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

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1 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 Twitter: VWadhwa

2 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

3 Founder Age Tech entrepreneurs: Not young US Tech Founder Age at the Time of Startup Establishment % % % % % % 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% Percentage of all Respondents

4 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 3.4% %

5 Entrepreneurs: Not from rich families 36.9% 34.6% 21.8% 5.4% 0.7% 0.6% LOWER-LOWER CLASS LOWER-MIDDLE CLASS LOWER-UPPER CLASS UPPER-LOWER CLASS UPPER-MIDDLE CLASS UPPER-UPPER CLASS

6 Tech entrepreneurs: Not college dropouts Associates Degree, Certification, Some College, 2.3% PhD, 10.0% MD, 3.8% JD, 3.5% High School Diploma or Lower, 5.9% Economics, Arts, 1.8% Humanities and Social Sciences, Law, 2.8% 4.2% Healthcare, 5.5% Other, 4.6% STEM Fields 46.5% Applied Sciences*, 9.0% Engineering 27.6% Masters, 31.0% Highest Completed Degree Bachelors, 44.0% Business, Accounting, Finance, 33.4% Mathematics 1.5% Computer Science, Information Technology 9.0% Fields of Highest Degree

7 Even better educated than their parents 27.8% 36.8% 19.7% 24.5% Father Mother 22.7% 19.3% 10.0% 5.2% 5.6% 5.8% 5.8% 10.0% 8.3% 0.2% 1.0% 0.2%

8 Pretty smart in high school, but drank too much in college 51.2% High School University 36.5% 29.9% 23.2% 20.1% 26.1% 3.7% 1.4% 0.4% 3.1% 1.6% 2.9% Top 10% Top 30% Average Bottom 30% Bottom 10% N/A Top 10% Top 30% Average Bottom 30% Bottom 10% N/A

9 Average 2005 Sales (Millions of USD) Average 2005 Total Employees Education counts not necessarily ivy-league $8 $7 50 $6 40 $5 $4 30 $3 $2 $ $0 All Startups Startups w/ an Ivy-Leauge Founder Startups w/ a High School Founder 0 Average 2005 Sales Average 2005 Employment What makes the difference is higher education: not the degree or school.

10 Entrepreneurs: Highly experienced Approximately how many years did you work for another employer prior to starting your first business? 24.6% 27.6% 23.3% 14.3% 10.3% 0-5 years 6-10 years years years 20+ years

11 Entrepreneurship wasn t necessarily in the genes or pre-planned Which Members of Your Family Started a Business Before You Did? How interested were you in becoming an entrepreneur while you were completing your higher education? 51.9% 38.8% 34.7% 27.5% 24.5% 15.2% 6.9% 7.2% 6.1% 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

12 Reasons for becoming an entrepreneur Entepreneurial friend or family role model 2.1 Always wanted own company 3.1 Startup company culture appealing 3.0 Developed a technology in lab 1.4 Wanted to capitalize on a business idea 3.1 Co-founder encouraged to start company 1.7 Wanted to build wealth 3.2 Working for someone else didn't appeal 2.9 Couldn't find traditional employment 1.2 1= Not important factor, 5 = Extremely important factor

13 Bootstrapping is the norm not VC Corporate investment 7.3% Bank loan(s) 14.6% Private/angel investor(s) 12.3% Venture capital 14.2% Business partner(s) 16.9% Personal savings 64.4% Friends and family 17.8% Other 7.8%

14 Success factors Your prior industry/work experience 4.4 Lessons you learned from your previous successes Lessons you learned from your previous failures Company's management team 3.8 Good fortune Professional/business networks Availability of financing/capital Your university education Personal/social networks 3.0 Location 2.5 Advice/assistance provided by company investors 2.2 University/alumni contacts/networks 1.7 Assistance provided by the state/region 1.3 1= Not at all important, 5 = Extremely important

15 Obstacles faced by entrepreneurs Difficulty of co-founder(s) recruitment 1.6 Family or financial pressures to keep a traditional, 1.8 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 2.5 Lack of available capital/financing 2.6 Amount of time and effort required 2.9 1= Not at all a challenge, 5 = Extremely big challenge = Not at all a challenge, 2=Small challenge, 3=Somewhat of a challenge, 4= Big Challenge, 5=Extremely big challenge

16 What stops others from becoming entrepreneurs? Difficulties in recruiting co-founders 2.5 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 3.3 Knowledge about the industry and markets 3.4 Lack of business management skills 3.6 Difficulties in raising capital/financing 3.8 Amount of time and effort required 4.0 Willingness or lack of ability to take risks

17 Age Difference between men and women Estimated Age When Founding Current Company Marital Status When Starting Business % Estimated Age When Founding Current Company 60.0% 40.0% 20.0% FEMALE MALE FEMALE MALE.0% Divorced Married Single Widowed 50.0%.0% Number of Children Living in Household When Starting Business Number of Children FEMALE MALE 60.0% 40.0% 20.0%.0% Percent Receiving Graduate Education Female Male No Graduate Education Graduate Education

18 Difference between men and women: Motivations for starting business

19 Difference between men and women: Main sources of funding

20 Difference between men and women: Perceived challenges

21 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.

22 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%.

23 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