A “SCORECARD” REPORT BY STATES

Factors that Attract Venture Capital in Mexico

Antecedents

Attractiveness : The ability to create a domestic environment to attract a productive investment in the region (WEF, 1996).

The attractiveness of a region is the basic step to build its competitiveness (Treece, 1987).

Review of Previous Research Research of “Bureaus of Business Research” Adam Klein (1989): for emerging countries,

factors such as technological development and variables related to the lifestyle of key executives are important when locating a new business or making a business investment.

Shumpeter (1987): Qualified Human Resources and business support

Porter (1982, 1990) Kottler , Hauder y Rein (1993)

Review of Previous Research Economic growth is accomplished

through innovation, but if entrepreneurship is not fomented, innovation businesses will not be successful (Camp, M., 2005).

Entrepreneurship creates a friendly environment, which is important not only to launch the new companies but also to maintain the growth of other businesses.

Why is a Scorecard Important?

To provide information

To generate transparency

To achieve measurability

To Whom?

Private investors

Policy makers

State governments

Academic researchers

How is the Score-Card Built?

Based on an extensive literature review and a collaborative work with other institutional players, we present a theoretical model for the measurement of a federal state attractiveness for VC and PE investors.

Steps to be Constructed

1. Established the theoretical factors that attract VC and PE in Mexico

2. Defined the empirical variables that may be used to measure the underlying dimensions

3. Collected and analyze the statistical data needed to validate the importance of each factor

4. Designed a “ranking” matrix (i.e., flexible decision-making tool)

5. Produced a scorecard that ranks states in terms of each factor and in terms of a comprehensive total

Factors

Economic Performance

Government

Entrepreneurship

Activity

Infrastructure

Innovation Capacity

Quality of Life

Anchor Companies

Assigned Weights

Factor Weight in Total Subfactor Weight in Factor

Economic Performance 5.0%

State Economy 15%Productivity 40%Investment 15%

International Trade 30%

Government 10.0% New Businesses 50%Institutional Environment 50%

Entrepreneurship Activity 15.0% Entrepreneurship 40%Financing 60%

Infrastructure 20.0%

Technological Infrastructure 33%

Basic Infrastructure 33%Scientific Infrastructure 33%

Innovation Capacity 30.0%

Innovation 40%Scientific Scholarships 20%

Technical Education 20%Higher Education 20%

Quality of Life 10.0% Quality of Life 100%

Anchor Companies 10.0%Anchor Companies 60%Service Providers 40%

Preliminary Results

Nuevo León, Guanajuato, Jalisco, Estado de México, Veracruz, Puebla

Chihuahua, Distrito Federal, Sonora, Coahuila, Querétaro, San Luis Potosí

Tamaulipas, Yucatán, Baja California, Aguascalientes, Chiapas

Tabasco, Michoacán, Sinaloa, Zacatecas, Morelos, Campeche, Durango

Colima, Hidalgo, Quintana Roo, Baja California Sur, Nayarit, Oaxaca, Tlaxcala, Guerrero

Score Mean = 9.55

Scorecard Challenges

In some cases there is data available only at Nationwide level but not at the State level.

It is necessary to develop reliable public data about the key variables that drive the VC and PE investment.

Encourage the culture of “measurement” to enhance the competitiveness among Mexican States to attract the VC and PE investment.

Egade Team

Students:Valerie WongPaulina PodmoklyChristian AguirreLuis Joaquín MuñozCarlos Mario AldanaLuis Horario Valencia

Seminar of Research in FinanceProfessors: Norma A. Hernández, Ph.D Roberto Santillán, Ph.D. M.C. Marcia Campos

Annex

Importance of each Factor…

Economic Development

• Framework for business, industry, and human resources’ development (Serrano & Sandoval, 1997)

• Productivity has been showed as proxy for measurement for local economic development (Camp, M., 2005)

…Importance of each Factor…

Government

•Government support and commitment are necessary complements to have favorable economic conditions and to attract investors (Dhanabalan, 1993; Eisenger 1993)•According with Wheaton (1984) and Hines (1996), tax incentives to promote productive activity are important for the economic environment•Its “efficiency and transparency bear strongly on productivity and growth” (WEF, 2009)

…Importance of each Factor…

Entrepreneurship Activity

• A high degree of capitalism facilitate entrepreneurs to be successful, and that successful entrepreneurial firms are mainly those that innovate (Loasby, 1982)

• Access to finance is critical to the creation of new firms and the business environment (Audretsche& Lehman, 2004)

…Importance of each Factor…

Infrastructure

• The “amount and quality of infrastructure make important contributions to the private sector’s rates of productivity and investment” (WEF, 2009), Calzonetti and Walker (1991), Eisenger (1993)

…Importance of each Factor…

Innovation Capacity

•To maintain its competitive advantage, a state needs innovation and the right environment for it:•R&D•Scientific research centers•Universities and businesses•Protection of intellectual property (WEF, 2007)•Skilled workers are necessary for a company to achieve technological development and to be productive (Serrano & Sandoval, 1997)

…Importance of each Factor…

Quality of Life

•According to Eisenger (1993), executives seek states in which they can live comfortably, i.e., where they can find: hospitals, schools, housing, leisure, and safety (as cited in Serrano & Sandoval, 1997)

…Importance of each Factor

Anchor Companies

•Attract researches and PhDs, improve infrastructure, train employees, and attract other companies.•Service providers are important because they contribute to the efficiency of operations (Calzonetti & Walker, 1991); Klein (1989)

Methodology…

Data was gathered for each variable

and for each State

A ranking was assigned by State (1 for the best, 32

for the worst in each variable)

All rankings were captured in a

Matrix

…Methodology

The user can assign weights to each

factor, according to its perceived importance

A weighted sum of rankings is

calculated for every State

The States are ranked according to

their total score

Questions and Answers

Thank you