What makes and entrepreneur, and why so few women (and minorities)?

Vivek Wadhwa
Visiting Scholar, UC-Berkeley
Director of Research, Center for Entrepreneurship and Research Commercialization and Exec in Residence, Pratt School of Engineering, Duke University Senior Research Associate, Harvard Law School Columnist, BusinessWeek, TechCrunch

www.Wadhwa.com Twitter: VWadhwa
© 2010 Vivek Wadhwa

Entrepreneurship Research
Based on 3 projects:
– Survey of 652 CEO’s/CTO’s of 502 tech companies – Interviews with 144 Immigrant tech company founders – Detailed survey of 549+ founders of companies in 12 high-growth industries

Common Myths:
– Tech entrepreneurs: unmarried, male, rich, college-dropouts obsessed with making money

– Ivy-league education provides huge advantage – Venture Capital prerequisite for economic growth
© 2010 Vivek Wadhwa

Tech entrepreneurs: Not young
US Tech Founder Age at the Time of Startup Establishment
0 - 19 1.2%

20 - 29

14.2%

Founder Age

30 - 39

37.5%

40 - 49

34.1%

50 - 59

10.5%

60 - 69

2.5% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0%

0.0%

Percentage of all Respondents

© 2010 Vivek Wadhwa

Married with children
69.9%

Marital Status

40.3%

Average Number of Children

28.0%

24.9%

16.4% 11.0%

4.5% 0.7% Single Married Divorced/Separated Widowed 0 1 2 3

3.4% 0.9% 4 5

© 2010 Vivek Wadhwa

Entrepreneurs: Not from rich families

36.9% 34.6%

21.8%

5.4% 0.7% LOWER-LOWER CLASS LOWER-MIDDLE CLASS LOWER-UPPER CLASS UPPER-LOWER CLASS UPPER-MIDDLE CLASS 0.6% UPPER-UPPER CLASS

© 2010 Vivek Wadhwa

Tech entrepreneurs: Not college dropouts
Associates Degree, Certification, Some College, 2.3% MD, 3.8% JD, 3.5% High School Diploma or Lower, 5.9% Economics, STEM Fields 46.5% Arts, 1.8% Humanities and Social Other, Applied Sciences, Law, 4.6% 2.8% Sciences*, 4.2% 9.0% Healthcare, 5.5%

PhD, 10.0%

Engineering 27.6% Bachelors, 44.0% Masters, 31.0% Business, Accounting, Finance, 33.4% Mathematics 1.5% Computer Science, Information Technology 9.0%

Highest Completed Degree

Fields of Highest Degree
© 2010 Vivek Wadhwa

Even better educated than their parents
27.8% 24.5% 36.8%

Father
19.7% 22.7% 19.3% 10.0% 5.6% 5.8% 5.8% 10.0%

Mother

5.2%

8.3%

0.2%

1.0%

0.2%

© 2010 Vivek Wadhwa

Pretty smart in high school, but drank too much in college
51.2%

High School
36.5%

University

29.9%
26.1% 23.2% 20.1%

3.7%

1.4% Bottom 10%

3.1% 0.4% N/A

1.6%

2.9% N/A

Top 10% Top 30% Average Bottom 30%

Top 10% Top 30% Average Bottom Bottom 30% 10%

© 2010 Vivek Wadhwa

Education counts…not necessarily ivy-league
$8 $7 Average 2005 Sales (Millions of USD) $6 $5 30 $4 $3 $2 10 $1 $0 All Startups Startups w/ an Ivy-Leauge Founder Average 2005 Sales Average 2005 Employment Startups w/ a High School Founder 0 20 50

40

What makes the difference is higher education: not the degree or school.
© 2010 Vivek Wadhwa

Average 2005 Total Employees

Entrepreneurs: Highly experienced

Approximately how many years did you work for another employer prior to starting your first business?

27.6% 24.6% 23.3%

14.3% 10.3%

0-5 years

6-10 years

11-15 years

16-20 years

20+ years

Entrepreneurship wasn’t necessarily in the genes or pre-planned
Which Members of Your Family Started a Business Before You Did?
51.9%

How interested were you in becoming an entrepreneur while you were completing your higher education?

38.8% 34.7% 27.5% 24.5% 15.2% 6.9% 7.2% I was the first in my immediate family to start a business Father Mother Siblings Not at all interested Not very interested Didn't think about it Somewhat interested Extremely interested 6.1%

© 2010 Vivek Wadhwa

Reasons for becoming an entrepreneur
Entepreneurial friend or family role model Always wanted own company Startup company culture appealing Developed a technology in lab
1.4 3.1 1.7 3.2 2.9 1.2 2.1 3.1 3.0

Wanted to capitalize on a business idea
Co-founder encouraged to start company Wanted to build wealth Working for someone else didn't appeal Couldn't find traditional employment

1= Not important factor, 5 = Extremely important factor

© 2010 Vivek Wadhwa

Bootstrapping is the norm – not VC
Corporate investment Bank loan(s) Private/angel investor(s) Venture capital Business partner(s) Personal savings Friends and family Other
7.8% 17.8% 7.3%

14.6%

12.3%

14.2%

16.9%

64.4%

© 2010 Vivek Wadhwa

Success factors
Your prior industry/work experience Lessons you learned from your previous successes Lessons you learned from your previous failures Company's management team Good fortune Professional/business networks Availability of financing/capital Your university education
3.3 3.3 3.2 3.2 3.0 2.5 2.2 1.7 1.3 3.8 4.1 4.0 4.4

Personal/social networks
Location Advice/assistance provided by company investors University/alumni contacts/networks Assistance provided by the state/region

1= Not at all important, 5 = Extremely important
© 2010 Vivek Wadhwa

Obstacles faced by entrepreneurs
Difficulty of co-founder(s) recruitment Family or financial pressures to keep a traditional,… Availability of health insurance/risk of losing… Lack of industry knowledge Lack of available mentors or advisors Concern about the consequences of failure Concern about protecting company's intellectual… Lack of prior experience in running a business Lack of available capital/financing Amount of time and effort required
1.0 1.5 2.0 2.5
1= Not at all a challenge, 2=Small challenge, 3=Somewhat of a challenge, 4= Big Challenge, 5=Extremely big challenge

1.6 1.8 1.9 2.0 2.0 2.2 2.3 2.5 2.6 2.9 3.0

1= Not at all a challenge, 5 = Extremely big challenge

What stops others from becoming entrepreneurs?
Difficulties in recruiting co-founders Availability of health insurance/risk of losing existing coverage Family or financial pressures to keep a traditional, steady job Knowledge about how to start a business Knowledge about the industry and markets Lack of business management skills Difficulties in raising capital/financing Amount of time and effort required Willingness or lack of ability to take risks
1.0 1.5 2.0 2.5 3.0 3.5 4.0 2.5

2.7

3.2

3.3

3.4

3.6

3.8

4.0

4.3 4.5

Difference between men and women
Estimated Age When Founding Current Company
41.00 Age 39.00 37.00 35.00 FEMALE MALE Estimated Age When Founding Current Company 80.0% 60.0% 40.0% 20.0% .0% Divorced Married Single Widowed FEMALE MALE

Marital Status When Starting Business

Number of Children Living in Household When Starting Business
60.0% 50.0% FEMALE .0% 0 1 2 3 4 5 Number of Children MALE 40.0% 20.0% .0%

Percent Receiving Graduate Education
No Graduate Education Graduate Education

Female

Male

Difference between men and women: Motivations for starting business

Difference between men and women: Main sources of funding

Difference between men and women: Perceived challenges

Key differences
• Women were much more likely than men to have obtained funding from a business partner • Both sexes had same reasons for becoming entrepreneurs • Both sexes had the same the life circumstances • Women were more often motivated to become entrepreneurs when a cofounder recruited them. • Both sexes faced same obstacles—time and effort • Women faced family or financial pressure to maintain a steady, traditional job.

But women…
• Start only 3% of tech firms and 1% of high-tech firms (Kauffman) • Are almost absent in high-level tech positions • Contribute to fewer than 5% of all IT patents and 1.2% of open-source software While Proportion of women-led companies receiving venture capital has dropped dramatically over the past few years And things are even worse for minorities: Blacks and Hispanics constituted only 1.5% and 4.7% of the Valley’s tech population – well below national averages of 7.1% and 5.3%.

Despite the fact that:
• • • Women-led companies more capital-efficient, and venture-backed companies run by a woman have 12% higher revenues, than others Organizations most inclusive of women in top management achieve 35% higher ROE and 34% better total return to shareholders Girls now match boys in mathematical achievement; 140 women enroll in higher education for every 100 men; and women earn more than 50 %of all bachelor’s and master’s degrees and nearly 50% of all doctorates

Credit: Cindy Padnos, Illuminate Ventures

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