Where to start: Creating a Startup in Mexico (Part 1)

By Paola Toledo 

Lately, the new trend in career paths is becoming an Entrepreneur. It seems like the new generation has forgotten all about what parents taught them regarding the way they led their lives for years, and are now looking to venture in the world of entrepreneurship. Let's face it: starting your own company sounds way more ambitious than wasting your creativity and passion into a conventional corporate job. Now, in no way we are implying that having a job is wrong, but the trend pretty much dictates that most people nowadays are craving to create impact. That's right! If you are reading this, it is very likely that you have thought about starting-up your own venture, and we congratulate you for it.  

And like you, many other people have thought about venturing into this world; some might even declare they have found the holy grail of business ideas, as if having granny’s secret stew recipe, but hold your horses for a second there: being an entrepreneur is a lot more than that. Even more so, being an entrepreneur in Mexico represents a huge challenge because of the lack of information regarding funding, vesting, VC’s, equity, etc. and these my friends, are things you should know because it will not only make your life easier as a Founder and help you through your first years, but it is also information you should have free access to.  

In MassChallenge, is all about helping entrepreneurs win. MC Mexico partnered with Greenberg Traurig, an international law firm, to create an e-book of recommendations and tips for mexican startups that needed to take into consideration when they are starting a company.   

  • Legal counsel: Should I hire a lawyer being an early-stage startup? 

Many entrepreneurs venture into the startup world without a clue as to their legal rights and duties. Now, I know what many of you are going to say, “I don’t have money for an attorney”, but believe me when I tell you, this is something you should consider once you are about to create the first legal documents for your company. A lot of startups end up losing a lot (if not all) money when they start growing and realize they never considered any legal input; they either end up losing their rights as founders, losing a lot of money because there’s a lot more work to be done, or when trying to raise capital will be difficult for funds to invest in you if you don´t have the correct paperwork.  

  • Choose the legal entity that best fits your company's needs. 

Entrepreneurs nowadays think success comes overnight and that in their first year they’ll expand and become a global company, and therefore think that a legal entity that allows them to open market in different countries and that is intended for huge companies is the best option. Let’s get real, although it is great to be optimistic and visualize the best scenario possible, it is very important to know that a startup is hard work, and that you must first survive early-stage before any real revenue is to be found. Having said this, it is better to get legal advice on what the best entity for your company to operate in the country you’ll be settling in. Changing legal entities is way easier when having access to proper legal advice and therefore, you should not worry too much about the entity when the company is still small to the extent that the entity you choose grants at least limited liability protection to the Founder team as is suitable for your business model; you should choose to form the entity depending on the country you are at the time, and avoid spending lots of resources considering complex off-shore structures at a very early stage. When the company starts growing, forming different legal entities is an option. 

  • What is a Term-Sheet and why is it so important? 

The term sheet is the document that outlines the terms by which an investor will make a financial investment in your company and it is very important for startups that are already looking for funding. But, why is it so important? Some founders don't consider this document when they create their startups, and yet the majority of investors and VC companies aren't willing to invest in a company that has not established a term-sheet. This is because the term-sheet will not only contain the valuation of your company, but will also help you establish the way that you will be distributing the value of the company among the founders, current employees, option pool, and liquidation. In easier terminology, the term-sheet will give you and possible investors a clear view of where your company is, and where it's going. 

We invite you to read the Thought Leadership Document MassChallenge Mexico created in collaboration with our partner Greenberg Traurig - "Where to Start:  LEGAL ENTITIES, TERM-SHEET NEGOTIATION, EQUITY POOLS, AND IP PROTECTION TIPS FOR MEXICAN STARTUPS" to find out more tips and tricks you should know about if you've made entrepreneurship part of your life. We congratulate and encourage you to continue this journey because people like you the world needs more of: resilient people who create and who are willing to break the status quo. Don't be afraid and go for it!