ASEM proposes changes in legislation to help Mexican startups

LatAm List – The Association of Mexican Entrepreneurs (ASEM) recently expressed its concerns over the excessive time startups in Mexico are facing in competitive analysis processes and proposed changes in legislation. 

  • Investments rounds have been stalled for months by competition authorities, creating uncertainty and making it impossible for startups to execute growth plans
  • ASEM asks competition authorities to not overregulate startups, as COFECE recently expressed in favor of big digital platforms
  • The association calls on COFECE and IFT to incorporate in their analysis the importance and particularities of the startups and to work together in the analysis and resolution of acquisitions
  • ASEM proposes modifications to the Federal Law of Economic Competition so that operations are analyzed and solved under a smoother process, in order to provide certainty to startups and investors

“From the Association of Mexican Entrepreneurs (ASEM) we express our concern about the obstacles that some startups are facing in the process of the enforcement of competition law. 

Incomprehension of the benefits of startups. We have seen mechanic and rigid competitive analyses, based on the incomprehension of the entrepreneurial dynamic, the digital economy, and the disruptive competition this can bring to broader markets, contrary to COFECE’s position expressed a few days ago, that “it is relevant to assure that, if necessary, the regulatory intervention does not unnecessarily inhibit the development of the new digital offer (not over-regulating) so that it can have the opportunity to compete with the traditional providers for consumers’ preference” [1]. It could appear as though COFECE is not willing to implement the criterion of “not over-regulating” when it comes to startups and only applies it in favor of big digital platforms, to which its Digital Strategy is mostly directed.

The dynamic of these types of companies needs to be analyzed differently by the authorities of competition, otherwise, we run the risk of ceasing to be an attractive investment destination. Many startups have very few years of activity, operate with losses, and count on small operations in undefined emerging markets. Furthermore, they have few months of cash to operate with and, during the process of competitive analysis, are not allowed to raise investment.

Lack of cooperation between authorities. We have registered with concern how the investment proposal and majority stake of Uber in Cornershop [2], six months since the notification was made by COFECE (on 16th of October 2019), has not been analyzed, due to disputes between COFECE and the IFT over defining who will resolve the acquisition. 

Given that the new ventures contribute to increasing competition and giving consumers more options, we call on the authorities to collaborate with each other, as in the case of the US, where the Department of Justice (DOJ) and the Federal Trade Commission work together.

Long resolution times. Finally, we have witnessed how foreign investment rounds– essentially financial and, therefore, do not present risks to competition– in companies like Clip [5], Konfio [6], and Kavak, have been halted for months, creating uncertainty and making it impossible to execute investment, hiring, and growth plans [7]. Given the fragility of almost all of the startups, long waiting times for resolutions can put them at risk of bankruptcy. 

We consider it key that the response of regulators adjusts to the reality of startups and that regulatory frameworks not be applied mechanically to them when they have been designed for big companies that could effectively create potential monopolies and also have access to larger capital markets.

Different competition regulators at a global level have been able to implement effective changes through the reduction of times in the analysis and resolution processes, as well as increasing the economic threshold level of transactions subjected to analysis.

That is why we propose the following points to modify the Federal Law of Economic Competition [8]:

  1. To stipulate that the simplified and expeditious revision of the acquisitions provided in article 92 of the Law must be applied to transactions that involve startups. Some types of transactions might even be exempt from notification under article 93.
  2. For the transactions that involve startups, the analysis of the acquisition must be done once the transaction has been closed.
  3. To exempt investors, that do not individually meet any of the provided thresholds in the law, from being required as a notifying party in the process.
  4. The COFECE and the IFT must collaborate in the analysis and resolution of acquisitions related to digital markets, in order to have a comprehensive and complementary analysis.
  5. In case of disputes between IFT and COFECE, if the courts do not resolve in 10 days what the law stipulates, the jurisdiction will fall on the competition authority where economic agents have made an acquisition notification.

We recognize COFECE’s openness and willingness to discuss, especially during the Conference for Competition (Jornada por la Competencia), as well as the advances to digitalize the acquisition notification process, and the efforts to make the first approaches towards a digital strategy.

Given that startups cannot wait any longer, in addition to sharing these proposals with COFECE and IFT, we will initiate conversations with legislators, members of the pro-entrepreneurship bench in the Senate to make sure that the legislation is ready to bolster development and growth in these types of companies.

We call on the authorities of competition to promptly resolve the analysis processes that startups are facing. We reiterate our willingness to maintain a constructive dialogue that contributes to stimulating the startup ecosystem as a motor for economic growth and the social wellness of Mexico. This will primarily be achieved as long as acquisitions are made possible, which will create a multiplier effect where investors allocate capital to funds so that these, in turn, invest in startups and, when an acquisition is settled, entrepreneurs and the entire chain are capitalized to reinvest. 

From the ASEM, we are convinced that we will be able to attract investment, create employment and productive and innovative companies if we are capable of implementing the necessary incentives for Mexico to become a better country to start a company and do business in. Even though we appreciate the regulating role of the State, and we will always respect its resolutions, we firmly believe that society as a whole will be benefitted by reasonable administrative processes and response times. We reiterate that the ASEM is in favor of competition laws that level the playing field for everyone.

Read the original statement in Spanish.

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