How Technology Shapes the Entrepreneurial Ecosystem
Designed by those in power to stay in power.
This article is a part of the series “Urban Information Architecture & Entrepreneurship: A Pattern-Based Approach to Build Successful Startup Ecosystems.”
The Internet has made it easier for start-up founders to create websites, find co-founders, and connect with investors. Yet thirty years since the development of the World Wide Web, women have gone from zero to 8% of venture-backed start-ups while black founders only raise 1% of venture funds. For all the tools available to founders, the power disparities in America’s entrepreneurial ecosystem have largely remained the same.
This lack of change is a result of human design decisions. Websites are built by people, mainly people with tech expertise and money. The websites that exist today are created with the assumptions those in power hold and are designed in ways to help those in power retain and amass more power. To create more equitable entrepreneurial opportunity, community leaders must understand how power shapes the technology that in turn shapes the nation’s entrepreneurial ecosystem.
Information Versus Insight
Today’s entrepreneurs can access hundreds of free business plans online, launch a product page in minutes with Wordpress and Squarespace, learn about their competition and adapt with Crunchbase and FS6, or hire developers and designers on Upwork and Toptal.
In a landscape where entrepreneurs have access to all the information they could need, it seems paradoxical that the rate of successful start-ups is in decline. An overlooked reason is that founders are drowning in irrelevant information. Information “noise” obfuscates what course of action founders should take and makes it more likely they will waste valuable time going in an unproductive direction.
This information overload is not an innate part of entrepreneurship. Google has become such a part of daily life that it is often overlooked that the website is a human-designed entity, one that is paid for by advertisers when you click on their websites. Google profits when you search a lot, not when you quickly find what information you need.
To create insight over information overload, we need more bridges for entrepreneurs between data that provides them the right information when they need it.
Scarcity of Attention
Today there are several websites that help entrepreneurs connect with angel investors or find technical co-founders. Though technology has made it easier for founders to make initial connections, it has replaced the problem of connection with the problem of scarce attention.
Email has drastically increased the number of in-bound emails venture firms receive while the size of venture firm teams has remained largely the same. Because there are now more potential entrepreneurs to follow up with, entrepreneurs need more than a compelling story to capture venture capitalists’ attention; they also need warm personal introductions. And since 40% of venture capitalists went to either Harvard or Stanford, entrepreneurs outside of these social networks have an increasingly small chance to be noticed when reaching out online.
Technology has also shifted the ways founders and investors meet in person. Websites like Eventbrite and Meet-up help founders quickly connect with investors at start-up networking events. However, the swift connection of founders and investors with few shared social ties creates a “pitching” dynamic where entrepreneurs try to quickly get venture capitalists’ attention. Investors become stressed as they are inundated with pitches. Over time the highest quality investors move towards smaller, private communities where they are less inundated. Founders then need to pay or share similar educational backgrounds with investors to join these more private events, once again cutting non-affluent entrepreneurs off from access.
To decrease scarcity of attention, there needs to be more infrastructure to help better connect entrepreneurs with relevant investors.
Filtering Creates Assortive Investing
The internet has made “assortive mating” in romantic relationships common where people select partners who share a high degree of similarity. This same assortive behavior has increased in the start-up world both for co-founder pairing and investment.
On CoFounderslab an entrepreneur can search for other co-founders who go to specific schools and can see a person’s gender, height, weight, and race through their photo. Years ago an league graduate who would be happy with a co-founder in their neighborhood that went to a state university can now search farther afield for a co-founder that also went to an Ivy League.
Filtering also creates greater “assortive investing.” While traditionally angels invest within 40 miles of their homes, in recent years the geography of start-up funding has migrated out of Silicon Valley and widened to global cities like Stockholm, London, Berlin, and Tel Aviv. However, where years ago an investor might have been happy with founders that do not hold MBAs but live in their city, they now can search for teams globally that fully match their desired investment traits.
While technology has the power to build bridges between people across the globe, today’s filtering mechanisms are designed so that global bridges are built between the same kinds of people.
Forms Influence Assumptions
Another facet of technology that impacts start-up ecosystems is the form. Forms help accelerators find a small number of potential companies to invest in by asking founders questions. While accelerators might pitch themselves as innovation supporters, their need to be profitable means that they largely search for founders that match previous successes. Meanwhile the immense pressure to get into top-tier accelerators in turn creates pressure for founders to match with the patterns accelerators have established as likely successes. One of the most prominent accelerators that provides initial funding and support for founders is YCombinator.
On YCombinator’s application page, questions include where founders live and where they plan to live. Location is a quiet assessment of founders’ net worth since coastal cities and Silicon Valley are more expensive locations but investors feel have the “best” networks.
Another question is how long founders have worked on their company full-time. This question hints that only full time founders are serious. This both assesses a founder’s age (it is much easier to be full-time at 22 than at 42 with a family). This question also quietly assesses the disposable income and class of the entrepreneur.
YCombinator’s application also includes a question on whether the founders write code. This question assumes that code is the winning part of a start-up, which subtly insinuates that only tech companies can succeed. While tech is likely to be an important facet of companies in the coming years, the assumption that only tech can succeed blocks out whole new kinds of company models. The assumption that the strongest founders are technical pushes out companies that might have deep knowledge of a certain customer base or unique insight on the market.
Although subtle, forms powerfully shape entrepreneurs’ assumptions of who can and cannot be successful. Some founders assume they cannot be successful if their experience does not reflect the suggested response on a form. To combat this, many co-founders try to look more attractive on these forms, even if their actions detract from progressing towards a successful company. This might mean moving to a coastal city that decreases their runway, finding a technical co-founder that might not be a good fit, or developing an app too early. All of these are common mistakes founders do because the questions asked on forms shape entrepreneurs’ understanding of the pathways to success.
In the short term, accelerators might be successful using these forms to pattern-match founders with previous successes. But slowly they will find that they have a smaller number of companies all attacking similar markets in the same ways with this approach because their forms have created an artificial bottleneck in the entrepreneurial ecosystem.
Building Consciously
To create equitable entrepreneurial ecosystems, community leaders will need to help entrepreneurs build bridges between different information sets, and better connect entrepreneurs with relevant investors. They can encourage filtering mechanisms that can connect people around shared interests rather than similar backgrounds, and fight for forms that attract a broader applicant pool.
Technology powerfully impacts the dynamics within the country’s start-up ecosystem. Much of today’s technology that seems like it is connecting people more effectively, is in actuality designed in ways that help existing players further amass power while decreasing the vitality of the ecosystem as a whole.
The next articles in this series will turn from understanding the current biases of today’s entrepreneurial ecosystem towards a new approach of understanding and implementing interaction patterns to build equity more consciously into tomorrow start-up landscape.
