The Role of Mentoring in Youth Entrepreneurship Finance: A Global Perspective¹

Abstract

Introduction – General Principles

The chapter examines the role of volunteer business mentoring in potentially improving financing and financial management in under-served (i.e. schemes aim to assist deprived neighbourhoods and youth entrepreneurs) youth enterprises.

Youth entrepreneurship (commonly defined as entrepreneurs aged up to 35 years) is regarded by the OECD as under-represented, within entrepreneurship as a general social phenomenon, and young entrepreneurs as disadvantaged through being under-served. Indeed, young people with latent potential for entrepreneurship have been defined as a component of ‘Missing Entrepreneurs’ (OECD, 2013). This under-representation of nascent entrepreneurs within young people under 35 is partly theoretical. While examining entrepreneurship as a social phenomenon and taking a resource-based approach (Barney, 1991), young people are perceived at a particular disadvantage compared with older members of society. That is, however creative, they lack the experience and network resources of older members.

Theoretically, from a demand-side perspective, young people may have aspirations and the required skills for start-up entrepreneurship, but are disadvantaged from a supply-side perspective since financial institutions, such as the commercial banks, private equity investors and other suppliers of financial debt and equity, will see greater risk combined with a lack of track record and credibility (pertaining to information asymmetries and associated agency and signalling problems: Carpenter & Petersen, 2002; Hsu, 2004; Hughes, 2009; Mueller, Westhead, & Wright, 2014). This means that aspiring nascent youth entrepreneurs face greater challenges in obtaining mainstream and alternative sources of finance. Practically, unless such young entrepreneurs can call upon deep pockets of the ‘bank of Mum and Dad’ or family and friends, we can expect them to resort to pragmatic methods of stretching their resources, such as financial bootstrapping and bricolage (Mac an Bhaird, 2010; Mac an Bhaird & Lucey, 2015). Although these theoretical and practical issues have long existed for youth entrepreneurship, they have only been exacerbated in the post-2007 Global financial Crisis (GFC) financial and economic environment, despite the growth of alternative sources such as equity and debt sources of crowdfunding.

Prior Work – Unlocking Potential

There has been an evidence for some time that young people have a higher desire to enter entrepreneurship and self-employment as a career choice, in preference to other forms of employment (Greene, 2005). Younger people are also more positive about entrepreneurial opportunities. For example, a Youth Business International, Global Entrepreneurship Monitor (YBI/GEM) (2013) report indicated that in the European Union (EU), ‘younger youth’ were more positive in their attitudes to good business opportunities and in seeing good opportunities than older people. Theoretically, the issues of low experience and credibility can be mitigated by the role of advisors, consultants and/or volunteer business mentors. In corporations and large organisations, mentors are known to be valuable for early career staff (Clutterbuck, 2004; Haddock-Millar, 2017). By extension with young entrepreneurs, business mentors raise credibility, develop personal and professional competence, business potential and entrepreneurial learning. From a supply-side perspective, this reduces risk for financial institutions, potentially increasing the likelihood of receiving external finance and improving the likely returns and business outcomes of such financing.

Methodological Approach

In examining the role of business mentoring in youth entrepreneurship finance, the chapter poses three research-related questions (RQs):

• (1)

  To what extent is the youth voluntary business mentoring (VBM) associated with access to external finance?

• (2)

  Where access to external finance takes place, does the VBM improve the outcomes of the businesses?

• (3)

  To what extent do VBMs make a difference to the performance of businesses receiving financial assistance?

The chapter draws on primary evidence from an online Qualtrics survey of 491 (largely) youth entrepreneur mentees drawn from eight countries in the YBI network. These were selected for their contrasting high (Sweden and Spain), middle (India, Argentina, Chile, Russia and Poland) and lower (Uganda) income economies, global coverage of four continents and operation of established entrepreneurship mentoring schemes. The study provides collective quantitative data on the current relationship between mentoring and the access and impact of external finance. It surveyed current or recently completed mentees during Autumn 2016 – the typical mentoring cycle being 12 months. Additionally, the chapter draws on further qualitative insight evidence from face-to-face interviews, with current mentor-mentee case study pairings from the eight countries.

Key Findings

In summary, the profile of surveyed mentees demonstrated even gender distribution, with three-fifths currently in mentoring relationships. At the time of commencing mentoring, nearly four-fifths were aged under 35, half being self-employed, one quarter employed, with the remainder equally distributed between education and unemployment. At commencement of mentoring, mentee businesses were typically in early stages, either pre-start (37%) or just started trading (34%), the main sectors represented being business services (16%), education and training (16%), retail and wholesale (12%) and creative industries (8%), with the median level of own business management —one to two years.

For one-third of mentees, mentoring was compulsory, due largely to receiving enterprise finance support, whilst for the remainder, more than a quarter stated that access to business finance assistance was either considerably or most important in their choice to go on the programme.

In terms of business performance, businesses receiving external finance (loans or grants through the programme) or mentoring for business finance performed significantly better than the rest of the sample: amongst those trading 47% increased sales turnover, compared to 32% unassisted (<0.05 level); 70% increased employment, compared to 42% (<0.05); 58% directly attributed improved performance to mentoring, compared to 46% (<0.1).

Contribution and Implications

The chapter provides both statistical and qualitative evidences supporting the premise that youth business mentoring can both improve access to external finance and lead to improved business performance. This provides useful guidance to youth business support, given that in some of the countries studied, external financing in the form of grants and soft micro loans for youth entrepreneurs are not available.

Citation

Owen, R., Haddock-Millar, J., Sepulveda, L., Sanyal, C., Syrett, S., Kaye, N. and Deakins, D. (2019), "The Role of Mentoring in Youth Entrepreneurship Finance: A Global Perspective¹", Higgins, D., Jones, P. and McGowan, P. (Ed.) Creating Entrepreneurial Space: Talking Through Multi-Voices, Reflections on Emerging Debates (Contemporary Issues in Entrepreneurship Research, Vol. 9B), Emerald Publishing Limited, Leeds, pp. 115-135. https://doi.org/10.1108/S2040-72462019000009B007