Tijuana: From Sin City to Software Sanctuary

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When Ramon Toledo ditched a career in diplomacy for tech, in 2001, he knew success would be a tall order. He had spent years matchmaking between the public and private worlds at global events like Davos, and each year someone from the World Economic Forum’s technology council would call, asking which people from Mexico he’d like to invite.

“Every year I said no-one,” Toledo tells Red Herring. “Because there was no interest for the tech industry in Mexico. It was incredible: there were no Internet companies, no startups, no nothing.”

At least, Toledo thought, when he founded what would become tech firm Busca Corp, he would find cheap programmers. Toledo’s home town of Tijuana, home to 1.7m and just a short ride from the US border, had pedigree as a manufacturing hub. In the 1990s it was one of the world’s biggest makers of televisions, exporting millions across the busiest border on earth into neighboring San Diego and beyond.

It wasn’t so easy. Talent was thin on the ground and Tijuana’s tiny tech scene centered mostly around a close-knit band of hackers. Tijuana was thriving on a reputation not for vice, but tech: known for decades as ‘Vegas before Vegas was Vegas’, it was a place for gringoes to saunter south and spend–on drinking, drugs and prostitution.

As California’s dot com bubble was bursting, barely anyone in Baja California, Tijuana’s home state, knew what a startup was. Toledo hired instead from India, as he slowly built an empire of online media brands and sites that today includes gaming site LevelUp, tech mag Qore and Tomatazos, Latin America’s Rotten Tomatoes affiliate.

Today Toledo’s fortunes have changed. So have Tijuana’s. Busca Corp is one of the city’s leading lights, and sits among a clique of tech firms pushing the envelope for change in Mexico’s Sin City. Incubators and coworking spaces have popped up all over town. Graduates are pouring from local universities. Nightlife has gone from seedy to hip.

And, despite the White House’s anti-Mexican rhetoric, people are beginning to see that cross-border cooperation could yield vast riches.

The San Diego-Tijuana Metropolitan Area is home to five million residents, two million employees and is worth an estimated $230 billion, or approximately the GDP of Ireland. Trade between the two cities is worth $2.1m each day. But Tijuana has lagged behind Mexico’s other tech hubs of Jalisco and Mexico City.

That has had plenty to do, historically, with narco violence, which continues to rock Tijuana. Fighting–mostly between rival drug cartels–has resulted in the murders of thousands of people. The first quarter of this year brought half the total figure of 2016.

But as with the rest of the country, a middle class is fast-emerging. And it is bringing serious change to Tijuana. Zona Centro, the city’s historic downtown, has been transformed from vice and urban decay into a rejuvenated nightspot. Since 2013, when 70% of shops, restaurants and bars along the piebald Avenida Revolucion were shuttered, 12 projects have been undertaken to change the city’s image.

There are still many remnants of Tijuana’s former life as “Las Vegas South”. And not everybody has benefitted from the shift in fortunes: some of the lowest paid factory work pays just $6 a day. Tijuana is ringed by swathes of shanties and wrinkle-tin homes to reflect, in rust-covered clarity, the stark differences between the city’s rich and poor.

But Tijuana has glommed onto trends for craft ale, design-led hotels and eateries. It is slowly shaking off the bawdiness and troubles for something altogether more hip.

Tech is playing a big role in that revolution. 3DRobotics, a drone company, was the poster child for Tijuana tech until last year when it folded. But Busca Corp and content filter Saint Technology have begun convincing venture capitalists and government leaders that the scene is more than a fad. Thermo Fisher, a Massachusetts biotech firm, made headlines when it set up a software development center in Tijuana last year. Uber made the city its second Mexican location.

Rents in Tijuana are, according to Numbeo, over 500% cheaper than San Diego, which is just a 20 minute drive away (traffic-permitting). “I believe that ‘TJ’ has the potential to become the gateway to the US market or to Latin America,” says David Peguero of GrowthHax, a business coaching firm that works cross-border. “Because it is more affordable to live here and work in the US, so for example if you want to explore the US market, it is easier to do it from here.”

In my view, the biggest success and strides we have made in the last years has been in trying to connect and understand the San Diego and Tijuana startup scene,” says Regina Bernal, entrepreneurship manager at the University of San Diego.

“Even though we are only miles away, one side did not know what the other side was doing and how to leverage resources,” she adds. “Now Tijuana has a seat at the table with San Diego Startup Week and has more visibility in the San Diego community by working with universities and incubators. We have seen tremendous changes in the cross-border startup ecosystem. Innovation does not stop at the border and the ideas that go back and forth from the border are incredible.”

The BIT Center, founded in 2011, has become the city’s principle software development hub. It plays host to 65 companies and many more lone traders via a chasmic coworking space. INDEX Open Studio and MIND Hub have also sprung up recently to cater to Tijuana’s increasing number of college-educated graduates.

Engineering degrees tripled in popularity between 2008 and 2012 across Mexico. The Tijuana Institute of Technology, CUT University of Tijuana and the Autonomous University of Baja California are among the most subscribed-to institutions in town.

The public sector has wavered in its support for Tijuana’s startup scene, however. Under previous president Felipe Calderon, Mexico’s government ran an initiative offering 50% of the development costs to local startups. But when current leader Enrique Peña Nieto rose to power, in 2012, that changed. “They killed the whole startup dream,” says Toledo. “It’s reinventing itself now, and we have elections in less than two years.

“It’s going to be very important which political party gets in power, because you need political parties that look for the growth of the country and not just the socialist part of keeping the people happy,” he adds.

And that’s just one of many roadblocks for local would-be Tijuanan tech entrepreneurs. Credit card use is low, at just 24% nationwide, severely hampering online payments. Advertising, shipping and customer services are immature, and potential investors rarely know much about the tech industry.

“When you’re doing tech, and doing a startup in a country like Mexico you have no idea what’s going on,” says Toledo. “You have no idea if you’re going to raise capital, no idea if you’ll get a fair valuation. You have no idea if you’re going to get advertisers.”

Valuations, Toledo adds, are a big problem across Latin America. He has been low-balled on several occasions, and has witnessed values dropping simply because a investor found the company was based south of the US border. “We have to work twice as hard to earn half as much,” he says.

Toledo, and many others in Tijuana, would like to see an investment fund dedicated solely to Baja California–whether public or private-led–so local entrepreneurs can better structure their businesses. Startups may win the odd seed round, but capital often disappears for a second, crucial round.

We need risk investment: venture capitalists who are willing to invest in tech, startups, disruptive economics,” adds Peguero, who has, with colleagues, created Frontera Founders, a group of “eager volunteers, entrepreneurs and community leaders willing to work so we can create more opportunities in this bi-national region.”

And what of Donald Trump’s proposed wall? Peguero shrugs it off, adding, “We are used to having a wall where it is already, so I don´t think it is going to stop us from continuing doing business and collaborating.”

Above all, Tijuanans are beginning to see the fruits of a region steeped in tech potential. Even the hackers have come onboard. “I think it has to do with the maturity of the market; that these guys who could not have proper mentorship now work,” says Toledo. “They’re working very well. It’s about teaching them that it’s better to build than to destroy.”

And with that mentality, Mexico’s sixth biggest city could soon swap its reputation for shots and strip clubs for one of software, startups and regeneration. It’s a very different kind of tequila sunrise. “In Tijuana you can feel the energy and need to create,” says Bernal. “We are pioneers, and we’re creating the future of what the region will mean to the world.” 

This is the second of three special features on the Mexican tech ecosystem. Our next story will examine the scene in Mexico City.

  • http://www.google.com/ haydesigner

    “Rents in Tijuana are, according to Numbeo, over 500% cheaper than San Diego, which is just a 20 minute drive away (traffic-permitting).”

    Umm, it’s about 20 minutes from downtown SD to the border. Non-rush hour, of course. But it is CROSSING THE BORDER that the author blithely ignores, for whatever reason. Driving back into the US from Mexico regularly takes 2-3 hours now. That’s regularly, not occasionally. Even going into Mexico takes longer nowadays… gone are the days of them just waving you through without even a glance. it takes a lot more time to commute between the two countries than this article implies. A LOT.