Mexico Diving In To Canada’s Hot Tech Market
It has almost been a year since the United States triggered NAFTA renegotiations. The historic free trade agreement was officially implemented on Jan. 1, 1994 after almost two decades of negotiations and amendments. Since 1994, Canadians have enjoyed a wider-selection of goods, increased trade volume, increased foreign direct investment and the development of new jobs.
And while the NAFTA renegotiations are a trilateral affair, they have refocused some attention on Canada’s individual relationships with the United States as well as with Mexico.
A couple of major Canadian companies have some operations in Mexico. Among them are Bombardier Inc., Magna International Inc. and DGB Canada Ltd. And, according to Export Development Canada, the Mexico-Canada relationship experienced $14.6B foreign affiliate sales by Canadian companies since 2014 and as much as $17B in 2015. Conversely, Mexico companies experienced $1.7B through sales in Canada in data from 2014.
Foreign investments in private capital continue to flow into Canadian firms. Canada’s tech market is attracting investment from Asia, and it’s also attracting investment on our continent as well.
Sam Ifergan, Founder and CEO of Toronto-based venture capital firm, iGan Partners says the majority of their funds have been internationally funded since they launched in 2013. iGan Partners invests in early stage medical imaging device, healthcare IT and data-driven B2B SaaS companies.
“I think, in general, we’ve been noticing a lot more international interest in Canada for a multitude of reasons. It’s something that we’re very excited about and we’ve been part of that trend.”
iGan Partners is backing companies like eSight, a company making smart glasses that enable the legally blind to see, Moleculight a company that manufactures devices for clinicians to quickly, safely, and easily visualize bacteria and measure wounds and Think Research, a Toronto-based company committed to delivering clinical best practices to the point of care.
Ifergan says that Mexican investors are particularly interested in medtech.
“Medtech resonates with them much more. Not to say that they’re not interested in the other sectors. In our experience Medtech is an area that they’re very interested about. Most of the capital in Mexico is going into real estate, resources or infrastructure. They’re looking in Mexico for investments in tech. They know it’s an important part of a portfolio. The younger generation of the family offices; tech is something they’re interested in. Not that they’re not investing in the US, but they’re also inclined to look for it in Canada.”
The quality of Canadian businesses may not be the only thing that’s attracting foreign and particularly Mexican investment into Canada versus investments into the U.S.
“One thing is the US reporting and SEC regulations that have made investing in the US fairly complex,” explains Ifergan. “Then, Mexicans in particular, are not too enthralled with (President) Donald Trump and his wall and the anti-Mexican sentiment in the US. (Mexicans) have a very favorable view of Canada.”
One of such reporting difficulties is the U.S. Bureau of Economic Analysis (BEA) and its mandatory five-year benchmark survey to obtain data on foreign direct investment. Reporting takes substantial resources and, failing to comply could result in civil and/or criminal penalties.
Foreign investment into Canadian venture capital helps expose Canadian companies to global markets, explains Ifergan.
“One additional interesting thing about our Mexican limited partners. One of (our partners) has organized a company to distribute one of our medical devices in Mexico. It’s starting to do well. I think when you have really well positioned family offices, it comes with their network and their know-how; it actually helps the underlying businesses too.”
On the continued interest of foreign investment in Canada, particularly from Mexico, Ifergan says it’s important for the growth of the Canadian economy.
“It’s going to be important for the Canadian government to make taxation better and affordable for Mexican LPs investing in Canada. If this does not become an issue, I think there will be continued investment in Canada by Mexico. I’m feeling fairly bullish”