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Analysis

Mexico's Debt to Female Entrepreneurs

By Andrea Villar | Tue, 12/01/2020 - 05:00

After working in the corporate world, María Jesús Salido decided to start her own business. This is how, for the first time in her life, she experienced gender barriers. "In general, it is difficult for us to generate confidence in an investor or a client. When a woman enters a meeting to negotiate a contract, she is often not considered a valid interlocutor. We continually listen to paternalistic advice and attitudes from men. We assume a greater workload to compensate for certain prejudices and we can be labeled as 'difficult' or even aggressive if we behave assertively in defending our interests," Salido, Founder and CEO of SocialDiabetes, a digital health solution dedicated to transforming Type 1 and Type 2 diabetes patient care, told MBN.

In Mexico, women have greater challenges in creating, maintaining and growing a business. While a gender gap persists in many regions of the world, there are five economies where women participate at levels equal to or higher than those of men. These high-parity economies are located in two regions: Asia (Indonesia, the Philippines and Vietnam) and Latin America (Mexico and Brazil).

Both the number of women-owned businesses and the number of women who intend to become global entrepreneurs have increased sharply. Then, what is missing to boost female growth and success in the working environment?

By 2019, the share of self-employed women in the country was 21.0 percent, mostly in the informal sector. The percentage of women in charge of other employees is only 2.3 percent, according to figures from the OECD. The main factors influencing these figures, according to the OECD study, are access to education, the availability of financial and economic resources and the remaining stigmas in society.

In Mexico, 60 percent of women entrepreneurs, according to the OECD, operate in the informal sector, in businesses created out of necessity and not on a voluntary basis. Meanwhile, only 48 percent of men are in this situation. In addition, the low level of education is another major obstacle to the development of women's businesses, since only 15 out of every 100 women entrepreneurs in the country have completed higher education, while for men the figure rises to 21 out of every 100. Moreover, female entrepreneurs work shorter hours than men. While women work an average of 30 hours per week, male entrepreneurs achieve working days of almost 50 hours. That is, notes the OECD, because domestic work is mainly left to women. 

When it comes to business financing, Mexico has one of the lowest levels of access to training and credit for women entrepreneurs among OECD countries. Only 17.2 percent of women say they would have access to credit to start a business if they needed it and 16.5 percent would have access to training for women entrepreneurs. Access to resources is one of the main, if not the greatest, challenge facing women entrepreneurs, which significantly limits the growth of their business. 

In fact, a study carried out by the ESADE Institute for Social Innovation in early 2019 found that only 26 percent of women entrepreneurs reach the financing they need compared to 46 percent of male entrepreneurs who succeed. The World Bank has also pointed to this gap, claiming that 70 percent of women-led SMEs in developing countries are excluded from financial institutions. This is also closely linked to banking penetration. While 39 out of 100 men in the country have an account in a bank or other financial institution, only 32 out of 100 women have one, according to INEGI.  

Deep Cultural Issue

Cultural stigmas that prevail in the country. Women entrepreneurs, for instance, are more likely to say that fear of failure prevents them from taking risks for their businesses. According to OECD figures, more than half of women say that they would not open a business out of fear that it will not be successful. This feeling is not peculiar to women, as society generally disregards their capacity. Even if women decide to start a company, they still face bias when trying to access funding.

 
 

One place from which to start improving this scenario is the pitching process with venture capital (VC) funds. VCs, by taking a more data-driven approach to assessing a startup's potential and profitability, can generate a portfolio that is more successful and includes more women-founded businesses, according to research by Harvard Business Review. It is at this early stage of the process, that studies have shown the greatest gender bias. In 2017, for example, research conducted by TechCrunch during its annual startup funding competition found that male and female entrepreneurs are asked different questions by VCs. This, therefore, affects the amount of funding they receive. During the test, men were asked more questions oriented toward potential gains, while women were asked more questions focused on potential losses and risk mitigation. 

The investment analysis processes are subject, Salido notes, to experience and cultural biases to a variable degree depending on the industry, both in a technical and a subjective evaluation. “The latter does not depend on data nor on empirical evidence. In the end, whether someone trusts you and whether someone decides to invest their money in your business depends largely on an emotional flow that is fed by cultural references, personal experiences, perceptions and biases. Here, women inevitably lose the battle,” she points out.

"We over-prepared ourselves to compensate for what we felt would be more difficult for us but I do not think we gained much ground by doing so.” To break down gender barriers in the process of raising capital, says Salido, socio-cultural changes are needed, along with positive discrimination in the short term, “such as more women in investment analysis processes, women partners in investment organizations, funds specialized in investing or prioritizing investments in women-led ventures.” 

SocialDiabetes, led by María Jesús Salido, partnered with the venture capital fund ALLVP in 2018. "We were lucky enough to meet ALLVP, one of the most sensitive teams with a professional approach, demanding but aware of the value of investing in projects led by women," she says.

The gender bias is not only visible to entrepreneurs as investors are starting to realize their role and responsibility in fixing this. “There is a bias and we have to recognize it to address it. We have implemented some policies in this regard,” said Fernando Lelo de Larrea, Partner at ALLVP, a Mexican VC fund, to MBN. “Other than Federico Antoni and me, our team is 100 percent female, including our new partner Antonia Rojas. This is precisely because we need to bring in people to help us make better decisions. I have a responsibility to my firm and to the market and my investors, so despite my cognitive biases, the best decisions must be made.”

Female entrepreneurship, says Lelo de Larrea, is very low compared to men, particularly in high-impact ventures. “To correct this, certain things have to be changed in the process. For example, if a venture is led by a woman, she skips the first stage of interviews and goes straight to the partners because we want to make sure we level the playing field,” he says.  

This model has proven to be effective. Since 2018, Social Capital, a Palo Alto-based VC, began taking applications through its Capital-as-a-Service (CAAS) platform, a tool that automates early-stage investment decisions and evaluates companies largely by their numbers. As a result, 40 percent female CEOs were financed.

“The main key at this time is to encourage and support female participation. For years and years, men have had the upper hand in this industry but now it is women’s turn,” Stefano Corsini, CEO at Arch Capital Partners, told MBN during an interview. “If we have not yet reached a point of equality, it is not because women do not have the capacity but because we have created an unequal system that has not given them the opportunity,” Corsini points out. 

As women become massively empowered, Salido explains, we will see more and more women entrepreneurs. “We need role models and we need to be more, many more. We do not want special conditions. We just want to normalize our participation in the game and that the rules are the same for everyone.”

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Andrea Villar Andrea Villar Journalist and Industry Analyst