BOSTON, MA – MARCH 19: Carolle Nau, left, and Bridgette Wallace pose for a portrait in one of the dorm rooms of the Hutchings Street Victorian they bought in the Roxbury neighborhood of Boston on March 19, 2018. The two local entrepreneurs are taking an aging house in Roxbury and renovating it to be a home and training ground for young women interested in learning about coding. They’ve already been featured in Boston Magazine and Fast Company and have partnered with a local design firm who is renovating the interior. It would be a two year program available to young woman out of high school to take a gap year and advance their coding ability before looking for jobs or going to college. (Photo by Suzanne Kreiter/The Boston Globe via Getty Images)
By Derek Lidow
Do you believe you are a born entrepreneur? Has a venture capital firm invested in your startup because they agree? If the answer to either of those questions is yes, you are almost undoubtedly a white or Asian male. Not because there’s any such animal as a born entrepreneur, but because “born entrepreneur” is a self-fulfilling prophecy that continues to shut women and black people out of the startup world.
In the first quarter of this year only 3% of companies that received venture capital funding were led by women, according to the business intelligence firm Crunchbase. Though comparable figures for minority-led startups are hard to come by, they appear to be equally dismaying.
The “born entrepreneur” myth is particularly insidious at a time of declining entrepreneurial activity in the U.S., when we need all the entrepreneurs we can get to ensure the future health of the economy. We count on entrepreneurs to innovate, create new jobs and generate wealth. This is no time to be sending the discouraging message to women and minorities that they’re just not cut out for entrepreneurship.
Absolutely no reproducible study has ever found heritable traits that confer meaningfully better chances of succeeding as an entrepreneur—despite decades of research looking for such a link. Yes, you can find research that shows trivial correlations between certain personality types with strong genetic components, but the correlations of any personality trait with entrepreneurial success are laughably small —on the same order as the correlation of index finger length with increased risk of heart attack.
The data does show that personal motivations and certain skill sets (including the skills taught in a good liberal arts education) are more strongly correlated with entrepreneurial outcomes than traits a person is born with or develop early in life. There are sound underlying reasons to go beyond correlation and see motivations and skills as causal—actual determinants of entrepreneurial outcomes. Motivations determine what a person does; skills determine the likely outcome of those endeavors. We are therefore on solid ground in asking entrepreneurs why they need to succeed at their business. We are also justified in looking at aspiring entrepreneurs’ CVs to understand what skills they possess that are relevant to the business they propose to start.
VCs often use “born entrepreneur” loosely to describe someone who in fact has specific skills honed early in school and that are well-aligned with that person’s core motivations. But VCs don’t realize the insidious consequences of their mislabeling.
To understand the devastating impact of such mislabeling, consider STEM fields. Recent research shows that the number of female and black people at the top of those fields is strongly correlated with the frequency with which practitioners claim that innate talent is the main requirement for success. (Such beliefs are most common in mathematics, where the fewest female professors are to be found.) Moreover, research shows that these beliefs influence what children think they can achieve.
These biases are hard to see past. Venture capitalists and business loan officers often claim to be working hard to find women and minorities to fund, but a recent study shows that VCs ask female entrepreneurs different questions about their businesses than they do male entrepreneurs, directly leading to adverse funding decisions. To rationalize investment decisions VCs use gendered concepts like aggressiveness and decisiveness—which they find to be in short supply among women. This is in spite of the fact that evidence indicates that female-led businesses achieve financial results equal to those achieved by male-led firms and with lower risk profiles.
Venture capitalists not only disproportionately invest in startups run by people who look like them but also have few women and minorities making investment decisions. A 2016 study by the National Venture Capital Association (NVCA) and the Deloitte University Leadership Center for Inclusion found that women represent only 11% of investment partners or equivalent on venture investment teams and that racial minorities are also significantly underrepresented in the industry.
There are a few bright spots. In the first quarter of this year Sequoia Capital had seven deals in startups with at least one female founder and Omidyar Network and New Enterprise Associates each had five such deals. In 2015, Intel Capital launched a $125 million initiative to increase tech entrepreneurship among women and underrepresented minorities and the following year expanded the program to include U.S.-based entrepreneurs from the LGBTQ community, entrepreneurs living with disabilities and military veterans. Among the startups backed by Aspect Ventures, a firm founded by two women, 40% include a female cofounder and about 30% a cofounder from a racial minority. In January the firm announced that it had raised a second fund of $181 million—its investors include Melinda Gates and Cisco CEO Chuck Robbins.
Still, $125 million or $181 million is a drop in the bucket compared to the $1 billion funds that are common in Silicon Valley. In the first quarter of this year alone, seven funds of $1 billion or more materialized in the Bay Area. Until we eradicate the myth of the born entrepreneur the overwhelming bulk of such money is likely to continue to go to the usual suspects.