Alta Group's Emerging Market Research - "Why Mexico?"

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This is the presentation given to the Geeks on a Plane 500 Startups Group (GOAP) in Mexico City on Saturday May 12, 2012 by Paul Ahlstrom. This is a summary of the internal market research that led Alta to create a two investment funds in Mexico (Alta Growth Capital and Alta Ventures Mexico) (Excuse the formatting issues... We call this our kitchen sink version and although it is fairly complete, it was never meant for external publication..) Enjoy - It will be posted here for a limited time

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  • The purchasing power parity method accounts for the relative effective domestic purchasing power of the average producer or consumer within an economy. The method can provide a better indicator of the living standards of less developed countries, because it compensates for the weakness of local currencies in the international markets. For example, India ranks 12th by nominal GDP, but fourth by PPP. The PPP method of GDP conversion is more relevant to non-traded goods and services.Using a PPP basis is arguably more useful when comparing differences in living standards on the whole between nations because PPP takes into account the relative cost of living and the inflation rates of different countries, rather than just a nominal gross domestic product (GDP) comparison.This may be better than the exchange rate method because the exchange rate only reflects traded goods in contrast to non-traded ones. Also, currencies are traded for purposes other than trade in goods and services, e.g., to buy capital assets whose prices vary more than those of physical goods. Also, different interest rates, speculation, hedging or interventions by central banks can influence the foreign-exchange market.The PPP method is used as an alternative.
  • 1951 mile border that is never going away
  • Latin America provided more than 3.2 million barrels of petroleum per day to the US in 2010 more 2Xthe petroleum than Saudi Arabia and Iraq combined (1.54)Ecuador .217 MBPD
  • US Exports to Mexico grew to $136.5 in 2007 to $151 billion in 2009 & $163 billion in 2010 (19% growth) (while US Exports to Canada remained flat at $247 billion in 2010.Third trading partner (imports plus exports) Imports plus exports in 2010 were $400 billionOil. In 2010, Mexico was the seventh-largest oil producer in the world and the second-largest supplier of oil to the United States.
  • Outcome: Mx great momentum (time&issues) opportunity that need to be solved to make PE/VC & economic growth happen.
  • Outcome: U.S. Momentum that make PE/VC & leader economic growth happen.Lawerence RockefellerGeorges Doriot – sources of capital to young soldiers returning from war to start businesses.
  • Outcome: U.S. Momentum that make PE/VC & leader economic growth happen.
  • Outcome:U.S.Momentum that make PE/VC & leader economic growth happen.
  • Nicknames for cities and areas with a heavy concentration of high-tech firms. "Siliconia" began as appropriations of names beginning with "Silicon" in areas outside of Silicon Valley; the names are meant to capture something unique about the area's regional character.Check it out :^)Automation Alley - Oakland County, MichiganBilly-can Valley - Arnhem Land, northern AustraliaBiotech Beach - Orange County, CaliforniaBit Valley - area in JapanBollywood - Delhi, IndiaCWM Silicon - Newport, Gwent, South WalesCyberabad - Hyderabad, Andhra Pradesh, IndiaCyberchella Valley - Coachella Valley from Palm Springs to Thermal, CaliforniaCyber District - Boston, MassachusettsDigital Coast - Coast south from Ventura, CaliforniaDigital Rhine - Over-the-Rhine area in Cincinnati, OhioDot Bowl - another name for Silicon Valley, CaliforniaDot Commonwealth - MassachusettsDSP Valley - area around the University of Leuven, Belgiume-coast - Portsmouth, New Hampshiree-country - Fairfax County, VirginiaFlanders Language Valley - area between Antwerp and Brussels, BelgiumHollywired - Hollywood, CaliforniaIndia's Silicon Valley - Bangalore, IndiaIntelligent Island - SingaporeKiselsta - Kista, a suburb of Stockholm, SwedenMedia Del Rey - Santa Monica / Marina Del Rey, CaliforniaMultimedia Gulch - San Francisco, CaliforniaMultimedia Super Corridor - area south of Kuala Lumpur, MalaysiaPhilicon Valley - Philadelphia, PennsylvaniaSilicon Alley - lower Manhattan, New York City, NYSilicon Alps - Carinthia, AustriaSilicon Bayou - Louisiana (and) Boca Raton, FloridaSilicon Beach - Santa Barbara, CaliforniaSilicon Bog - the midlands of IrelandSilicon Corridor - Chicago, Illinois, specifically the the city's western suburbs along I-88Silicon City - Chicago, IllinoisSilicon Desert - Phoenix, ArizonaSilicon Ditch - the M4 Corridor, west out of London, EnglandSilicon Dominion - VirginiaSilicon Fen - Cambridge, EnglandSilicon Freeway - Southern CaliforniaSilicon Forest - Portland, Oregon and the area around Route 26, west of PortlandSilicon Forest Australia - eastern AustraliaSilicon Glacier - the region around Kalispel, MontanaSilicon Glen - the region around Livingston, ScotlandSilicon Gulch - San Jose, California (and) Austin, TexasSilicon Hill - the area around Hudson, MassachusettsSilicon Hills - the hills west of downtown Austin, TexasSilicon Hollow - Oak Ridge, TenneseeSilicon Holler - north Virginia & suburbs of Washington D.C.Silicon Island - St. John, Virgin Islands (and) Long Island, New York (and) Alameda, California (and) Taiwan, Republic of China (and) Whidbey Island, WashingtonSilicon Isle - IrelandSilicon Mesa - north Albuqueque and the Rio Rancho area of New MexicoSilicon Mountain - Mountaintop, Pennsylvania (and) Colorado Springs, Colorado (and) Hudson, MassachusettsSilicon Necklace - suburbs of Boston, MassachusettsSilicon Orchard - Wenatchee Valley, WashingtonSilicon Parkway - the Garden State Parkway, New Jersey (and) the area around the Merritt and Wilbur Cross Parkways, ConnecticutSilicon Plain - Kempele, FinlandSilicon Plains - Lincoln, Nebraska (and) Atadim Park, in north Tel Aviv, IsraelSilicon Plantation - VirginiaSilicon Plateau - Bangalore, IndiaSilicon Polder - The NetherlandsSilicon Prairie - Lincoln, Nebraska (and) Kansas City, Missouri (and) Payne County, Oklahoma (and) the area around Minneapolis / St. Paul, Minnesota (and) Chicago, Illinois (and) Richardson, Texas (and) Urbana/Champaign area of Illinois (and) Sioux Falls vicinity, South Dakota (and) Iowa City / Fairfield vicinity, Iowa (and) Ed Bluestein Boulevard, Austin, TexasSilicon Rain Forest - Seattle, WashingtonSilicon River - the Kansas City - Columbia - St. Louis Corridor in MissouriSilicon Sandbar - Cape Cod, MassachusettsSilicon Saxony - eastern state of Saxony, GermanySilicon Seaboard - Richmond, VirginiaSilicon Snowbank - area around Minneapolis/St. Paul, MNSilicon Spires - Oxford, EnglandSilicon Swamp - Indiantown, Florida (and) Perry, FloridaSilicon Triangle - area around Raleigh / Durham, NCSilicon Tundra - area around Ottawa, Canada (and) area around Minneapolis/St. Paul, MinnesotaSilicon Valais - Valais, SwitzerlandSilicon Valley - San Jose, California and surroundingsSilicon Valley North - area around Ottawa, CanadaSilicon Valley of the East - Penang State, MalaysiaSilicon Valley Forge - Philadelphia, PennsylvaniaSilicon Village - North Adams, Massachusetts (and) Scotts Valley, CaliforniaSilicon Vineyard - Okanagan Valley, British Columbia, Canada (and) Petaluma / Santa Rosa / Napa Valley, CASilicon Wadi - IsraelSilicorn Valley - Fairfield, IowaSiliwood - Hollywood, CaliforniaTeknopolis - greater Johor Bahru city, Johor State, MalaysiaTelecom Beach - San Diego, CaliforniaTelecom Corridor - Richardson, TexasTelecom Valley - Minas Gerais, Brazil (and) Catawba County, North Carolina (and) The Riviera, FranceWebport - Portland, Maine
  • Provide the catalyst of capital that brings together and supports the entrepreneurial activity and innovation
  • Howthe venture capital industry views itself.
  • The reality!Whoops… institutional investors have been pulling back and only backing the top decile funds.
  • Building bridges between our countries
  • Alta Group's Emerging Market Research - "Why Mexico?"

    1. ALTA VENTURES MEXICOIGNITING INNOVATIONSummary of EmergingMarket ResearchROGELIO DE LOS SANTOS, MANAGING DIRECTOR, ALTA VENTURES MEXICOPAUL AHLSTROM, MANAGING DIRECTOR, ALTA VENTURES MEXICO Q2 2012
    2. Outline: Emerging Market Research2 ¨  AVM Research Timeline and Team ¨  Emerging Market Research ¨  Investment Hypothesis - Mexico ¨  Drill down Primary Market Research ¨  Investment thesis is working… ¨  Behind the Scenes at Alta ¨  Appendix
    3. Alta Market Research Timeline 2005-20103 2005 2006 2007 2008 Industry Emerging Select Indentify Advocacy- Capital Formation Market Mexico as Partners and and Innovation Research Top Choice, Launch Alta Report; International Started Research PE Growth Investor Summit; Market Capital Key Relationships
    4. Alta Market Research Timeline 2005-20104 2009 2010 •  U.S. Ecosystem Tours and Best Practice Transfers •  Rogelio and Paul Partnership Build sustainable deal flow systems, •  What about VC? VC Market distribution and exit paths. Drill Down and Strategy •  E|100, MVCC, iTuesday, WIN Formulation Kickstart, etc. •  Key Partner Identification •  Building the team •  Open Office in Monterrey, U.S. Team Moves to Mexico Launch Alta Ventures Mexico 2/11/11
    5. Alta Ventures - Team5 Paul Ahlstrom, Managing Partner l  Co-Founder & Managing Partner, Alta Ventures l  Co-Founder, Alta Growth Capital and Kickstart Seed Fund, Co-Founder vSpring Capital l  Business Dev. Director Folio Corporation division of Lexis-Nexis/Reed Elsevier l  Founder/CEO of Knowlix sold to Peregrine Systems 1999 (now HP NYSE: HPQ) l  Other Exits include: MyFamily.com/Ancestry.com (NASDAQ: ACOM), GlobalSim www.globalsim.com sold to Kongsberg Maritime (KOG - Oslo Stock Exchg), Senforce sold to Novell (NASDAQ: NOVL) Altiris IPO (NASDAQ:ATRS) Altiris was then bought by Symantec (NASDAQ: SYMC), Aeroprise sold to BMC (NASDAQ: BMC), Rhomobile sold to Motorola Solutions (NYSE: MSI) l  Advisory boards: Univ of Utah Tech Commercialization, (Previously Motorola VRB), Endeavor Mentor l  BA, Brigham Young University, Honorary Doctorate Netanya Academic College l  Venture Investments: The American Academy, Public Engines, Convert.com, Juxta Labs Rogelio de los Santos Calderon, Managing Partner l  Co-Founder & Managing Partner, Alta Ventures l  Co-Founder, Kickstart Mexico l  Founder of 7 startups; exits Xtreme Cinemas, Dalus l  Co-founder and CEO of Generacion Empresarial Mexicana l  Master in Business Leadership, DUXX Graduate School of Business Leadership l  BS, Instituto Tecnologico y de Estudios Superiores de Monterrey l  Directorships: Energryn, Diverza, Juxta Labs, MFM l  Boards: Babson College, Tech de Monterrey - ITESM, Endeavor, Enlace E+E
    6. Alta Ventures - Team6 Rob McMillen, Principal l  VP Sales Rhomobile l  Associate, vSpring Capital l  JD MBA Brigham Young University l  BA Liberal Arts & Sciences Utah State University l  v100 member Alem Muminovic, Associate l  MBA; International University of Monaco, with Honors l  Experienced entrepreneur; sold to Strategic Buyer l  Managing Director for Guadalajara Angel Investor Network l  Founding member and Team leader for iTuesday and E|100 in the western region of Mexico Christian Aguirre, Senior Analyst l  Founding Member and Team Leader for E|100 Program l  Research and consultancy assistant at SME chair in EGADE l  MS in Finance; EGADE Business School with Honors l  BS Mechatronics; ITESM Magna Cum Laude Lorenzo Barrera, Analyst l  Consultant at SINTEC l  Experience in the snack & confectionary, processed meats and steel industries l  BS Mechanical Engineering; University of Notre Dame
    7. Outline: Emerging Market Research7 ¨  AVM Research Timeline and Team ¨  Emerging Market Research ¨  Investment Hypothesis - Mexico ¨  Drill down Primary Market Research ¨  Investment thesis is working… ¨  Behind the Scenes at Alta ¨  Appendix
    8. The Ring of Fire8 Macroeconomic Fundamentals (2011) Norway 12.5% 10.0% 7.5% Public Sector Deficit (% of GDP) 5.0% 2.5% Chile Portugal 0.0% Sweden Finland Germany Colombia -2.5% Brazil Australia Canada Italy -5.0% Argentina Netherlands France -7.5% Spain Mexico USA UK -10.0% Ireland Greece Japan Denmark -12.5% -15.0% 0.0% 50.0% 100.0% 150.0% 200.0% 250.0% Public Sector Debt (% of GDP) Source: Data from World Economic Outlook Database 2012, The Ring of Fire, PIMCO, 2009
    9. Gross External Debt as a Percent of GDP: Averages for Selected 59 Countries, 2003-2009 (in percent) 9Sources: International Monetary Fund, World Economic Outlook, World, Bank, Quarterly External Debt Statistics (QUEDS).
    10. Continued Growth in Emerging Markets Supports Private Equity 10 Emerging Markets GDP Growth In Emerging Markets GDP Growth Predicted to Predicted to Outperform Developed Remain Positive in Most Countries Emerging MarketsSource: IMF, World Economic Outlook Database, 2009
    11. Continued Growth in Emerging Markets Supports Private Equity 11 Emerging Markets Developed vs Emerging Markets 12 8 10 6 8 4 6 2 4 0 2010 2011 2012 2 -2 0 United States 2010 2011 2012 Euro Zone Africa Central & Eastern Europe Emerging & Developing Economies Commonwealth of Independent States Developing Asia Latin America Middle East GDP Growth Predicted to Remain Positive GDP Growth In Emerging Markets Predicted in Emerging Markets to Outperform Developed CountriesSource: IMF, World Economic Outlook Database, April 2012
    12. Emerging Markets Pace Global Economic Growth12 The centers of rapid wealth creation are shifting from Developed to Emerging Markets Contribution to Global GDP Growth (Share of World Total) 70% 65% 60% Key Drivers are: •  Rapid industrialization 55% •  Significant income growth 50% •  Improved long-term 45% household financial confidence 40% 35% 30% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Advanced Economies Emerging & Developing Economies Source:    IMF,  World  Economic  Outlook  Database,  April  2012,   Data  for  years  2012-­‐2019  are  esBmates  
    13. Countries of the World13 Albania Chad Grenada Lesotho Papua New Guinea Swaziland Algeria Chile Guatemala Liberia Paraguay Sweden Angola China Guinea Libya Peru Switzerland Antigua and Barbuda Colombia Guinea-Bissau Lithuania Philippines Syrian Arab Republic Argentina Comoros Guyana Luxembourg Poland Taiwan Province of China Armenia Costa Rica Haiti Madagascar Portugal Tajikistan Australia Croatia Honduras Malawi Qatar Tanzania Austria Cyprus Hong Kong SAR Malaysia Republic of Congo Thailand Azerbaijan Czech Republic Hungary Maldives Republic of Yemen The Bahamas Bahrain Dem. Rep. of Congo Iceland Mali Romania The Gambia Bangladesh Dem. Rep. of Timor-Leste India Malta Russia Togo Barbados Denmark Indonesia Mauritania Rwanda Tonga Belarus Djibouti Iraq Mauritius Samoa Trinidad and Tobago Belgium Dominica Ireland Mexico Saudi Arabia Tunisia Belize Dominican Republic I. Rep. of Afghanistan Moldova Senegal Turkey Benin Ecuador I. Rep. of Iran Mongolia Serbia Turkmenistan Bhutan Egypt Israel Montenegro Seychelles Uganda Bolivia El Salvador Italy Morocco Sierra Leone Ukraine Bosnia and Herzegovina Equatorial Guinea Jamaica Mozambique Singapore United Arab Emirates Botswana Eritrea Japan Myanmar Slovak Republic United Kingdom Brazil Estonia Jordan Namibia Slovenia United States Brunei Darussalam Ethiopia Kazakhstan Nepal Solomon Islands Uruguay Bulgaria Fiji Kenya Netherlands SÒo TomÚ and PrÝncipe Uzbekistan Burkina Faso Finland Kiribati New Zealand South Africa Vanuatu Burundi F. Y. Rep. of Macedonia Korea Nicaragua Spain Venezuela Cote dIvoire France Kosovo Niger Sri Lanka Vietnam Cambodia Gabon Kuwait Nigeria St. Kitts and Nevis Zambia Cameroon Georgia Kyrgyz Republic Norway St. Lucia Zimbabwe Canada Germany Lao Peoples D.R. Oman St. Vincent &Grenadines Cape Verde Ghana Latvia Pakistan Sudan Central AfricanRepublic Greece Lebanon Panama Suriname
    14. Narrow the Field: Emerging Markets Per capita GDP below $14k in 200914 Albania Chad Grenada Lesotho Papua New Guinea Swaziland Algeria Chile Guatemala Liberia Paraguay Angola China Guinea Libya Peru Antigua and Barbuda Colombia Guinea-Bissau Lithuania Philippines SyrianArabRepublic Argentina Comoros Guyana Poland Armenia Costa Rica Haiti Madagascar Tajikistan Honduras Malawi Tanzania Malaysia Republic of Congo Thailand Azerbaijan Hungary Maldives Republic of Yemen Dem. Rep. of Congo Mali Romania The Gambia Bangladesh Dem. Rep. of Timor-Leste India Russia Togo Barbados Indonesia Mauritania Rwanda Tonga Belarus Djibouti Iraq Mauritius Samoa Dominica Mexico Tunisia Belize DominicanRepublic I. Rep. of Afghanistan Moldova Senegal Turkey Benin Ecuador I. Rep. of Iran Mongolia Serbia Turkmenistan Bhutan Egypt Seychelles Uganda Bolivia El Salvador Morocco Sierra Leone Ukraine Bosnia and Herzegovina Equatorial Guinea Jamaica Mozambique Botswana Eritrea Myanmar Brazil Jordan Namibia Ethiopia Kazakhstan Nepal SolomonIslands Uruguay Bulgaria Fiji Kenya SÒoTomÚ and PrÝncipe Uzbekistan Burkina Faso Kiribati South Africa Vanuatu Burundi F. Y. Rep. of Macedonia Nicaragua Venezuela Cote dIvoire Niger Sri Lanka Vietnam Cambodia Gabon Nigeria St. Kitts and Nevis Zambia Cameroon Georgia KyrgyzRepublic St. Lucia Zimbabwe Lao Peoples D.R. St. Vincent &Grenadines Cape Verde Ghana Latvia Pakistan Sudan Central African Republic Lebanon Panama Suriname *Based on IMF Information
    15. Narrow the Field: Larger Economies GDP over $75 billion in 200915 Algeria Chile China Peru Colombia Philippines Argentina Poland Malaysia Thailand Hungary Romania Bangladesh India Russia Indonesia Mexico Turkey I. Rep. of Iran Egypt Morocco Ukraine Brazil Kazakhstan South Africa Venezuela Vietnam Nigeria Pakistan *Based on IMF Information
    16. Narrow the Field: Larger Populations Population over 50 million in 200916 China Philippines Thailand Bangladesh India Russia Indonesia Mexico Turkey I. Rep. of Iran Egypt Brazil Vietnam Nigeria Pakistan *Based on IMF Information
    17. Narrowed Field 17 Country Population GDP 2009 (billion) GDP per capita China 1,334.74 $ 4,909 * $ 3,678 India 1,199.06 $ 1,236 * $ 1,031 Indonesia 231.55 $ 539 $ 2,329 Brazil 191.48 $ 1,574 $ 8,220 Bangladesh 165.71 $ 95 * $ 574 Pakistan 163.77 $ 167 * $ 1,017 Nigeria 151.87 $ 173 * $ 1,142 Russia 141.39 $ 1,229 * $ 8,694 Mexico 107.55 $ 875 $ 8,135 Philippines 92.23 $ 161 $ 1,746 Vietnam 87.21 $ 92 * $ 1,060 Egypt 76.70 $ 188 * $ 2,450 Iran 74.10 $ 330 * $ 4,460 Turkey 70.54 $ 615 $ 8,723 Thailand 66.98 $ 264 $ 3,940*Estimated Source: International Monetary Fund
    18. Narrow the Field Goldman Sachs Growth Environment Score18 BRICS and N-11 Goldman Sachs Growth Environment Score (GES) 2009 ¨  Launched in 2005, GES was developed to capture the factors that crucially affect the ability of an economy to grow. ¨  This tool helps Goldman to predict if their BRIC theory will become a reality in the next 20-40 years. (Variables include inflation, government deficit, external debt, investment rate, penetration of phones, PC’s, and Internet, education, life expectancy, political stability, rule of law and corruption) Source: Goldman Sachs
    19. Analysis of Key Indicators (as of 2005)19
    20. Ease of Doing Business (updated 2011 Analysis) 20 Ease of Doing Business Rank 2011 (Higher = worse) Brazil 126 Russia 120 India 132 China 91 Mexico 53 Dealing with Protectin Trading Getting Registering Getting Paying Enforcing Resolving Starting a Construction g Across Country Electricity Property- Credit- Taxes- Contracts – Insolvency Business-Rank Permits – Investors- Borders - -Rank Rank Rank Rank Rank - Rank Rank Rank Rank Brazil 120 127 51 114 98 79 150 121 118 136 China 151 179 115 40 67 97 122 60 16 75 India 166 181 98 97 40 46 147 109 182 128 Russia 111 178 183 45 98 111 105 160 13 60 Mexico 75 43 142 140 40 46 109 59 81 24Source: World Bank; Ease of Doing Business Rank Data for 2011
    21. Latin American Consumer 21 CONSUMER Personal Disposable Income 2010Source: Frontier Strategy Group, 2010 figuresDisposable Income: The amount of money that households have available for spending and saving afterincome taxes have been accounted for
    22. Other markets we considered…22
    23. Summary Analysis: India*23 ¨  Strengths/Opportunities ¤  Economic stability ¤  Political stability ¤  Market opportunity n  Demand for Telecom products and services n  Cost reduction n  Many US businesses use India as tech support/call center ¤  Skilled labor n  SW development Center n  Managerial and manufacturing expertise ¤  Ease to transfer profits back to US headquarters ¨  Weaknesses/Risks ¤  Social issues n  Poverty level n  Infra-structure n  Corruption ¤  Competitive Market * Snapshot of 2005 analysis
    24. Summary Analysis: China 24 ¨  Strengths/Opportunities ¤  Market Size ¤  Fast paced economy ¤  Low cost of labor ¤  Time required to start a business (48 days) ¨  Weaknesses/Risks ¤  Political regime ¤  Hostility against US ¤  Social issues n  Severe human rights issues including child exploitation n  Corruption ¤  Trade barriers ¤  Severe Intellectual Property/Copyright issues ¤  Competition – local and foreign* Snapshot of 2005 analysis
    25. Summary Analysis: Russia 25 ¨  Strengths/Opportunities ¤  Improving economy ¤  Political stability ¤  Infra-structure ¤  High literacy rate (99.4%) ¤  Time required to start a business (36 days!) ¨  Weaknesses/Risks ¤  Payment terms and collection risks ¤  Work ethics ¤  High taxes n  Large corporations not affected as much ¤  Social Issues n  Corruption still a serious problem n  10% of population suffers from alcoholism n  Violence directly related to alcoholism (33% of violent crime) ¤  Slow decision making process n  Deadline is a foreign concept* Snapshot of 2005 analysis
    26. Latin America Region26 ¨  Overview ¤  Vast territory n  Each country has a unique set of values n  Two predominant languages n  Two large markets n  Several smaller markets with high opportunities ¤  Fertile Soil n  Rapid Infrastructure build up n  Flourishing IT and Telecom sectors n  Solid US business presence n  Overall economic growth n  Gradual political stabilization n  Commodity markets play well into trends * Snapshot of 2005 analysis
    27. Latin America Rank27 ¨  The Two Giants ¤  Brazil ¤  Mexico ¨  Small Market ROI Opportunities ¤  Chile ¨  Up and Coming ¤  Argentina ¤  Colombia ¤  Peru ¨  Other Options to Be Evaluated ¤  Ecuador, Venezuela ¤  Central America & Caribbean* n  Panama, Dominican Republic, Guatemala, El Salvador, Costa Rica ¤  *= Puerto Rico not included (US Hispanic market) * Snapshot of 2005 analysis
    28. Summary Analysis: Brazil 28 ¨  Strengths/Opportunities ¤  Market Size (largest in LAR) ¤  Economic stability n  Economic indicators improving considerably ¤  Political stability ¤  Trained IT labor ¤  Strong US business presence ¤  Strong exit markets/liquidity ¨  Weaknesses/Risks ¤  Regulated economy ¤  Bureaucratic government and legal system ¤  Time required to start a business (58 days) ¤  Difficulty to transfer profits back to US headquarters ¤  Trade barriers (high import taxes, etc.) ¤  Cost of capital ¤  Government is the largest IT/Telecom customer – via bids ¤  Social discrepancies and high crime rate* Snapshot of 2005 analysis
    29. Latin America: Best ROI Mexico29 ¨  Pros ¤  Best ROI, Relatively low competition ¤  Fast-growing IT/Telecom market, Skilled labor ¤  Open to foreign investment, Friendly nation ¤  On par with regional leaders in its tax treatment, corporate governance requirements, protection of minority shareholder rights and restrictions on local institutional investors ¤  Strong public and private universities ¤  Huge capital gap for small to medium size companies ¨  Cons ¤  Weak framework for fund activity, with larger funds setting up offshore ¤  Bankruptcy procedures & judicial system remains inefficient ¤  Perceptions of corruption and concerns about ongoing drug trade which affect FDI confidence * Snapshot of 2005 analysis
    30. Summary Analysis: Chile30 ¨  Strengths/Opportunities ¤  Ease to do business ¤  Very low trade barriers ¤  Economic stability ¤  Political stability ¤  Highly trained IT/Telecom labor ¤  Strong US business presence ¤  US dollar largely accepted ¤  Channel of distribution follows US models ¤  Port of entry for Asian parts, components, products ¤  Great base of operations for South America ¨  Weaknesses/Risks ¤  Small Internal Market ¤  High shutdown costs ¤  Business permitting process * Snapshot of 2005 analysis
    31. Summary Analysis: Argentina31 ¨  Strengths/Opportunities ¤  Market opportunity n  Demand for technology/telecom products & services ¤  Undergoing positive economic changes ¤  US business presence (although growing leftist leaning sentiments) ¤  World class software and design talent ¤  High level of sophistication and quality of life ¨  Weaknesses/Risks ¤  Relatively small corporate market in spite of US presence ¤  Current economic situation n  Currency fluctuation n  Government debt & perceived government corruption ¤  Bureaucratic environment ¤  Social Issues n  Social discrepancies n  High crime rates * Snapshot of 2005 analysis
    32. Summary Analysis: Columbia32 ¨  Strengths/Opportunities ¤  Market opportunity n  Demand for technology/telecom products & services n  Government sector offers good opportunities ¤  Channel of distribution ¤  Some US business presence ¤  Dramatically improved public safety (addressed drug cartels) ¨  Weaknesses/Risks ¤  Social issues n  Social discrepancies ¤  Columbian peso fluctuations ¤  Relatively high cost of labor ¤  Perception of safety (although it is not the reality) * Snapshot of updated analysis
    33. Summary Analysis: Peru, Ecuador, CA&C 33 ¨  Strengths/Opportunities ¤  Low competition ¤  Some US business presence ¤  Governments open to foreign investments ¨  Weaknesses/Risks ¤  Small markets ¤  Social issues n  Social classes discrepancies ¤  Weak economies ¤  Infrastructure Note: some LAR prospective customers have subsidiaries or sales offices in CA and other smaller markets. In some cases, contracts include support to those offices.* Snapshot of 2005 analysis
    34. Summary Analysis: Venezuela34 ¨  Strengths/Opportunities ¤  Market opportunity n  Demand for technology/telecom products & services n  Government opportunities – large deals ¤  Skilled labor ¤  Bright engineering talent ¤  Some US business presence ¤  Proximity to US (Miami) ¨  Weaknesses/Risks ¤  Small market ¤  Foreign exchange controls (Impossible to transfer money in and out of the country) ¤  Social issues n  Social discrepancies n  Violence, poverty, crime rate ¤  Political instability n  Leftist/dictator president` * Snapshot of 2005 analysis
    35. Outline: Emerging Market Research35 ¨  AVM Research Timeline and Team ¨  Emerging Market Research ¨  Investment Hypothesis - Mexico ¨  Drill down Primary Market Research ¨  Investment thesis is working… ¨  Behind the Scenes at Alta ¨  Appendix
    36. Top Choices: Mexico + the BRICS36 ¨  Trending First choice*: Mexico ¨  Second place: Brazil ¨  Solid option: India ¨  Largest market: China ¨  Trending: Russia * based on market PE/VC attractiveness and underserved capital
    37. Mexico Market Increased Purchasing Power MX Stability and37 Mexico’s rising GDP is paralleled by an improving political and regulatory environment First wave of OECD NAFTA; Central Peso crisis; floats AFOREs; stricter Sale of troubled EFTA; Calderon Privatizations entry bank currency; receives accounting standards; portfolios and Investment elected independence US bail-out; repays U.S. bailout intervened banks Grade Global Recession 15500 (US$) 14500 13500 GDP (PPP) per Capita from 1990-2010: 3.32% CAGR 12500 11500 10500 9500 8500 7500 6500 5500 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 First PAN governor Independent PRI loses majority in PRD wins Fox elected; First 30-year elected; Electoral Institute Chamber of Deputies D.F. vote PRI loses majority in fixed rate Peso PRD created established Senate bond issueSource: IMF World Economic Outlook Database, April 2012 Note: Data for 2011 is an estimate
    38. Mexico within the Regional Sovereign Risk Environment38 Sovereign Debt Rating (2012) Russia Mexico China India Brazil Mexico is tied for the second best Sovereign Debt Rating in Latin America and is also tied for second best among the BRICsSource: Fitch analysis
    39. Mexico within the Regional Sovereign Risk Environment39 Sovereign  Debt  Ra/ng  as  of  2012   Investment Grade Non-Investment Grade Country Debt Rating Country Debt Rating Chile A+ Paraguay BB- Mexico BBB Venezuela B+ Brazil BBB Bolivia B+ Peru BBB Argentina B Columbia BBB- Ecuador B- Uruguay BBB- Non-Latin America Countries Country Debt Rating China AA- Russia BBB India BBB-Source: Standard & Poor’s
    40. Mexico’s Solid Foundation Mexico’s growth expected to continue40 Fast and sustainable growth Healthy population pyramid with increased aging Increasing Spending Power GDP (USD tr) 100+ 95-99 GDP  /capita  (USD  thds)   2010 2030 90-94 85-89 17.6   1.43 80-84 6% 11% 75-79 16.4   1.29 70-74 65-69 15.1   1.17 60-64 14.2   13.7   Age ranges 55-59 50-54 12.5   1.04 45-49 55% 59% 40-44 0.85 0.88 35-39 30-34 25-29 20-24 15-19 39% 30% 10-14 5-9 0-4 05 07 09 11 13 15 05   07   09   11   13   15   10% 5% 5% 10% Percentage of total population Inflation (Avg CPI) Savings  rate   5.3% Growing Population and Urbanization Total  popula/on   Urban  popula/on   25.9%   24.7%   25.6%   (million)   growth  (million)   4.0% 4.0% 25.8%   2.5   23.9%   3.6% 112   114   2.4   2.4   23.2%   107   110   2.2   2.3   2.3   3.0% 3.0% 103   105   05 07 09 11 13 15 05   07   09   11   13   15   05   07   09   11   13   15   05   07   09   11   13   15  Source : IMF Outlook April 2011, CIA World Fact book, EIU
    41. Mexico’s New Advantage in three key manufacturing areas (cost-time-quality) Mexico’s export oriented manufacturing industry will continue to fuel growth41 Mexico’s Export Products and Partners With Significant Export Upside Mexico’s    export  partners  (2011  in  %)   Mexico’s Export Advantages Mexico China 100% Transporta/on  cost*   81% USDs   $3058 $5239 80% Lead  /me*   60% Days   5 22 40% Labor  Unit  Cost     15% USDs   $4.40 $4.50 20% 4% 0% * 2010. 53 foot container from Mexico to Chicago and 40 foot US Canada Other container from China to Chicago Mexico’s    export  products   In  %   Labor  unit  cost    (37%):  Other   manufactured   USDs   (23%):  TVs,   goods   6.00   40% (18%):  oil,   mobile  phones,   fruits  and   (22%):  vehicles,   refrigerators  &   Mexico   30% vegetables,   auto  parts   appliances   4.00   coffee,  coAon   20% China   2.00   10% 0% 0.00   Commodities Automotive Electronics Other 01   03   05   07   09   Source: Worldbank, 2012
    42. Opportunity Gap 2010 Capital Mexico has low private equity participation compared to the BRIC’s. 42 Private Equity Penetration, 2010 1.6% 1.41% 1.4% PE Investment / GDP (%) 1.2% 1.06% 1.03% 1.0% 0.8% 0.61% 0.58% 0.6% 0.41% 0.37% 0.37% 0.4% 0.27% 0.29% 0.21% 0.14% 0.15% 0.15% 0.16% 0.2% 0.04% 0.05% 0.0%Source: Emerging Markets Private Equity Association, IMF
    43. Opportunity MX PE Penetration dropped in 2011 Mexico has low private equity participation compared to the BRIC’s. 43 Private Equity Penetration, 2011 .33% .75% .98% … 2.05% … … … 0.30% PE Investment / GDP (%) 0.20% 0.14% 0.13% 0.12% 0.10% 0.10% 0.10% 0.10% 0.09% 0.08% 0.04% 0.01% 0.01% 0.00% Mexico MENA S Russia SSA Brazil Japan Turkey S Poland China India UK US Israel Korea AfricaSource: Emerging Markets – EMPEA, United Kingdom – Centre for Management Buy-Out Research, United States – PitchBook, Israel – Israel Venture Capital Research Center,Japan – Asia Private Equity Review, All GDP data – International Monetary Fund
    44. E&Y VC/PE Country Attractiveness Score 2011 44 VCPE Country Attractiveness Score 2011 USA (1) UK (2) South Korea (17) China (20) Chile (29) India (30) Mexico (42) Brazil (43) Colombia (47) Argentina (66) Kyrgyzstan (80) 0 20 40 60 80 100Source: The Global Venture Capital and Private Equity Country Attractiveness Index 2011, Ernst & Young
    45. 2010 AT Kearney FDI Confidence Mexico #8 Jumps 11 Places45 * Mexico dropped significantly in 2012 rankings
    46. 2010 LAVCA Scorecard Results Over Time 46 INT’L BENCHMARKS Total Scorecard ratings UK 93 (Select Latin American Countries) Israel 81 78 Spain 76 80 76 76 76 Taiwan 61 74 75 75 75 75 SCORECARD COUNTRIES 70 Total Scores (Max = 100) Chile Chile 76 65 65 Brazil Brazil 75 Mexico 63 59 Mexico 60 Colombia 60 Colombia Uruguay 57 55 Latam Average Trinidad & Tobago 56 50 Costa Rica Latin America Average 55 Peru Costa Rica 54 45 Argentina Peru 51 40 Panama 49 Argentina 43 35 El Salvador 43 2006 2007 2008 2009 2010 Dominican Republic 38Source: 2010 LAVCA – EIU Scorecard Report.
    47. 2012 LAVCA Scorecard47 Evolution of Select PE/VC Markets
    48. 2010 LAVCA Scorecard Results48Rank / Y-o-Y (scores) 1 a UK 93 2 ↔ Israel 81 3 ▼2 Spain 76 4 ↔ Chile 76 5 ↔ Brazil 75 6 ▲5 Mexico 63 7 ▼2 Taiwan 61 8 ▲3 Colombia 60 9 ▲3 Uruguay 57 International 10 ▼7 Trinidad & Tobago 56 Benchmarks 11 ▲1 Costa Rica 54 Latin America 12 ▲1 Peru 51 13 ↔ Panama 49 =14 ▼3 Argentina 43 =14 ▼3 El Salvador 43 16 ▲5 Dominican Republic 38 0 10 20 30 40 50 60 70 80 90 100 Chile, Brazil and more recently Mexico have been able to break out of the pack and get closer to the international benchmarks from more developed markets. Source: 2010 LAVCA – EIU Scorecard Report.
    49. 2012 LAVCA Scorecard49
    50. Structural Transformations and Shifting Consumer Habits Creating Click to edit Master title style Significant Opportunities & Challenges for PE/VC investments in MX50 Rapid Structural Growing Infra. Development Transformation Consumption •  Investment expected to remain •  Rapidly growing middle class •  Per Capita Income expected to at 26% of GDP (highest in and upper class grow at 4% over next 5 years Latin America after Chile •  Maturing population pyramid •  Continued willingness to spend •  Increased urbanization will (pop. above 65 years old will reflected in stable savings rate drive the need for housing, be 11% in 2030) •  55% of the population is transportation and •  Technology orientation currently in active economic infrastructure life •  Growing environmental •  The 2012 5-year plan includes awareness $88 bn investments in energy Opportunities: Opportunities: Opportunities: •  Non Banking Finance to •  Healthcare, Housing •  Leisure & Lifestyle business •  Advertising •  Education •  Services to manufacturing •  Consumer goods •  Non banking Financial industry •  Logistics/transportation Services to consumers •  Tech manufacturing
    51. Mexico within the Regional PE/VC Attractiveness Environment Mexico  is  very  underpenetrated  despite  its  overall  good  business  environment  to  conduct  PE  and  VC  51 80 Business Environment vs. PE Penetration 0.20% Business environment for PE/VC 70 0.18% 60 0.16% 0.14% 50 Avg. 2008-2010 PE/VC penetration 0.12% Score (0 to 100) 40 0.10% 30 0.08% 0.06% 20 0.04% 10 0.02% 0 0.00% Chile Brazil Mexico Colombia Uruguay Peru Argentina ** In addition, bank credit* in Mexico is much lower than in the region. Bank credit was 12% of GDP in 2010, vs 51% for Brazil and 37% average for Latin America* Bank credit in Latin America weighted by GDP share. Includes mortgages, credit to consumers and to firmsSource: EMPEA, EIU, LAVCA, Banco de México and S&P Ratings Service; Vander Capital Partners analysis;
    52. Significant Business Lending & Investment Gap52 Business lending has experienced negative growth and has not kept pace with consumer credit. Companies are starved for growth capital to keep up with the market demand. SOURCE: Comision Nacional Bancaria y de Valores
    53. Still significant Lending Gap for SME’s53 Companies are starved for growth capital to keep up with the market demand. As a rule consumer lending has far outstripped new business lending save for a short period during the financial crisis. Loan Growth in the Mexican Banking System 60% 50% Business Year-over-year growth 40% Consumer 30% Housing 20% 10% 0% -10% -20% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 SOURCE: Comision Nacional Bancaria y de Valores
    54. Mexico’s Current Situation – Only large Mexican businesses have access to financing 54 BANK CREDIT TO MEXICAN FIRMS BY SIZE $80 $70 12% 13% $60 13% 12% $50 US$ Billion 12% $40 Other   Large   $30 $20 $10 $- 2006 2007 2008 2009 2010Source: AMB Report: “Lending in Mexico” February 2011 and Banco de México; Vander Capital Partners analysis.
    55. No Financing for Small & Medium Mexican Businesses 1% of firms get 87% of the financing 55 BANK CREDIT TO MEXICAN FIRMS BY SIZE $100   $90   408,884 small and med firms $80   12% $11.16 13% $70   13% 12% 3,033 large firms $US Billion $60   $8.38 12% $50   Small  &  Med   $40   Large   $74.69 $30   $56.07 $20   $10   $0   ABM   CNBV  Source: AMB Report: “Lending in Mexico” February 2011 and Banco de México; Base de datos ahorro y financiamiento CNBV, diciembre 2010; Endeavor Mexico; VanderCapital Partners analysis.
    56. Mexico’s Current Situation 56 BANK CREDIT TO MEXICAN FIRMS BY SIZE IN 2010 Firm  size   Loan  per  firm   Loan  per  firm   Distribu/on   %  of  GDP   Employees   ABM   CNBV   S  &  M   US$20.5K   US$27.3k   13%   40%   5-­‐499   Large   US$18.5Mn   US$24.6Mn   87%   54%   500+  Source: AMB Report: “Lending in Mexico” February 2011 and Banco de México; Base de datos ahorro y financiamiento CNBV, diciembre 2010; Endeavor México; VanderCapital Partners analysis.
    57. Outline: Emerging Market Research57 ¨  AVM Research Timeline and Team ¨  Emerging Market Research ¨  Investment Hypothesis - Mexico ¨  Drill down Primary Market Research ¨  Investment thesis is working… ¨  Behind the Scenes at Alta ¨  Appendix
    58. On-The-Ground Research58
    59. There Are Many Mexicos59
    60. Border Issues Obscure America’s view of Mexico6060 ¨  Violence ¨  Drug Cartels ¨  Immigration
    61. Market Drill Down Process On-The-Ground Research61The Alta team has held 100+ meetings that have enabled us to understand the opportunities and challenges of doing business in Mexico. Below are a few representative meetings… •  Federal Competition Commission; Economic Bureau; Undersecretary of the Treasury; ProMexico; Economic Bureau, Foreign Investment; Telecommunications and Transportation Government Bureau; Mexican Senators; Governor of State of Mexico; Former Ambassador to US; Mayor of Mexico City; Undersecretary of North America; Mexican Legislature; Executive Director, NAFINSA; ProMexico; FOCIR •  GE Mexico, Cisco, Corporate and Investment Bank of Banamex (Citigroup), Intel Capital Mexico, IXE Grupo Industry Financiero, American Chamber of Commerce—Mexico, Cavlemas, US Hispanic Chamber of Commerce; Banorte Insurance, Deutsche Bank Mexico
    62. Market Drill Down Process On-The-Ground Research62 •  Visited with more than 12 Mexican Mexican families who are among the most Families influential in Mexico. Research/ •  Tecnologico de Monterrey (TEC) , UNAM, Universities CEPII, Conacyt, Pan American Univ (CEPii) Limited •  More than 20 limited partners and 3 Partners, institutional investors and multilaterals Financial including IFC, NAFIN, CMIC, IADB/MIF
    63. Widespread Development63 Tijuana Population: 750,000 Ciudad Juárez Key Industries: beverages, processed foods, Torreón Population: 800,000 Population: 880,000 metalworking, radio and television Key Industries: electrical machinery, transport equipment, meat, electronics, Key Industries: automotive, bricks, clay, refractory, Hermosillo manufacture, electrical machinery dairy products general machinery, cement and derivatives Population: 600,000 Key Industries: automotive, meat, cement Chihuahua and derivatives, electrical machinery Population: 650,000 Monterrey Key Industries: electrical machinery, automotive, Population: 3 million meat, electronics, dairy products, timber Key Industries: oil refining, iron and steel, Culiacán electrical machinery, glass and derivatives, Population: 600,000 breweries, meat products, cement, banking Key Industries: food processing, cereal milling, sugar, beverages, edible oils and fats Veracruz Aguascalientes Population: 450,000 Population: 500,000 Tampico-Madero-Senderomira Key Industries: petrochemicals, Key Industries: electronics, automotive, dairy, Population: 340,000 refining, basic chemicals, iron and textiles, carpets Key Industries: chemical, industrial steel, sugar, beef, processed foods, machinery, electronic & electrical tourism, transportation services León equipment, oil and refinery, agriculture, (maritime) Population: 1 million cattle, fishing Key Industries: refining, footwear, leather and tanning, bakery goods, beverages Guadalajara Population: 4 million Key Industries: high-technology, edible oils and fats, plastic products, chemicals, dairy products, processed foods, textiles, footwear San Luis Potosí Toluca Population: 670,000 Population: 850,000 Key Industries: iron and steel, non- Key Industries: automotive, plastics, Mexico City ferrous metallurgy, tobacco products, paper and cellulose, chemical electrical machinery, automotive, Population: 20 million derivatives, basic chemicals Key Industries: retail, financial services, livestock food, automotive, plastic products, paper and cellulose, chemical Puebla derivatives, basic chemicals Population: 1.5 million Key Industries: automotive, textiles, iron Source: SE-NAFTA. and steel, bottled water, chemicals, meat * Snapshot of 2005 analysis processing
    64. Major Oil Suppliers of the United States 64 ¨  1. Canada – 2.53 million barrels per day (bpd) ¨  2. Mexico – 1.26 ¨  3. Saudi Arabia – 1.08 ¨  4. Venezuela – 1.07 ¨  5. Nigeria – 1.05 ¨  6. Algeria – .512 ¨  7. Iraq – .464 ¨  8. Angola – .422 ¨  9. Colombia – .360 ¨  10. Brazil – .289Source US Department of Energy: ftp://ftp.eia.doe.gov/pub/oil_gas/petroleum/data_publications/company_level_imports/current/import.html
    65. Electronics Industry in Mexico65 Tijuana Mexicali Juárez Chihuahua Reynosa  SANYO  SONY  TOSHIBA  SONY  MOTOROLA  PHILIPS  DELCO (Automotriz)  DAEWOO(SLRC)  ALTEL  HITACHI  MITSUBISHI  THOMSON  PHILIPS  MATSUSHITA  KIOCERA  KENWOOD  SONY  JVC  GOLDSTAR  JABIL  ELECTROLUX  MATSUSHITA (Automotriz)  SAMSUNG Saltillo 7 ACER  VITROMATIC  PIONNER  ELAMEX  MABE  NOKIA  MITSUBISHI  PLEXUS  HAMILTON  LUCENT TECHNOLOGIES  SHARP BEACH*  FUJITSU (Automotriz)  SANYO ELECTRODOMÉSTICOS Torreón  CONDURA (Automotriz)  PHILIPS  THOMSON  DELNOSA (Automotriz)  CASIO  KODAK  CANON  KIOCERA Monterrey  INTERNACIONAL RECTIFIER  AUDIO & VIDEO  PIONNER  DANFOSS COMPRESSORS  VITROMATIC (3)  Home Appliance Aguascalientes SanLuis Potosí  MABE (2)  MABE GE  KODAK 7 Computer Equipment  WHITE  NIPPON DENSO (Automotriz)  WESTINGHOUSE  MABE SANYO ( Telecommunications  MEX*  AXA YAZAKI (Automotriz)  TEXAS INTS.  Other  XEROX Cuernavaca  SIEMENS Querétaro  NEC  VISTAR  VITROMATIC (2) Estado de México Guadalajara  PANASONIC 7 I.B.M  ELECTROLUX 7 H.P. Querétaro  FILTER QUEEN  NEC  CLARION  HOOVER  LUCENT TECHNOLOGIES  DAEWOO Estado de Mexico  IMAN  MOTOROLA  BLACK & DECKER  MABE  KOBLENZ  KODAK  MABE (2)  BRAUN  MABE  CUMEX  SINGER  ELECTROLUX Puebla  PHILIPS  SIEMENS  SIEMENS  SUNBEAM  GESTAR  SUNBEAM  SOLECTRON DE MEXICO  KOBLENZ  SINGER  OLIVETTI  FLEXTRONICS  ERICSSON  VITROMATIC  OLIMPIA  JABIL CIRCUIT  ALCATEL/INDETEL  MTI ELECTRONICS  AMP  SCI SANMINA * Snapshot of 2005 analysis
    66. Mexico’s Dynamic & Growing Industrial Base66 •  40+ Home appliance manufacturers Merrytech TIMCO •  Dozens of automobile manufacturers and parts suppliers •  World Class Mexican Companies
    67. Merging of Consumer Habits67
    68. The U.S. exports more to Mexico than to any other country besides Canada 68 U.S Exports in 2007 1.Canada 2. Mexico 3. China 4. Japan 5. U.K. $248.9B $136.5B $65.2B $62.7B $50.3B Not in the Top 10 Brazil India Russia $24.6B $17.6B $7.4B
    69. Mexico, China & Brazil increase purchase of US goods and all others flat69 U.S Exports in 2010 1.Canada 2. Mexico 3. China 4. Japan 5. U.K. $248B $163B $91.9B $60.5B $51B BRICS 2010 Brazil India Russia $35B $19.2B $6B Source: http://www.ustr.gov/countries-regions

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