How Technology Shapes the Entrepreneurial Ecosystem
Structures of engrained power.
This article is a part of the series “How to Build Thriving Start-up Ecosystems: Five Information Patterns for Success.”
The Internet has made it easier for start-up founders to create websites, match with potential co-founders, and mass email investors. Yet instead of technology enabling a massive shift in access to entrepreneurial opportunity, the reality is a lot more complicated. Thirty years since the development of the World Wide Web, as of 2024 women have gone from zero to only two percent of venture-backed start-ups (Pitchbook). Black founders and founders of color raised 1.2% of venture capital last year (Crunchbase). For all the tools the internet has made 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 Information Designers must understand how power shapes global technology to create more equitable small scale entrepreneurial ecosystems in their own community.
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 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, Community Information Designers are needed as curators, not to give founders all of the information possible, but to understand what information is relevant to them and deliver it at an applicable time.
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 automation tools have drastically increased the number of in-bound emails venture firms receive while the size of venture firm teams have remained largely the same. Because there are now more potential entrepreneurs for a firm 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 find out whether investors will be at start-up networking events. However, the swift connection of founders and investors with few shared social ties creates a “pitching” dynamic where dozens of founders 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 and can have fewer high quality meetings (Sourcescrub). Founders then need to pay or share similar educational backgrounds with investors to join these private events, once again cutting non-affluent entrepreneurs off from access.
Community Information Designers need to balance creating the space where their founders can meet with investors with making sure that these events are highly curated so investors are not fatigued with irrelevant pitches. The founders that are at these events should be in relevant verticals for the investors they meet with and at the right moment in their company’s trajectory.
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 Ivy league graduate that might have been happy with a co-founder that lived in their neighborhood and 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. The supposition is 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 technical founders can succeed blocks out whole new kinds of company models and founders that 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 Information Designers will need to help entrepreneurs build bridges between different information sets, and better curate connections between entrepreneurs and 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.
In the following chapters, it will be explored in-depth how CIDs can use information patterns to systematically design an entrepreneurial ecosystem that draws founders from a wide variety of backgrounds and help them effectively navigate through their community’s resources.
