The startup that not only created itself, but its environment – Georgina Campbell Flatter

Georgina Campbell Flatter, Executive Director at MIT Legatum Center, Senior Lecturer in Technological Innovation, Entrepreneurship, and Strategic Management

From Forbes Mexico

Entrepreneurs are increasingly vital change agents in the developing world. Not only do they take on vexing social challenges like access to better healthcare and cleaner water, they’re also the engine propelling the economy and the potential antidote to a looming jobs crisis.  According to the United Nations, we’ll need 470 million jobs between now and 2030 to support new entries into the labor market. Those jobs won’t come from established companies, but rather entrepreneurs who are creating high-growth businesses.

To build a sustainable and scalable venture, entrepreneurs must innovate to compete within their market, but some will go much further than that to maximize their impact. Some will transform—even help create—the very ecosystem in which they operate.

A great example is Play Business, Mexico’s first equity-based crowdfunding site. The founders were motivated by the knowledge that Mexico was emerging as an innovation hub for Latin America, with up to 110,000 new engineers graduating from colleges every year. Moreover, Mexico’s 4 million small and medium enterprises (SMEs) constituted 72% of the country’s new job creation. And yet this critical economic engine had little access to capital—nearly 80% of SMEs were completely self-financed.

This lack of capital meant that potential innovations, which might create jobs and improve lives, were being lost. Play Business, launched in 2014, offered a solution. As Play Business cofounder and MIT Sloan alumna Fernanda de Velasco put it, “We would enable common people to invest in uncommon startups.”

Since there were no laws in Mexico around equity crowdfunding, Play Business was at first able to operate with few restrictions, but the founders also knew this could quickly change, especially as fintech grew and new governments (potentially more aggressive toward the financial industry) were elected. Fernanda’s team decided to be proactive and approach Mexico’s government about creating new regulations. This was a gamble, to say the least. The prevailing wisdom among emerging market entrepreneurs was that it was best to develop your venture while staying under the government’s radar. Concerned naysayers warned Fernanda that working with the government could result in requests for bribes, or worse, a set of intractable regulations that would kill her business.

But the Play Business team had already determined that staying under government’s radar, though it had short-term advantages, would never allow them to achieve their desired impact. “We wanted to fund more than just 10-15 companies,” Fernanda said, “We wanted to fund thousands. Our goal was to systematically create startups in Mexico.” By creating protections for consumers and a set of rules for honest businesses to follow, sensible regulatory laws could effectively create and stabilize the crowdfunding market.

Because Play Business demonstrated transparency at the outset and was able to show that its interests aligned with the government’s, the company was allowed to collaborate in drafting the new legislation. This proved vital when, for example, legislators planned to include a provision that would have forbid Play Business from accepting even a partial equity fee.

Once Fernanda’s team explained how this would render incentive-based models like Play Business’ useless, and would hurt the industry generally, the legislators revised it. The government appreciated that her team was seeking to change the legal system not just to benefit their own business, but to create an entirely new funding stream for entrepreneurs.

After two years, the collaboration between Play Business and the Mexican government finally paid off. Last February, a bill to regulate the fintech sector including crowdfunding was approved by Mexico’s lower house of Congress, the final step in becoming law. It will serve as the industry’s foundation. The benefits include reduced operations risk for businesses, more transparency for digital platforms, higher security and protection for consumers, and increased confidence in alternative financing models. It also reduces uncertainty, which could attract higher capital investments in the sector.

More recently, in recognition of their legislative leadership, Play Business was one of six private sector representatives—and the only startup—invited to join the Mexican government’s newly formed Financial Innovation Group.

Today, Play Business has 55,000 users (adding nearly 1,300 users each month) with 15,000 active investors and 3,500 startups on the platform. Of those startups, 180+ have raised capital and 105 have been successfully funded. This means that $7.5 million in venture investment has been delivered. Play Business has also enabled the formation of over 1,500 new jobs.

According to Fernanda, the new market will certainly create competition, and in fact a few of the startups Play Business has helped fund are potential competitors. Yet that’s all part of the plan, and the Play Business team is confident they are poised to compete in the fair and healthy marketplace they helped create.

The maxim “A rising tide lifts all boats” is often invoked to defend controversial economic policies, but perhaps it’s more aptly applied to the Play Business mindset, and to similar entrepreneurs who actively work to raise the water level even as they build the best boat.

Read the original post at Forbes Mexico.

Georgina Campbell Flatter is Executive Director of The Legatum Center for Entrepreneurship and Development at MIT and a Senior Lecturer at MIT Sloan School of Management. She mentored Fernanda de Velasco, who was a Legatum Fellow, during her time as an MBA student at MIT Sloan.