Diversity Venture

What The VC Landscape Is Really Like For Latin America’s Female Founders

Guest post by Sophia Wood, Principal at Magma Partners, a Latin America-focused seed-stage venture capital firm with offices in Latin America, Asia, and the U.S. Wood is also the co-founder of LatAm List, an English language Latin American tech news source.

In 2017, a sobering statistic snaked through the tech news headlines: female CEOs only receive 2.2 percent of VC funding globally. That number rises significantly to 20 percent when the female founder is not the CEO.

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However, these statistics hide an even more disturbing fact: less than 2 percent of that 2.2 percent of startups had Latin American women as founders. Only .4 percent of the $400 billion in venture capital funding deployed between 2009 and 2017 went to Latin American women.

In more precise terms, Latin American female founders raised less capital in the past ten years ($1.3 billion) than all women founders raised in 2017 ($1.9 billion). By comparison, all-male founding teams raised $66.9 billion in 2017, equal to 79 percent of the capital invested that year.

Why Do Latin American Female Founders Raise Less Money?

Only .4 percent of the $400 billion in venture capital funding deployed between 2009 and 2017 went to Latin American women.

The simple explanation for this disparity might be that Latin American women start fewer companies. However, 35 percent of Latin American fintech startups have female founders, far above the global average of 7 percent for this sector. Fintech is Latin America’s most funded industry, receiving 25 percent of the total VC capital invested in the region in 2019, equal to more than $500 million.

Instead, this disparity arises from a variety of structural barriers that keep Latin American women out of traditional capital streams. After all, married women in Chile could not purchase real estate or open a credit card without their husband’s permission until 1977, and divorce was only legalized in 2004. As recently as 2018, Chile’s “sociedad conyugal” marriage law still prohibited women from managing joint financial accounts—up to 50 percent of Chileans are currently married under this law. Similar laws have restricted women’s access to credit, capital, and even education across Latin America until the recent past.

Studies also show that women fund women, yet just 8 percent of partners at the top 100 venture capital firms globally are female. I experienced this imbalance last year when I found myself to be one of six women attending an investor summit with over 100 participants in Santiago, Chile. The Latin American Venture Capital Association (LAVCA) identified 82 senior-level female investors in VC across the whole region.

I spoke with six female founders from Latin America who are building companies in the region to learn what it’s like raising capital as a woman in 2019. Collectively, these women have raised over $10 million from investors in the U.S., Mexico, Chile, and Colombia over the past two years and lead startups in industries such as edtech, fintech, security, insurance tech, and biotechnology. Here is what they have experienced and learned while raising capital and how they think the industry can improve.

Ask Women More Big Questions About The Future Of Their Companies

Female founders, no matter their background, tend to receive more questions about their ability to manage their team rather than their vision and strategy. While both skills are relevant to scaling a company internationally, the first category puts the founder on the defensive.

Originally from Mexico, Maite Muniz, the co-founder of Truora, a Y Combinator-backed company from Colombia, noticed that her male co-founders received more direct questions about long-term strategy, yet she attracted questions about her ability to lead.

“As the female founder, they also raised many questions on how the decisions within the founders were made, and questioned if I was able to do enough push-back on my decisions. This behavior was very weird to note, as they did not question the same ‘assertive nature’ from my co-founders,” she added.

Komal Dadlani, co-founder and CEO of edtech startup Lab4U from Chile, noticed a similar phenomenon: “I would love them to ask more about the company’s journey and culture since each company has its own story and potential for growth. For instance: What is important to you as founders when it comes to company culture?”

After raising capital in the U.S. and Latin America, Dadlani realized investors across the board focus more on current issues, such as unit economics and product metrics, than on the company’s vision for the future.

Beware Of ‘Playing Nice’ For The Woman In The Room

While mixed male/female teams tend to raise more VC funding, female founders often find themselves excluded from the challenging negotiations or hard questions, even when they are the technical founders. Nastassja Palmiotto, originally from Venezuela and co-founder of augmented reality startup PleiQ, noticed this issue when raising capital from Latin American funds in particular.

“I have been in meetings full of male investors who don’t say everything they want to say, or they treat me differently from my male partners and try to be gentle with me. That behavior excludes me from their real decision making; I would prefer to be treated in the same way as my male colleagues,” she noted.

Maria Paz Gillet, co-founder of Chilean insurtech Jooycar, sees women’s sensitivity in business as a strength, making female founders more attuned to acute problems.

“We are often more sensitive to particular pains in the market and can also create more empathetic teams, which add strength to a new venture,” she said.

Female Success Is A Virtuous Cycle

I have been in meetings full of male investors who don’t say everything they want to say, or they treat me differently from my male partners and try to be gentle with me. That behavior excludes me from their real decision making.

Venture capitalists like to invest in what they recognize. This system minimizes risk, but it also cloisters off the market and prevents more diverse actors from sitting at the table. Maricel Saenz, the Costa Rican co-founder of biotech startup NextBiotics, said it all comes down to success stories. The more women succeed in business, the more others will follow in their footsteps.

Juliana Villalba, the Colombian founder of the event tech startup Rebus, came to the same conclusion after raising $300,000 in the U.S. and Latin America last year. When I asked her about the biggest challenge of raising money as a female founder, her answer was simple: “Always being the only woman at the table.” This position makes female entrepreneurs feel that they must be on the defensive, justifying why they belong rather than having the opportunity to expound on their strengths.

Bring More Women To The Table

The conversation about women in VC and entrepreneurship exploded in the U.S. after the famous 2.2 percent headline. In Latin America, the media has only taken a lukewarm interest in the subject.

There are a few programs in Latin America focused specifically on funding women, including The Seed Factory (TSF) in Chile and Empoderando Mujeres in Mexico, as well as the IDB’s powerful WeXChange program. WeXChange is a two-day female entrepreneurship summit that culminates in a competitive pitch competition between six founders from Latin America that are chosen from over 400 applicants. Rebus’ Villalba was invited to pitch last year, and Lab4U’s Dadlani won the competition in 2016.

A few female entrepreneurs also mentioned that local funds are improving access to capital by using application forms rather than warm intros and by looking for diverse founding teams that include both men and women.

At Magma Partners, we attend the demo days for these events to encourage female founders to apply, even if their business models fall out of our thesis, so we can provide feedback, offer advice, and help them find funding. We have also fostered a strong network of female entrepreneurs within our fund who are very supportive of their peers and have mentored each other through the challenges of founding a startup in Latin America.

VC investment is still far from achieving gender parity, but female founders in Latin America are building and scaling global businesses anyway. Their success stories help form the virtuous cycle that is bringing more women into entrepreneurship in the region and the world.

Illustration: Li-Anne Dias.

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