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LAVCA and the P4P Venture Capital Panel

23 June 2003

LAVCA and the Partnership for Prosperity Venture Capital Panel
A Convergence of Opportunities in Mexico

06/23/2003 San Francisco, California — The Partnership for Prosperity (P4P), a co-initiative of the governments of Mexico and the United States, was established in September of 2001 with the mission to promote greater dissemination of wealth between and within the two nations. Venture capital is one such method by which the P4P hopes job creation and trade will be stimulated between the two nations. To explore cross-border concepts of an industry well-established in the U.S. but still nascent in Mexico, the Latin American Venture Capital Association (LAVCA) assisted the organizers of a P4P conference held this June in San Francisco, in creating a special panel on venture capital.

With a mandate to be “provocative,” panelists examined the breakthroughs and remaining barriers to venture capital and private equity investment in Mexico. The distinguished panel of speakers hailed from both nations and represented a mix of institutional investors, government entities, and fund managers. The first half of the panel provided an overview of the investment environment, while the second highlighted several U.S. and Mexican VC funds operating in Mexico.

“The panel was a stimulating and candid exchange of views and experiences. The audience showed a strong interest in the sector and the Mexican Government’s proposals to substantially improve the environment for venture investment in Mexico,” stated panel organizer Christopher Kushlis, International Economist for the U.S. Department of the Treasury.

Present to comment on the Mexican economy and recent regulatory developments were Moisés Schwartz Rosenthal, Director General for International Financial Affairs of the Secretaria de Hacienda of Mexico, and Federico Patiño, Director of Development for Nacional Financiera, SNC (NAFIN). While Mr. Schwartz presented an overview of the positive economic outlook in Mexico, Mr. Patiño provided information on the extent of the venture capital and private equity market in Mexico today and outlined the reform proposals that NAFIN has been developing with support of a P4P Task Force. In addition, speakers announced the historic signing of a bilateral U.S.-Mexico agreement authorizing full activity of the Overseas Private Investment Corporation (OPIC) in Mexico.

Such positive movement was hailed by panel speaker Donald Terry, Manager of the Multilateral Investment Fund (MIF) of the IDB, who noted that Mexico has excellent opportunities for venture investment but spoke frankly of past disappointments with venture capital as an institutional investor. Claiming that investors in Mexico currently face “a daunting array of disincentives,” Terry stated that “now is the time to act” to improve the environment for venture capital in Mexico.

“The high turnout and audience engagement clearly demonstrated that many U.S. and Mexican investors and entrepreneurs are intrigued by the potential market in Mexico,” stated Christina Kappaz, Executive Director of the Latin American Venture Capital Association (LAVCA). “The Mexican government is taking much-needed steps to provide a positive climate for venture capital. We look forward to seeing the proposed reforms implemented–hopefully before the end of this year. What must follow is a concerted effort to increase the level of knowledge and professionalism in the sector through targeted events and training.”

LAVCA assisted the Department of the Treasury in assembling a cadre of speakers representative of a variety of funds active in Mexico. Present to comment on the success of a U.S.-Mexico co-investment were Richard Vaughn of Zephyr Management and Arturo Saval of Nexxus México, founders of ZN Mexico Capital Management (funds: ZN Mexico Trust and ZN Mexico II). Julio Lastres of Darby Overseas Investments, Ltd., spoke on the attractive features of private equity in Mexico that led to Mexican investments through the Darby-BBVA Latin America Private Equity Fund.

In an exciting development, Ernesto Warnholtz, director of the late-stage private equity Multinational Industrial Fund, announced the formation of Mexico’s first private equity association, the Asociación Mexicana de Capital Privado (AMEXCAP). AMEXCAP proposes to further pave the way for increased PE/VC activity in Mexico by establishing itself as a powerful voice for the industry within Mexico and the NAFTA community.

The panel also included presentations by Andres Rossi of the Latin Idea Venture Capital Fund II, Harry Krensky of Discovery Capital Partners, and presenters of the Mexico Innovation Fund Antonio Rallo of nCubo and Jonathan Whittle of Darby Technology Ventures.

“The lesson to be learned from these investors, many of whom are pioneers in their field in Mexico, is that the increasing sophistication of Mexican markets have created great opportunities for VC investment,” stated Kappaz. “The current developments in regulation promise to generate confidence among an even broader circle of investors.”

Rossi of Latin Idea said that an abundance of expanding companies in the Service, Information Technology, and Media and Communications sectors provided Latin Idea with the scope for its second Mexican fund. Latin Idea LLC, one of Mexico’s first early stage venture groups, constructed Latin Idea Venture Capital Fund II (LIVCFII), a $30M fund which provides growth capital to expanding companies, on the pros and cons of its predecessor LIVCFI.

The Mexico Innovation Fund, a $30 million VC fund devoted to emerging technology companies in Mexico, cites historically low interest rates in Mexico as contributing to the Fund’s attractiveness as an alternative to Emerging Market investors.

Discovery Capital Management, advised by PROTEGO, is currently in the process of raising capital for Discovery Americas I, a PE fund aimed at low-cost housing, consumer goods, restaurants and retailing. The convergence opportunity afforded by changes within Mexico spurred the creation of Discovery Americas I.

“Mexico is undergoing fundamental economic, political, and market changes which will produce a general upward revaluation of financial asset prices in Mexico similar to what occurred in Spain and Portugal in the 1990s,” claimed Krensky, Principal with Discovery Capital Management

Kappaz stated that the Latin American Venture Capital Association intends to follow up on the progress made at the panel by offering a series of training courses and events for both entrepreneurs and investors. “Venture capital is a mutual agreement between entrepreneurs and investors and requires knowledge of best practices on the part of both.”

For more information, please contact:

Christina Kappaz
Executive Director
Latin American Venture Capital Association
(312) 922-9920
Fax (312) 922-0955
[email protected]

Ramona DeNies
Latin American Venture Capital Association
(503) 239-7449
Fax (801) 922-2649
[email protected]