Even before Americans can do “the big sort”—moving near like-minded neighbors—they’re victims of a “little sort.” Children are sorted by their parents’ income, since public schools draw funding from local tax bases which tend not to be economically diverse. These neighborhood effects among young friends can have major implications for their careers and ambitions as adults. It’s not just that young people who grow up in low-income areas are more likely to adopt certain diets, smoking habits, and drug use. It’s also the case that parents, schools, and law enforcement in different neighborhoods treat similar behaviors differently. Young rebellious minorities? Arrest them. Young rebellious white men? Channel their creativity into start-ups.
The latter fact sprang to mind while I was reading about the extraordinary whiteness and maleness of America’s entrepreneurial universe. A recent study of U.S. venture capitalists and founders uncovered some astonishing numbers: 90 percent of founders in companies with venture capital (VC) funding are men, and 80 percent of VC firms have never hired a female investor. While the share of women working in formerly male-dominated industries like medicine and law has grown significantly in the last 20 years, it's barely changed in the founder and VC space.
Why is a community theoretically predisposed to disruption so demographically static? The study’s authors, Paul A. Gompers, a professor of business administration at the Harvard Business School, and Sophie Q. Wang, a Ph.D. student in Harvard's economics program, test several explanations. Perhaps women avoid technology and engineering programs and MBAs, they posit. Nope, that’s not it. Women earn almost 50 percent of the master’s degrees in science and engineering and a similar share of MBA degrees; they account for just one-in-10 founders and venture capitalists.
But they give a lot of weight to bubbles. The venture capital world is a little clique—or, at least, a handful of interlocking cliques. The Bay Area accounts for about 40 percent of all venture investments in the United States. When you add New York, Boston, and Los Angeles, those four regions account for two-thirds of all VC funding. These cliques can have rigid patterns of thinking, ones that often incorporate troubling assumptions about gender and race. One study by Gompers and Wang showed that something interesting happens when male venture capital partners have daughters. Suddenly, they hire more women. In other words, there is something lacking in the pre-daughter default of many VCs.
Venture capital firms themselves tend to be small and uniform. Behemoths like Sequoia and Andreessen-Horowitz notwithstanding, the median number of partners in a VC firm is just three. Small clubs tend to be even more homogenous than larger groups. Let’s say you're a white male employer with a preference for people like you. If you had 100 positions to fill, you’d make dozens of hires who weren’t white men. But if you're only hiring one person, you default to hiring the white guy who seems like he just “gets you.” It’s just one job in a nation with 170 million workers, you tell yourself. But the sum of all these singleton hires adds up to an astonishingly white and male industry.