One big cultural change in America over the past 20 or 30 years is that entrepreneurship has become glamorous. A big CEO once illustrated this to me by explaining that when he went to Harvard Business School back in the 1980s, hardly anybody planned a career in entrepreneurship.These days, hundreds of graduates of elite business schools pour out each year, stars in their eyes and startup ideas in hand.
Their presence has changed the whole conversation around small business and entrepreneurship. We have an image now of entrepreneurs as white venture-capital funded men, young wunderkinds who become billionaires, float around on yachts, play with flameflowers and build apocalypse houses in New Zealand.
I wondered about the current popular image of entrepreneurship as I read the Kauffman Foundation’s report, released this spring, on capital access for entrepreneurs.
It puts hard numbers to the barriers to entrepreneurship. We might argue about what those barriers are, or which to focus on fixing, but you can’t read the report without realizing how high and systemic they are.
Overall, the shape of the American entrepreneurship begins to emerge from the picture of the funding flows — and it’s a not a flattering picture of opportunity in America, not one that fits with our bootstrap myth. What it suggests to me is this: Entrepreneurship has always been the purview of white men more than women and white men more than men of color. Now, class is even more a factor in our concept of entrepreneurship.
Consider these stats, all drawn from the report:
• “Data from 1996 to 2017 show that men are consistently more likely to start businesses each month than women, and 2017 was the first year in which the rate of black and white new entrepreneurs was the same.”
• “Historically, between 1953 and 1998, less than 5% of total venture capital funding went to women-owned firms. Pitchbook data for 2017 showed that all-women founding teams raised 2.2 percent of total VC funding (accounting for fewer than 5 percent of deals), compared with all-men teams that raised about 79 percent, and mixed teams that raised about 12 percent of total funding.”
• Though our image of entrepreneurs is dominated by those starting tech businesses, “at least 83 percent of entrepreneurs do not access bank loans or venture capital at the time of startup. Almost 65 percent rely on personal and family savings for startup capital, and close to 10 percent carry balances on their personal credit cards.” Some research suggests that women face less discrimination in the lending world.
• Many entrepreneurs rely on personal resources to start their companies. “The median net worth for white families was $171,000, compared to the median net worth of $17,600 for black families and $20,700 for Latino families.”
• “Five metro areas—New York City, Miami, Los Angeles, Houston, and Dallas—were estimated to have contributed to 50 percent of net new firm creation between 2010
and 2014. In addition, VC industry data reveals considerable geographic and industry concentration. Close to 80% of about $21.1 billion in VC funding in the first quarter of 2018 was disbursed in five regional clusters— San Francisco (North Bay Area), Silicon Valley (South Bay Area), New England, New York City metro, and LA/ Orange County—with slightly more than 44% in the North and South Bay Areas.”
On one hand, you can say that the big cities are talent draws, and that the money follows the talent. On the other hand, based on the skewed picture of how many men versus women are funded, you can guess that there’s more of a network effect going on here: the money and power is flowing among people who already have it.
• “Research at the neighborhood level found that in New York City, the richer third of neighborhoods had more than twice the rate of self-employment than the poorest third. The top 95th percentile of wealthy individuals in the United States is more likely to start businesses than other income groups, and that personal and household wealth are important drivers of entry.”
Why is all this important? Startups create a lot of the new jobs, period, in the economy (some economists say they are responsible for all new job growth). But the rate of startups in the United State has declined over time, though it’s up a little since the end of the Great Recession. But the share of jobs that startups add to the national economy is falling: Per capita startup job creation in the first year declined from 7.52 jobs in 1998 to 5.27 jobs by 2017, according to Kauffman.
At a certain point, perception becomes the reality. Entrepreneurship has been defined subtly by our national conversation away from Main Street, from industry and from service, toward technology, a sphere that is dominated by white, wealthy men. Those companies are easy to start, can be run with fewer employees at the beginning — and create a winner-takes-all mindset.
That version of entrepreneurship I described at the beginning of this piece isn’t the reality of entrepreneurship in America — but we are drifting in that direction.