Entrepreneurs Are Not Special—They Come From Wealthy Families

In the last few days there has been a lot of discussion on hard work verses privilege in the startup scene, a factor that is often underestimated. In this curated article I have taken a look at some of the issues on the topic of wealth and starting a business. Another thing that came up in my research, they’re also disproportionately white, highly educated, and male. These two points are in regards to the startup scene in the U.S.

The secret sauce to being a successful entrepreneur is apparently coming from a family with money. Quartz reported that when a person has more cash on hand, they’re able to take the risks needed to kickstart a business.

“Many other researchers have replicated the finding that entrepreneurship is more about cash than dash,” according to Andrew Oswald, a University of Warwick professor, in an interview with Quartz. “Genes probably matter, as in most things in life, but not much.”

A 2013 research paper cited by the publication also found that shared traits among entrepreneurs included being white, male and well-educated. “If one does not have money in the form of a family with money, the chances of becoming an entrepreneur drop quite a bit,” according to Ross Levine, one of the economists who wrote the study, to Quartz.

Entrepreneurs don’t have a special gene for risk—they come from families with money

We’re in an era of the cult of the entrepreneur. We analyze the Tory Burches and Evan Spiegels of the world looking for a magic formula or set of personality traits that lead to success. Entrepreneurship is on the rise, and more students coming out of business schools are choosing startup life over Wall Street.

But what often gets lost in these conversations is that the most common shared trait among entrepreneurs is access to financial capital—family money, an inheritance, or a pedigree and connections that allow for access to financial stability. While it seems that entrepreneurs tend to have an admirable penchant for risk, it’s usually that access to money which allows them to take risks.

William Henry Gates III (even though he was the fourth person with the name) was born in Seattle, Washington, to wealthy and successful parents. Originally, his parents wanted him to be a lawyer, like his father, but they were supportive of him when they saw how interested he was in computers.

bill gates wealthy

Bill Gates attended an exclusive prep school while growing up, and then he attended Harvard, although he didn’t get very far. He spent most of his time with computers. In fact, from the time he first saw a computer while at prep school, he was fascinated with computers and spent as much time as possible with them.

When the time came that he wanted to start a company with some of his old school fellows, Gates turned to his parents, who provided support for him. Even though Gates’ company probably would have been successful anyway, and even though there were plenty of partnerships, the fact that Gates had wealthy parents to fall back on helped immensely as he built one of the most successful companies in the world.

And this is a key advantage: When basic needs are met, it’s easier to be creative; when you know you have a safety net, you are more willing to take risks. “Many other researchers have replicated the finding that entrepreneurship is more about cash than dash,” University of Warwick professor Andrew Oswald tells Quartz. “Genes probably matter, as in most things in life, but not much.”

University of California, Berkeley economists Ross Levine and Rona Rubenstein analyzed the shared traits of entrepreneurs in a 2013 paper, and found that most were white, male, and highly educated. “If one does not have money in the form of a family with money, the chances of becoming an entrepreneur drop quite a bit,” Levine tells Quartz.

mark z

Mark Zuckerberg was born in 1984 in White Plains, New York. He is the son of dentist Edward Zuckerberg and psychiatrist Karen Kempner. At Ardsley High School, Zuckerberg excelled in classics.

He transferred to Phillips Exeter Academy in New Hampshire in his junior year, where he won prizes in science (math, astronomy and physics) and classical studies. On his college application, Zuckerberg claimed that he could read and write French, Hebrew, Latin, and ancient Greek. He was captain of the fencing team. At Harvard College, he was known for reciting lines from epic poems such as The Iliad.

In 2004 when Facebook was just starting out, Mark Zuckerberg turned to his father Edward for initial working capital.

Edward, a dentist in Dobbs Ferry New York, loaned his son the money. In return, he was granted 2,000,000 shares of Facebook.

The options were arranged to expire after one year, but Facebook’s board decided that wasn’t fair. It didn’t match the original intent of Edward’s grant. In late 2009, they issued Edward’s company 2,000,000 Class B shares of Facebook.

Entrepreneurship: The Ultimate White Privilege?

A study in 2013 found that entrepreneurs scored high on measures of teenage delinquency. They’re also disproportionately white, highly educated, and male. Here’s why that might not be a coincidence. This was published in www.theatlantic.com

One of the great privileges that comes with being born wealthy, white, and male in the United States of America is that you can get away with certain youthful indiscretions. Indiscretions like, oh, smoking prodigious quantities of marijuana, for instance. If you’re an upper-middle-class caucasian, chances are the cops aren’t going to randomly stop and frisk you in the street under dubiously constitutional pretenses. And if you do somehow get caught baggie-in-hand, your parents can likely afford a decent lawyer to help plea bargain your way into some light community service. It’s a cushy setup.

Today, I’m finding myself wondering if that leeway —  that societal room to do a little law breaking, punishment free — isn’t part of the reason why so many of the successful entrepreneurs in this country are, yes, white guys.

Sorry if that sounds a bit out of left field, but let me explain. Ross Levine, an economist at the University of California, Berkeley, and Yona Rubinstein, a professor at the London School of Economics, have released a fascinating working paper exploring the demographics, personality traits, and earnings of entrepreneurs. Among their findings, they conclude that:

A) Entrepreneurs are “disproportionately white, male, and highly educated”; and

B) As teens and young adults, they’re far more likely than the average American to have partaken in “aggressive, illicit, risk-taking activities,” such as skipping class, smoking pot, gambling, and shoplifting.

It does not strike me as a coincidence that a career path best suited for mild high school delinquents ends up full of white men. That, again, is part of white privilege; youthful indiscretions have fewer consequences that might, say, keep you out of a good college.

That said, while Levine and Rubinstein’s findings hint at the role race might play in entrepreneurship, they don’t flesh it out fully enough for us to draw hard conclusions. So with that in mind, let’s wade into some of the details about precisely what this study does and doesn’t tell us.

We’ll start with the demographic data, shown below based on the census figures from 1994 to 2005. The group we care about here are the self-employed workers with incorporated businesses, at the far right of the table. Why just them? Because they’re who we traditionally consider entrepreneurs, as opposed to everyday small business proprietors. Unincorporated businesses tend to be tiny operations — think of a bodega, or a carpenter who works alone out of a pickup truck — with little chance of growing.

As Levine and Rubinstein find in their study, the people who run them tend to earn less than salaried workers. Incorporated businesses, on the other hand, are actual companies (yep, with 1st Amendment rights and everything). They can be anything from a chain of gyms to an accounting firm to a small tech startup. But the important thing is they’re independent legal entities and are often set up to attract investment and grow.

And, as you’ll notice, 84 percent of the incorporated self-employed (people who, for the purposes of this piece, we’ll just shorthand as “entrepreneurs”) are white, compared to 71 percent of the whole prime working-age population. They’re also 72 percent male.

Entrep_Table-thumb-570x255-129717

1. College gives entrepreneurs a big boost–if they attend an expensive, elite school.

How many high-profile startups started life at prestigious universities? You can’t count them all. Facebook came from Harvard. Google and an infinite number of others came from Stanford. Airbnb’s founders got together at the Rhode Island School of Design. And on and on and on.

The ballooning cost of college, especially at elite universities, puts attendance at schools such as these beyond the means of most non-wealthy students. And yet these schools have shown how effective they are both at turning out full-blown startups and at fostering the friendships, connections, and contacts with both professors and investors that often lead to successful ventures after graduation. Less-well-off people who attend state schools, community colleges, or no college at all are already way behind the entrepreneurship curve before they’ve even hit their 20s.

2. Entrepreneurs from wealthy families tend to have the right connections.

You can’t overstate the power of networking, so it matters whom you have in your network. If your family is moneyed and influential, there’s a better chance that you know, or can get an introduction to, the kinds of moneyed and influential people who can give you a great start. They may become investors, or introduce you to investors, but, once again, this isn’t only about money. The right connections can give you great advice, and introduce you to successful people in your field who can provide insider tips and even to potential customers. If you don’t have those kinds of connections, you’re two steps behind before you even get started.

3. If you have the wrong background, you’re unlikely to be accepted into the startup tribe.

There’s a reason Silicon Valley entrepreneurs tend to look kind of…cloned. You know who I mean: White men in their 20s and 30s, fit but not muscle-bound, wearing jeans, T-shirts, hoodies, and often glasses. They went to an expensive university, ride bikes or drive plug-in electrics, and play a mean game of Ping-Pong. A couple of months ago, an ad for a Woodside, California, group house called Startup Castle drew ridicule for demanding that applicants for its coveted spaces work out at least 15 hours a week, wear makeup no more than twice a week, have no more than one tattoo, and only rarely listen to songs with explicit lyrics. (The resulting media storm drove Startup Castle to move to an undisclosed location in Los Altos.)

You don’t need Startup Castle to know that if you drink Bud rather than craft beer, prefer Nascar to tennis, and like pickup trucks better than hybrids, you’re going to be a bad cultural fit in the start-up world. If you think that won’t affect your chances for success, just ask the nonwhite, nonmale, nonyoung entrepreneurs who’ve been there.

4. Coming from a wealthy background makes it easier to take risks.

There’s an obvious side to this: If your family and friends have money, then pouring all of yours into a startup is unlikely to put you on the street if it fails. But that’s only part of the problem. Research shows that fearing or accepting risk is a behavior people learn, and people who’ve grown up in households that are always one paycheck away from eviction are less likely to have learned to take risks with their money.

They’re also less likely to have the kind of confidence it takes to bet on yourself in a big way. I first read this article when my husband emailed it to me. I’m the daughter of a psychiatrist and grew up on Manhattan’s Central Park West; he’s the son of a postal worker and grew up in decidedly blue-collar Middletown, New York. This is why, he argues, I’ve been a successful entrepreneur for most of my life and, despite trying, he never has. Not only did my parents pay for college, they encouraged me to dream big. His parents encouraged him to get a job in civil service or a large corporation, and then stay put.

How do we fix this?

Money isn’t the only thing that bars the unwealthy from becoming entrepreneurs, but money may be part of the solution. In the form of scholarships, seed funds, and incubators targeted at those who don’t come to the entrepreneurial world equipped with bank accounts and wealthy relatives.

Beyond that, an attitude change is needed. Not only to encourage nonwealthy people to start their own businesses, but also to encourage the world of lenders, advisers, and investors out there to welcome entrepreneurs who don’t look and think like themselves. I can’t say I’ve seen a lot of eagerness on anyone’s part within the funding power structure to do that, though, and that’s a shame.

Farhad Manjoo published a scathing piece in The New York Times that claimed the hottest tech startups these days aim to “help people on the lowest rungs of the 1 percent live like their betters in the 0.1 percent.” They do things like deliver gourmet meals to people with plenty of money but no time to cook, or shuttle the children of professional parents to ballet and soccer practice at $12 to $15 a ride.

Well some interesting arguments and perspective to consider, what are your thoughts on entrepreneurs and their background, does it even matter?

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