, de- vising creative ways to change fixed costs to variable ones, adopting remote work without physical offices indefinitely, and carefully increasing the efficien- cy of unit economics. ● ●
54 Endeavor Presents: Leading Through Crisis.
55 How to Navigate Fundraising in a Fundamentally Diffe- rent World. Anysha Mudaliar. May 12, 2020.
32 ACKNOWLEDGEMENTS DISCLAIMER
The present work was developed by Endeavor Mexico, A.C. We extend special thanks to Armando Some of the information in this document comes from various García (Uber Eats), Agustin Jimenez public and private sources. Our work contains various estimates (Cabify), Billy Rovzar (Lemon Studios), that should be considered as projections at all times as well as references to understand the entrepreneurial community, Fernando Rovzar (Lemon Studios), Ricardo Weder (Jüsto), Joao Matos and the projections and estimates may or may not materialize Albino (Urbvan), Noel Trainor (Knotion), in whole or in part. Likewise, the content of this document is Enrique Osoviecki (Chilim Balam), Alicia merely informative and should in no way be considered as Ortíz (Kubo Financiero), Guillermo professional advice or used in decision making. In any case, Villegas (Luuna) and Manuel Andere one should consult tax provisions and qualified professionals. (Sofía Salud) for participating in the interviews and sharing their perspective Selection bias and insights. The companies that appear in the report were selected We would also like to thank the 60 entre- from various sources because we consider them, in our sole preneurs who participated in our survey. discretion, to be relevant in the entrepreneurial community. However, it is possible that more than one relevant company was omitted. The classification of the companies in the report of the entrepreneurial community was done according to
the most relevant category to which the products or service offerings belong. However, a company may belong to one or more categories. If you would like to know more about the methodology or research tools used in this report, please write to us at [email protected]
33 ENDEAVOR INTELLIGENCE UNIT
Enrico Robles Del Río Intelligence Director
Bob Zeng Project Leader
Carol Martínez Research Development and Guidance
Javier Valdés Content and Editorial Coordination
Samara Silva Editorial Design
34 MANAGING TEAM ENDEAVOR MÉXICO
Vincent Speranza Managing Director & LATAM Regional Advisor
Véronique Billia Business Development and Corporate Transformation Director
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35 ABOUT ENDEAVOR About Endeavor Intelligence Unit (EIU)
Established in 1997, Endeavor leads the EIU, Endeavor’s business intelligence, and research division global high-impact entrepreneurship seek to generate value for high-impact entrepreneurs and the movement and promotes economic greater entrepreneurial ecosystem. It provides reliable data growth and job creation by selecting, and insights, maps stakeholders, and creates recommenda- mentoring, and accelerating the best tions for responsible growth. high-impact entrepreneurs in the world. To date, Endeavor has evaluated more Proprietary data and entrepreneur-centricity are key differenti- than 70 thousand entrepreneurs and ators for EIU—the team has access to 23 years of proprietary selected more than 2,089 individuals data regarding high-impact entrepreneurship across 38+ mar- who lead more than 1,304 high-growth kets and 65 cities throughout North America, Latin America, businesses. With the support of the Asia, the Middle East, Europe, and Africa. global network of Endeavor mentors, these High-Impact Entrepreneurs have EIU’s Mexico City team is spearheading a series of regional created more than 4 million jobs, gener- initiatives to position Endeavor as a thought leader in entre- ated more than $24 billion in income in preneurship in Latin America. A list of research projects can be 2019, and inspire future generations to found here: https://www.endeavor.org.mx/data_lab.html. The innovate and take risks. Headquartered team’s 15 publications have been sponsored by partners such in New York City, Endeavor operates in as Everis, WhatsApp, PayPal, Cemex, KIO Networks, the US more than 38 markets around the world. Embassy, Google, Banorte, Citi, and Santander. Topics studied include fintech, artificial intelligence, digital inclusion, e-com- www.endeavor.org.mx merce, blockchain, smart mobility, and ed-tech.
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