Silicon Valley is no meritocracy

Academic and entrepreneur Vivek Wadhwa argues that despite the successes of female and minority entrepreneurs, success in the technology world is not always just down to merit.

Visit any Silicon Valley technology company, and it is like walking into the United Nations: people from all over the world working together toward a common goal. But it wasn’t always like this. During its genesis, when it was still developing semiconductors, Silicon Valley was largely white in complexion. As it started evolving and growing, the Valley started attracting the best and brightest from all over the world. At first, it was European immigrants; then, the Taiwanese. Finally the whole world came.

I emigrated to the US in 1980, and observed the changes first-hand while founding two technology companies. The tech CEOs you would read about didn’t fit the old stereotypes any more: there was a more diverse set of faces on the covers of tech magazines. This is what inspired me to research the impact of skilled immigrants on US competitiveness when I became an academic and joined Duke University in 2005.

The seminal research on immigrants and diversity in Silicon Valley comes from UC-Berkeley professor AnnaLee Saxenian, in her 1999 paper, “Silicon Valley’s New Immigrant Entrepreneurs”. She documented that immigrants accounted for one-third of the scientific and engineering workforce in Silicon Valley and that Indian or Chinese chief executive officers were running a quarter of all of the high-technology firms in the region. For her study, Saxenian analysed data on high-technology firms founded in Silicon Valley between 1980 and 1998. She found that 17 per cent of tech firms were run by the Chinese, including Taiwanese, and seven per cent by Indians.

In 2006, my research team collaborated with Saxenian to update her work. We found that the trend she documented had become a nationwide phenomenon: that from 1995-2005, in 25.3 per cent of tech companies founded in the US, the chief executive or lead technologist was foreign-born. In 2005, these generated $52 billion in revenue and employed 450,000 workers. In some industries, such as semiconductors, the percentages were higher: immigrants founded 35.2 per cent of start-ups. In Silicon Valley, the percentage of immigrant-founded start-ups had increased to 52.4 per cent. We ​learned that Silicon Valley’s entrepreneurial ecosystem accommodated people from almost every nation in the world – from Australia to Zimbabwe.

Curiously, we found that Indians were the dominant group of immigrant tech company founders. They founded 26 per cent of these start-ups at the national level: more than the next four groups (Britain, China, Taiwan and Japan) combined. We learned that proportion of Indian-founded start-ups in Silicon Valley had increased from seven per cent to 15.5 per cent. In Silicon Valley, this correlated with demographic changes.

Between 1990 and 2000, the population of Indian scientists and engineers (S&E) in Silicon Valley grew by 646 per cent (while the total foreign-born S&E workforce grew by 246 per cent and the region’s total population of S&E, both native and foreign-born, grew by only 103 per cent). What was most significant was that Indian immigrants were able to stand shoulder-to-shoulder with the world’s most innovative tech workers – and match them in entrepreneurship.

When we researched why Indians had been successful, we learned that they had gained significant benefits from the social and professional networks they had formed. These helped to mobilise the information, know-how, skills and capital needed to start technology firms. The Indian networking organisations were among the most vibrant and active professional associations in the region, with memberships ranging from several hundred in the newer associations to over one thousand in the established organisations. From this research, we concluded that Silicon Valley is the world’s greatest meritocracy, where talented people can succeed on the basis of their achievement alone.

But that was until I moved to Silicon Valley itself, and started frequenting local events.

The most eye opening of these was a tech awards event hosted by a tech blog, TechCrunch, in January 2010. This was the technology industry’s equivalent of the Oscars. On stage were more than 100 entrepreneurs. But the only two women on stage were TechCrunch chief executive Heather Harde and a performer in a circus act. The event was dominated by young, white men and there werehardly any Indians or Chinese. Just one black entrepreneur appeared on stage, representing his company’s chief executive.

Before taking on the issue of race, I decided to research the perhaps less controversial dearth of women in tech. The problem was greater than who was selected to be on stage at one TechCrunch event. According to an analysis of Dunn and Bradstreet (D&B) data by the Kauffman Foundation,of the 237,843 firms founded in the US in 2004, 19 per cent had women as primary owners. Onlythree per cent of tech firms in the D&B analysis were founded by women. When I researched the executive teams of the Valley’s top tech firms, other than a couple of notable exceptions like Padmasree Warrior of Cisco, I couldn’t find any women technology heads [this was before Meg Whitman's appointment at HP, or Ginny Rometty's promotion to chief executive of IBM – Ed].

The management team of Apple didn’t have a single woman on it. I learned that virtually all of Silicon Valley’s venture capital firms are male-dominated. There are some female marketing executives and human resource directors in these firms, but women venture capitalists are a rare commodity. Indeed, of the 89 VCs on the 2009 TheFunded list, only one was a woman.

To determine if the background or the motivation of women inhibits them from becoming entrepreneurs – as some of the people in Silicon Valley I spoke to were suggesting – our researchenlisted the help of the National Center for Women & Information Technology (NCWIT). The NCWIT team analysed datasets that we had gathered on the backgrounds of founders of 549 successful start-ups. The goal of this project was to determine the differences between successful men and women entrepreneurs.

That the analysis showed that there was virtually no difference in motivation between men and women entrepreneurs. Just like men, women started companies because they wanted to build wealth, capitalise on business ideas they had, liked the start-up company culture, and were tired of working for others and wanted to be their own boss.

Women entrepreneurs were as highly educated as their male counterparts, had the same early interest in starting their own business, and learned the same valuable lessons from their work experience and from prior successes and failures. The only real difference was that women put a higher value on their business partners and on their personal and professional networks.

This begged the question: are women less competent as entrepreneurs than men? Are they not cut out for the rough and tough world of entrepreneurship? Or do they just want to have babies, asposts on TechCrunch have claimed? Quite to the contrary. An analysis performed by Cindy Padnos, managing director of Illuminate Ventures, showed that women are more capital-efficient than men, and venture-backed companies run by a woman have annual revenues 12 per cent higher ,and use an average of one-third less committed capital, than the norm. It also showed that women-led, hi-tech start-ups have lower failure rates than those led by men, and organisations with the most women in top management positions achieve a 35 per cent higher return on equity and 34per cent higher total return to shareholders.

Could the education of women be the problem? Not according to data from the National Science Foundation. Girls now match boys in mathematical achievement. In the US, 140 women enrol in higher education for every 100 men. Women earn more than 50 per cent of all Bachelor’s and Master’s degrees, and nearly 50 per cent of all doctorates. Women’s participation in business and MBA programs has grown more than five-fold since the 1970s, and the increase in the number of engineering degrees granted to women grew almost tenfold.

Unable to explain the dearth of female entrepreneurs, we started interviewing women in Silicon Valley to learn what is holding them back. To date, we have spoken to about 300 “women in technology”. Shaherose Charania, founder of networking group Women 2.0, told me that the lack of women entrepreneurs is because women have had few role models and mentors. Additionally, ithas been harder for women to obtain funding than for men. Members of her group have told herstories of old-time VCs not giving women the time of day. They talked about VCs and angel investors interrupting pitches to ask questions and make comments like:

​“When are you planning to have kids?”
“Why isn’t he the CEO?”
“So you moved here because your husband lives here? What if he has to move for work one day? Will you go with him?”
“You should cut your hair and dress a bit more manly if you want to be CEO.”

Another female entrepreneur (and a family friend), Vinita Gupta, tells of her experience as chief executive of Digital Link. She bootstrapped her networking equipment manufacturing company to the point that it was named one of the 500 fastest-growing companies in 1997 by Inc. magazine. Soon after she started raising venture capital, Vinita learned that she was pregnant. VCs kept asking how she planned to handle the situation when her baby arrived. In a Bloomberg BusinessWeek article that I encouraged Vinita to write, she asked: “How many men, three weeks after their wife reports that she is pregnant, can tell you how much time they will spend with the baby so business is not adversely impacted?” Vinita was annoyed, but persisted. She obtained her funding after assuring VCs she would hire a nanny. Vinita says that this is the type of questioning that most other women that she mentors face. Some, obviously, are discouraged.

So Silicon Valley is certainly no Nirvana. Yet venture capitalists and the Valley’s mouthpieces take great offence when confronted on these subjects. I learned this the hard way by writing a piece for TechCrunch titled “Silicon Valley: You and Some of Your VCs have a Gender Problem”, in which I detailed the harsh statistics. The majority of venture capitalists I know appreciated my bringing this issue to the surface and acknowledged there was a problem. But the barrage of hateful emails and comments on online boards, and the angry messages on Twitter that followed from a small segment of the community, stunned me.

VC friends told me about comments their peers had made questioning if I was “trying to get laid” or whether I had some “other agenda”. A handful of prominent VCs tweeted that they “disagree with (all) TC [TechCrunch] posts I’ve ever read by Vivek Wadhwa” and “his posts are garbage”.

More recently, I wrote a piece for the Washington Post titled “Five myths about entrepreneurs”. One of the myths I tried to dispel was that women couldn’t cut it in the tech world. New Atlantic Ventures founder and managing partner, John Backus, wrote a post for leading VC blog PEhub titled “Worst Analysis of Entrepreneurship and VCs EVER!”. He wrote:

There are few women entrepreneurs because VCs insult them (I kid you not.) This is THE MOST OFFENSIVE tripe I have ever read about VCs, and the author should be ashamed of himself for claiming this … As a VC who has backed several VERY successful women entrepreneurs, I have never asked any question like this, nor would I even consider it. Might he have come across an anecdote and confused it with research? Perhaps. Or perhaps he just made it up. For me, I am offended.

This was the most popular article on the PEhub website for more than 12 days running.

I recognised a related but more complex problem when one of my Duke students, a black woman, Viva Leigh Miller, approached me in March 2010 to help her find a job in Silicon Valley. I have taught more than 300 exceptionally clever students at the Duke Masters of Engineering Management programme and Viva was of the best. With a high GPA, many awards, and degrees in science and mathematics from top US colleges, I couldn’t imagine Viva would have any difficulty gaining multiple job offers. I was sure she would one day become a hotshot chief executive. But Viva couldn’t find a job in the Valley, despite introductions that I gave her to leading venture capitalists. I never understood why. During my tech days, I would have hired Viva in a heartbeat. She had the determination, drive, and education that all tech companies look for.

Discussing the dearth of blacks is an even bigger taboo than discussing women, as I learned by having a frank discussion with black entrepreneurs that was recorded by CNN and aired in a documentary titled “Black in America”. During the interview, I relayed my own experience inbuilding a tech company in the Deep South of the US. When I was looking for funding for my second start-up, local VCs wouldn’t even return my phone calls, despite the fact I had previously helped build a public company with $120m in revenue. In Silicon Valley, an entrepreneur with credentials like mine would have had dozens of VCs knocking on his door. But the advice other successful Indians gave me was to have “a white guy” on my management team to deal with the VCs. So that’s exactly what I did. I went on to raise millions in venture capital.

After a pre-screening of the CNN documentary, a heated discussion broke out on Twitter about the documentary and my comments. TechCrunch founder Mike Arrington Tweeted “the indian guy is viveck. he always plays the victim card”. When I confronted him about these comments, Arrington retorted “@wadhwa you got rich starting companies in America. I don’t understand why you then complain you weren’t given a chance”. Arrington insisted that, “There’s negative bias in SV. VCs are dying to invest in women & minorities just so they don’t have conversations like this”.

According to US census bureau data, in 2008, blacks and Hispanics constituted only 1.5 per cent and 4.7 per cent respectively of the Valley’s tech population – well below national tech population averages of 7.1 per cent and 5.3 per cent. You find very few blacks in positions of leadership in Silicon Valley companies. When you speak to the few that have obtained funding in Silicon Valley or achieved coverage on its tech blogs, you hear even worse stories than you do from the women. Silicon Valley is indeed a meritocracy for those that surmount the obstacles. But for those who don’t, it is an elite, private club.

In the documentary, Arrington said that he didn’t know any black entrepreneurs in Silicon Valley, and he once put one on stage at a TechCrunch event, but he would have done the same even if the black entrepreneur was running a “clown show”. These are blunt comments, and exemplify the dark side of Silicon Valley. The elite group of power brokers represented by Arrington are totally ignorant about the hurdles faced by minority groups. While venture capitalists routinely tout their “pattern recognition” abilities – they say they know a successful entrepreneur when they see one –the patterns they see are only the same as they have seen in the past who achieved success: typically young white males.

Can these problems be overcome, and can Silicon Valley truly become a meritocracy for all? Yes, without doubt. Neither Arrington nor the members of his elite club are deliberately trying to exclude any group. They are simply ignorant. To fix the problem of women, blacks and minorities being left out, these groups need to do what Indians did — acknowledge there is a problem and make a concerted effort to fix it — by pulling along each other. They need to mentor those behind them and help the to rise above the hurdles.