Are Startups Just For The Elite?
If you are working in a startup you may have noticed that a concentration of people come from wealthy backgrounds. This is either people who have wealthy parents or people who have earned their wealth such as former investment bankers or management consultants.
To conduct a proper analysis, we need to divide the people working at startups into founders and staff. We also need to make a distinction between tech startups who as loss-making businesses seek venture capital, and growing businesses, which may be profitable earlier on and won’t necessarily seek investment in those first years.
We will therefore look at 4 groups:
Growing Business Owners
Growing Business Employees
My expectation is that this is an overwhelming bias to founders coming from wealthy backgrounds. Even when you look at some of the big success stories, Bill Gates (Microsoft) was able to get ahead in the embryonic computer industry because his parents were able to buy him a computer. At the time, this was a huge advantage. How else could you understand how to build software and computers without ever having used a computer. Nowadays, of course, life has changed and most people can get access to cheap computers or schools and libraries provide access, but life was very different in the 1970s.
Another more recent example is Atlassian. Michael Cannon-Brooke’s father was Managing Director of Citigroup Australia, and able to provide support in the early days. While loading up early funding on credit cards is one way to start, not everyone can get a credit card and also have a fall-back plan.
There are 2 other reasons why people from wealthy backgrounds find it easier to found a startup. If you have the financial resources to support you, you can work unpaid for longer and those from a wealthy background are more likely to be in this position. Secondly, your network to find investors is likely to be bigger if you are wealthy. Many VCs want introductions rather than cold messages. And the SEIS and EIS tax breaks for angel funding are biased towards those on higher incomes.
There is less evidence that startup employees are more likely to be from wealthy backgrounds. However, because startup founders tend to be elite, you can assume that their network will be similar and therefore these are the people they are likely to pull in as early employees. Also, VCs and angels may insist that their children are given jobs in return for investment, which again adds to the potential likelihood of wealthy startup staff. All this supports selection bias as presented by Amol Rajan in How to Break Into the Elite.
Many startups offer unpaid internships which again will mean that only those with alternative sources of finance are able to apply.
Growing business owners
Examples of both elites and non-elites exist for growing business owners. Entrepreneurs, such as Michelle Mone (Ultimo) and Charlie Mullins (Pimlico Plumbers) show that non-elites can make it. For these people using an existing skill, such as designing bras or fixing cisterns, enabled them to grow successful businesses because in these cases there are limited barriers based on background.
Some industries are also unattractive for those from wealthy backgrounds, particularly ones where you have to get your hands dirty, so parents may deter their children from entering those industries.
But you will still find elites as growing business owners. Both Richard Branson and James Dyson had wealthy parents who were able to support them in the early days of their businesses.
Growing business employees
This is another area touched on by Amol Rajan. It very much depends on what goods or services are being offered. For example, growing management consulting businesses will have the same biases as the larger consulting sector. But for other businesses in order to grow they will need to employ people with a wider variety of skills from different backgrounds.
Also, the figureheads of businesses will attract different people. Do you want to work for someone who may despise you and your background, or someone who you can relate to?