The FASSST summit was held on May 12, 2023 by the Mexican Ministry of Foreign Affairs, bringing together startups, investment funds, accelerators, incubators and public officials. Together they have worked together to generate 42 actions to transform the startup ecosystem in Mexico. Their work is built around addressing four main barriers: gaps in access to financing; lack of support and education for entrepreneurs; slow procedures and administration; and damaging regulation.
Below are the 42 recommendations laid out in the report:
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Encourage retirement funds to invest in venture capital
Offer benefits (such as lower supervision fees, lower capital requirements or expanded investment limits) to retirement fund administrators that invest 1% of their portfolio in the primary market of Initial Public Offerings, as well as those that allocate 1% to instruments indexed to MSME assets in secondary markets.
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Raise the transparency requirements that retirement fund administrators must meet
In countries such as the United Kingdom, the “Value for Money” approach has promoted the adoption of higher standards of transparency to allow users to choose the Pension Fund that offers better yield, lower administrations costs and that have a lower climatic impact. This means the funds have incentives to maximize the value offer to their user and diversify, turning to startups and innovative companies.
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Amplify the stimuli tax on profits on startup stocks
Mexican and foreign investors are currently able to apply a 10% reduction in tax on profits obtained from the sale of shares of Mexican companies. However, this does not apply to investment in foreign companies, large sale or exchanges in the secondary market. The policy should be expanded to include these sales and the application period should be lengthened.
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Exempt profits obtained on shares of startups from taxation
Mexico has an undeveloped venture capital market with low demand for shares from startups. To remedy this, profit on the shares of startups obtained in the first 5 years of the company being listed should be exempt from taxation.
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Create a secondary invoice market where investors can pay small producers their invoices at a discount
Big companies take a long time to pay small suppliers for their products and attempts to place legal time limits may discourage purchases from small suppliers. Therefore, a secondary invoice market should be created where investors pay the bills at a reduced rate while absorbing the risk of default. This would reduce the time it takes for SMEs to receive payment for their services without reducing competitiveness.
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Strengthen the startup strategy from the Ministry of Foreign Affairs
Currently efforts to promote Mexican startups are fragmented and poorly coordinated. The FASSST program should be used to link actors of the ecosystem and complement the deliver course to the Representations of Mexico Abroad (RME) to service as a communication channel between Mexican startups and companies around the world.
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Provide a seal of recognition to startups with positive social impact
An advisory council should be created that grants a seal of recognition to startups that demonstrate their contribution to society through innovation or better products. The Council should be made up of representatives of startups, business, academia, government and civil society.
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Introduce a digital nomad visa
A digital nomad visa should be introduced to attract talent to Meixco and retain it which will generate wealth and jobs locally. Currently the Temporary Residence Visa is used little by the foreign population.
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Allow legal entities to register online
Standardize the rules to allow legal entities to register online using the system created for the registration of Simplified Stock Companies.
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Reduce the time for the patent authorization for startups
In Mexico the procedures to access intellectual property take time and there is little certainty about its duration. This authorization process should be reviewed with the prioritization of reducing response time in line with the minimum speed standards offered in the other North American countries.
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Modify the authorization process to operate Innovative Models
The procedure for authorizing Innovative Models should be reviewed to allow applicants to define the legal figure under which they want to establish themselves later in the sandbox process. Additionally, the Sandbox Challenge contest should be reinstated.
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Universalize driver’s licenses in Mexico
Currently the requirements and procedures to obtain driver’s licenses differ throughout the states within Mexico. The procedure for providing driver’s licenses for cargo transportation should be reformed to eliminate state differences which would reduce costs for logistic service startups.
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Create a youth program for high value-added industries
A new program should be created with the exclusive objective of linking people aged 18 to 29 with startups. The program should also aim to help expand the role of women in the technology and innovation sector.
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Create a microcredit program for startups that generate well-being
The program – which is to be aimed at graduates of the youth program – will award beneficiaries a total of 4 loans that do not generate interests and that must be settled within a period of no more than 10 months.
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Include entrepreneurship content in high school and university education
Skills based around business, talent management, investment, financial planning and decision making should be promoted as part of high school and public university study programs.
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Collaborate with schools and universities to give students access to prototyping laboratories
Establish inter-institutional agreements to give all students access to community laboratories in schools and training centers. Including tools such as 3D printers, laser woodworking kits, and kits for building electronic circuits.
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Host virtual workshops on international best practice
Establish institutional mechanisms for Mexican regulators to enter into dialogue with the experience of other countries.
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Promote entrepreneurship as a vocation to high school and university students
Set up “Entrepreneurial Culture Brigades” to set up in high schools and universities to promote the importance of startups for solving social problems and providing tools for students to participate (including workshops, mentoring, conferences et).
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Host virtual trade missions
Assist startups that cannot afford the high costs of a promotional trip abroad through virtual commercial meetings with potential foreign collaborators.
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Promoting success stories
Collect, study and publish success stories of entrepreneurs who managed to create a successful startup to encourage and help new members of the ecosystem.
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Strengthen the role of Compliance Officer
The regulatory entities of the financial sector (CNBV, CONDUSEF, Banxico) should facilitate the transition of startups to become medium or large companies by taking an active role in promoting the adoption of the role of Chief Compliance Officer. This measure will facilitate the work of regulatory authorities and startups, reducing the costs of complying with their obligations.
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Train the administrators of Mexican savings systems
CONSAR should play an active role in training the administrators of the Retirement Funds in matters of risk capital and new investment vehicles within the startup ecosystem.
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Deliver an award to startups that generate welfare
An award should be introduced for startups whose work contributes in an exception way to combat poverty and inequality, or that promotes access to education, health, transportation, or any other service that improves living conditions. This will promote the work that startups do amongst the general population.
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Organize a National Startup Fair
An annual fair for members of the ecosystem should be organized to meet with authorities from friendly countries. This would be an opportunity for startups, investment funds, and accelerators to bond and exchange experience.
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Promote Strategic association to offer public coworking spaces
Work with state governments and coworking companies to offer free spaces to startups.
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Promote Mexican startups abroad
The new promotion agency should designate specialized personnel in each Consulate and Embassy within Mexico to build relationships and facilitate foreign investment as well as supporting internationalization of Mexican startups.
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Create a database of business opportunities within government departments
Identify the needs of government departments and large companies so that startups can offer their solutions, sell their products and obtain liquidity.
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Present to the public a database of angel investors
Assemble a list of angel investors operating in Mexico, along with their areas of interest and section criteria
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Reactivate the Financial Innovation Group
The Fintech Law established the creation of the Financial Innovation Group; however, it has been underutilized and left dormant. The group should be reactivated and used as a true space for exchange and communication between regulators and those who are regulated in order to improve the regulatory framework of the Fintech Law.
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Guarantee the access of aggregators to the Domestic Exchange Contract (CID)
The CID governs the conditions of participation in payment networks. All participants in the payment market should be consulted on the terms of the CID as well as participate in the modification process. This will reduce the costs faced by users of digital payment systems such as small businesses or independent sellers.
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Resume the Initiative 11 working group
Initiative 11 was a working group run by the Association of Payment Method Aggregators (ASAMEP) which documented the areas of opportunity to improve the affiliation rules contained in the CID. This working group should be resumed to discuss evidence to allow automated mass registrations and standardize criteria.
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Update the mechanism that sets Exchange Fees
The current mechanism for setting Exchange Fees should take account the effects of new technologies, give a voice to all participants in the electronic payments market and consider the costs that participants incur to carry out contactless transactions. Reducing exchange fees means increase the money MSMEs receive in exchange for their products.
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Eliminate the dual cloud requirements for Financial Technology Institutions (FTI) that contract with foreign providers
Currently FTIs that exceed certain operation or transactional thresholds must contract a second provider of cloud computing services in order to hire foreigners. Duplicity requirements should be eliminated to make it possible to offer cheaper financial services to the public.
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Reduce the costs for Financial Technology Institutions to use commission agents
FTIs are subject to stricter limits on operations and higher standards in terms of deadlines for crediting credits than regular banks. Additionally, they must comply with more expensive requirements for the authorization of commission agents. This regulatory asymmetry should be eliminated to reduce costs for FTIs.
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Authorize Popular Savings and Credit Institutions (SOFIPOs) to use digital means of authentication
Revise current provision to allow SOFIPOs to compete with other entities in a fully digital environment which would reduce operating costs and improve the quality of financial services offered to users.
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Extend payroll portability to SOFIPOs
Salary transfers are currently provided by credit institutions and some Multiple Purpose Financial Companies (SOFOM) which gives them a significant advantage to serve the population. This right should be extended to SOFIPOs so that citizens have the right to choose the option they consider most competitive to receive their payroll and have access to credit.
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Simplify the authorization process for SOFIPOs to contract third parties
Review the list of services that require an authorization request for SOFIPOs to hire external providers. Alternatively, the possibility of integrating a register of third parties previously authorized by the CNBV should be explored. This measure will make it possible to adopt new technologies faster within the financial sector, as well as promote competition with the timely entry of more players into the market.
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Issue the secondary regulation on aggregate and tractional open banking
The lack of regulation that promotes the concentration of the market of API developers and providers makes it difficult for foreign competitors to enter the market. This should be rectified by sharing open financial data and user information which will make it easier to open accounts, lower the prices of financial products, and make credit available to sectors excluded from traditional banking.
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Extend loan guarantee scheme to non-banking entities that grant credit to MSMEs
Review and expand the current eligibility criteria to access the NAFIN Intermediary Network. Having this support will allow many non-bank entities to offer loans to startups and MSMEs for the start-up of new businesses or the growth of innovative models.
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Facilitate the participation of startups in the public procurement process
The requirements and processes of public procurement should be reviewed so that innovative companies in the tech sector and startups can compete with other providers without resorting to intermediaries.
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Review the protection scheme for credit users
People who obtain loans from non-financial institutions or companies generally do not receive protection from the National Commission for the Protection and Defense of Users of Financial Services (CONDUSEF). The law needs to be reviewed to offer CONDUSEF protection to all who obtain loans from companies in Mexico.
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Establish a fund for protection of Institutions of Financial Technology
Explore the possibility of creating a private fund with contributions from FTIs similar to the fund for the Protection of Popular Financial Societies (PROSOFIPO), to guarantee compliance with obligations related to the savings deposits of its clients. This will protect the money of small businesses, sellers and savers.