Diversity, Social Inclusion an Ongoing Issue for Private Equity

The private equity industry in Mexico has grown over 12 percent annually in the last 20 years. Despite the differences in the domestic and international markets, it is a growing industry that has gained experience and maturity. 

We have learned a great deal in these years, and more managers are integrating ESG (environmental, social and governance) best practices into their company’s processes and projects. 

Much has been said regarding diversity and gender equity. Studies, panels and organizations have highlighted this issue, attracting attention and action to identify the gap, the obstacles and the actions that should be taken.

In 2020, AMEXCAP conducted the first Study of Diversity and Inclusion in Private Equity (EDIC) in Mexico, which identified that 45 percent of people participating in venture capital funds are women, but only 17 percent are partners.

We have evidence that leadership teams that are gender balanced have 25 percent more positive valuations. In addition, startups with teams that have at least one female entrepreneur grow faster than those with only men on their team.

A 2022 study by the European Investment Bank highlighted that, among EU venture capital-backed companies, those led by women are more successful in terms of value and turnover. Additionally, mature venture capital-funded companies tend to hire more women overall, which has contributed to a recent increase in funding for women-founded companies or companies with women in executive positions. 

While we must continue to work toward closing the gender equity gap and above all to generate safe spaces for women, it is also important to start addressing the issue of social inclusion.

In Mexico, investment in venture capital has shown an encouraging increase in recent years, which has allowed more success stories of Mexican ventures. However, these cases have not been entirely equitable, since part of the capital has not been allocated to minorities. That is to say, not all investors focus on companies led by women or with minority founders. 

Capital raised through mid-2022 totaled US$130 million —the second-largest growth in committed capital in the last four years, according to our VC Overview 2022 report.

The numbers show us there is a great appetite for venture capital. Today, we have 12 unicorns incorporated, which places Mexico in second place in Latin America for the number of fintech companies valued at more than US$1 billion. . But there is a long way to go to reach gender equality in the ecosystem, since only 25 percent of the co-founders are women.

The scenario would be even more encouraging if other types of founders could be integrated: those who are not graduates of highly renowned universities, who do not study abroad, who are outside the upper class, as described by Nathan Lustig, Managing Partner of Magma Partners.

They are described as underestimated founders, facing various disadvantages, not only because of the context, but also because they do not have enough soft skills to develop and raise the necessary capital. This also may be their first approach to entrepreneurship and venture capital. However, these types of founders often solve complex problems for society, which can make their offer more attractive to investors. 

Richard Kerby, partner at Equal Ventures, analyzed the characteristics of investors and found that most investors in Silicon Valley had certain ethnic, gender and educational characteristics, which he described as a "mirror effect:"

• 40 percent studied at Harvard or Stanford

• 82 percent are men

• 70 percent are white

As Kerby points out, most investors will want to work with someone who has characteristics similar to their own, leaving hundreds of worthwhile ventures out of the game.

In the last five years, venture capital in Mexico has grown rapidly, with the creation of 72 new vehicles. The constant availability of new funds favors the continuity of the industry and the increase in investment in the coming years. How many more vehicles could be created if we gave more space to startups founded by women or by people who do not belong to a certain educational elite? 

We are not only a driver of the national economy, we also have great power for social change. The potential of what we can do when we look beyond alma mater, gender or social origin is enormous. If the numbers from the venture capital industry are already quite encouraging, I am sure they will be much more so when we begin to integrate in a diverse way, without stigmas and with the desire to make the industry grow.