The Triangle of Biases: How Entrepreneurial Biases Stifle Innovation in Mexico

At a conference in Mexico City this week, a fruitful discussion took place about entrepreneurship and venture capitalism. The table was mainly composed of VCs from both Mexico and the USA.

One of the topics discussed was the need to change the power dynamic between entrepreneurs and VCs in Mexico. Historically, VCs in Mexico have held a dominant position in negotiating terms and valuations, which can be challenging for entrepreneurs. By recognizing and addressing biases, we can create a more level playing field that empowers entrepreneurs to negotiate terms that increase their chances of success and keep them engaged in the long term.

My Fundraising Experience

Ten years ago, I started my first company. The only path for the type of business I wanted to build was to raise venture capital and create a product with that money.

And so, like many other entrepreneurs, I began a long and thorny journey to pitch my business idea to tens or hundreds of Venture Capital firms, Angel investors, and institutions interested in my idea.

Unfortunately, I wasn't as sucwasn'tl at raising tons of capital. In good part, it was a result of my inability to tell a compelling enough story, my inability to create FOMO among investors, and my lack of financial savviness that could make potential investors trust me with their money.

The Fundraising Bias Triangle

However, other factors outside of my control played a part. These factors are often biases within the entrepreneurship ecosystem held by different parties. There are three specific biases, which I refer to as the Triangle of Bias:

The Me-Too Bias

Entrepreneurs in Mexico are often drawn to replicating a business model from a startup in another location, mainly the US, that has already raised significant capital. However, raising money does not necessarily indicate a good or sustainable business model; it merely serves as a reference point.

The Malinche Bias

Mexican venture capitalists are more inclined to invest in startups that have already received a commitment from a US-based venture capital firm. VCs in Mexico were born out of admiration for investment firms' success in the USA. Therefore, if they see something in a company operating in Mexico, it must be remarkable.

The Familiarity Bias

US VCs prefer to invest in entrepreneurs who have received education in the US, either through a master's degree, or are originally from the US but starting a company in Mexico.

Closing Thoughts

Entrepreneurial biases can pose significant hurdles for entrepreneurs, particularly those in emerging markets like Mexico. To overcome these biases, entrepreneurs must be aware of their existence and work to address them. Similarly, venture capitalists and other investors must recognize the impact of their biases and take steps to level the playing field for all entrepreneurs.

By acknowledging and addressing biases, we can create a more diverse and inclusive ecosystem that empowers entrepreneurs to succeed, regardless of their background, education, or connections.