Mexico City — The trend toward nearshoring in Mexico, the relocation of companies to manufacture products closer to the market where they sell them, will not only boost foreign direct investment (FDI), but also venture capital investment, according to investors and entrepreneurs.
“Apart from seeing investments in highly disruptive companies, in the case of Mexico we will continue to see investments in manufacturing, transportation, logistics and in general everything that has to do with export services to the United States,” Glisco Partners’ managing partner Alfredo Castellanos told Bloomberg Línea.
For his part, Iván Cárdenas, CEO of Bego, a Mexican startup that connects freight forwarders with companies shipping to the US, said nearshoring is a trend that has helped his startup grow aggressively, as since 2019 the US has been investing more in its plants in Mexico than in Asia.
“Last year US-Mexico trade grew 20% in freight forwarding, which is unheard of, as typically this number was 2% year-over-year,” Cárdenas told Bloomberg Línea.
Nearshoring will drive export companies to look for technologies such as artificial intelligence, financing and other tools to streamline their operations, services which can be provided by startups, Cárdenas added.
Investments in Mexican startups driven by nearshoring have been notable since 2022.
In early October of last year, Solvento, a Mexican fintech that builds payment infrastructure for the Latin American trucking industry, closed a $5 million seed round, amid increased interest in nearshoring, and which was led by Ironspring Ventures, a Texas-based fund focused on manufacturing and supply chain processes.
Solvento’s CEO, Jaime Tabachnick, told Bloomberg Línea that the company is seeing its growth driven by nearshoring, as companies seek, primarily in Mexico, to be closer to their delivery and distribution points.
For investors, Tabachnick argues, the fact that Solvento is a fintech focused on the transportation vertical was attractive, and especially because “the trucking industry is not going to stop, it is an industry that has a projected growth of 10% per year”.
“The range of very attractive investment opportunities in Mexico related to nearshoring is enormous, in addition to everything related to disruption,” Glisco Partners’ Castellanos said during the presentation of the study Insights: Venture Capital and Growth Equity Ecosystem in Latin America, which the consulting firm prepared with entrepreneurial incubator Endeavor.
Although nearshoring is not a new phenomenon, but has been around for a long time, “right now it is growing because of the trade war between the US and China, the war in Ukraine, and also because of the disruption of supply chains due to the pandemic,” Paulina Aguilar, co-founder and director of Mundi, a financial services platform specializing in cross-border trade, told Bloomberg Línea.
Aguilar said Mexico can become an export powerhouse, but small and medium-sized exporting companies need the capital to do so.
In February 2022, the Mexican fintech closed a $16 million Series A round led by Union Square Ventures, which included participation from funds such as Upper90, FJ Labs, Base10 Partners, Exor, AndBank, Alleycorp, Operator Partners and Gilgamesh Ventures.
Amid the nearshoring boom, the startup plans to double its size and number of companies it serves by 2023, Aguilar said.
Nearshoring has pushed the growth o FDI, Castellanos said, although the Mexican government is unclear how much GDP will grow with the relocation of value chains from Asia to Mexico.
The Finance Ministry has stated that the acceleration of relocation and investment opportunities close to the northern border and in the central region of the country will boost GDP., while the Economy Ministry estimates that approximately 400 foreign companies will set up operations in Mexico.
FDI in Mexico at the close of 2022 was $35.29 billion, the highest in seven years and an increase of 12% compared to 2021, during which foreign investment totaled $31.54 billion.
“So we already have figures that clearly point in that direction,” Castellanos said, referring also to the opportunity to capture venture capital for startups that are involved in nearshoring.