The explanation for tech’s diversity problem: invisible capital

Jen Consalvo and Frank Gruber met Uber co-founder Travis Kalanick well before he became a household name. In 2010, the co-founders of the community Tech.Co invited him to stay at their house in Austin during SXSW. Kalanick was testing the concept of an on-demand black car service for the week. “He had just sold something [Red Swoosh in 2007] and we said, why don’t we put him on our stage and have him talk?” says Consalvo. In his talk, Kalanick spoke about the importance of the hustle just as much as he spoke about the power of networks.

“There’s this myth—and it’s a very American myth—that you do it alone,” Consalvo tells Quartz. “We see so many young entrepreneurs coming from non-Silicon Valley communities out there, busting their asses, not understanding that the game is about the network. How you do the partnerships, the deals? The people who get the big funding understand that.” (Tech.Co’s investor, Zappos CEO Tony Hsieh, has shared a similar sentiment about the importance of networks.)

Invisible capital—the traits someone is born with, gender, race, socioeconomic status—plays a key role in gaining access to the networks in the first place, and entitlement goes a long way. After all, there is a lot of empirical evidence that shows investors tend to invest in people who remind them of themselves.

“The biggest proponents of this Horatio Alger myth centered on hard work are those who fall the most victim to it,” says Chris Rabb, professor at Temple University’s Fox School of Business and author of Invisible Capital. “Everyone can go to the SBA site to learn how to start a business. That’s not real access. We need to democratize the process.”

Among immigrants, many break into Silicon Valley circles through elite universities, which have strong ties to the Valley and the coveted venture capital funding.

“The networks I see are Ivy-educated entrepreneurs. And there are strong correlations between that and family wealth,” says Angela Lee, an assistant dean at Columbia Business School and founder of 37 Angels, a network of female angel investors. “[Investor networks] Gust and AngelList referrals tend to be from investors, entrepreneur hubs, incubators. You can’t just apply to us [investors] widely; you have to get introduced.” Lee says that among their portfolio of funded companies, the most common request from male founders is for introductions to potential industry leads; female founders are more likely to request a 30-minute coffee with her before asking for anything. “Men are much better at leveraging networks,” she tells Quartz.

The Information published a report last month revealing the lack of diversity among top venture capital firms, titled “Bros funding bros: what’s wrong with venture capital.” Most of the 71 top funds are made up of white and Asian males in their mid-40s; and only a third of the firms have senior female partners. There are only a handful of black and hispanic male senior partners, and zero black and hispanic female senior parters.

Kathryn Finney, founder of Digital Undivided, wrote about the network problem in a popular Medium post, “The reason why there’s no diversity in tech.” She discussed how the narrative around a select few successful black people in tech distracts from the underlying issue. Finney explains the dilemma in her post:

“To really understand why tech is having a hard time with diversity, you need to understand Libertarianism. The idea of forced inclusion is one that goes against the very Libertarian foundations of tech. … The idea that an outside group, and for the most part women, Latinos, Blacks are outsiders in tech, would exert power, even force, technologists to be more inclusive, is an idea that sends tremors down the objectivist spines of the greater tech community.”

Finney asked a group of entrepreneurs and industry leaders how to fix this problem at New York’s Centre for Social Innovation this summer, and shared with some exasperation that she had mostly given up on Silicon Valley. The only way in is through someone with a lot of invisible capital and willingness to bridge networks.

Columbia Business School’s Lee also sees this as the solution: “I’ve spoken the last two years at Focus 100, supporting black women tech entrepreneurs,” she tells Quartz. “As I looked around the room it was so clear to me that our networks aren’t overlapping. This is a problem that we need to fix.”

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