In a previous post, we asked what the qualities of a successful entrepreneur typically are, whether those qualities can be learned, and whether environmental forces play a large role in entrepreneurial success. One piece of research that post discussed is an economics report titled “Who Becomes an Innovator in America?”, led by Harvard University professor Raj Chetty. The study looked at the conditions that create innovators by analyzing over one million inventors and tax and school district records.
Here are some key takeaways.
ECONOMIC INEQUALITY: Children with parents in the top 1 percent of the income distribution are 10 times more likely to become inventors than children with below-median income parents. On average, a ten percent increase in a parent’s income resulted in a 3.4 percent increase in their child’s income.
DEMOGRAPHIC INEQUALITY: When accounting for family income differences across race, the report finds that white children are three times more likely to become inventors than Black children. Meanwhile, only 18 percent of inventors are female. It’s also worth noting that follow up research shows Black men without access to Black male mentor figures while growing up are disproportionately likely to end up in lower-income brackets regardless of their parent’s income. Those individuals are also less likely to become innovators.
LOW CONNECTION TO EDUCATIONAL ACHIEVEMENT: The disparities in who goes on to become an innovator cannot be attributed entirely to merit. Children at the top of their class in math were only likely to become an innovator if they came from a high-income family. The highest-scoring low-income children are only as likely to become an innovator as the lowest scoring high-income children.
ACCESS PLAYS A CRUCIAL ROLE: Children from low-income families, minorities, and women are less likely to have access to connections through friends, family, or neighborhoods that can provide them with resources to innovate. Lower-income children in particular often lack the capital base to innovate and face numerous other environmental hurdles to entrepreneurship and invention (e.g. health care barriers, financial pressure, low-prestige credentials, debt, and dependent family members)
IMPLICATIONS FOR VENTURE CAPITAL: Focusing on improving diversity along lines of gender, race, and economic background can help target would-be innovators that simply did not have the capital base or industry connections jump-start their career. Although counterfactual data is impossible to gather, Chetty’s study remarks that there are probably millions of lost innovators due to barriers to entry. That means a considerable loss of potential growth. If both founders and VCs actively worked to reduce barriers through active outreach programs, it might improve the rate of innovation and competition, allowing more brilliant individuals to offer up ideas regardless of their circumstances.