Diversity. It’s all the craze. Especially in the startup scene where VCs tweet fist-pump emojis alongside female founder articles and job descriptions are awash with LGBTQ+ policies.
London’s startup scene is woke. So woke. Of course.
But we’re terribly behind in one area of diversity that nobody is even talking about: socio-economic diversity. The economic realities and expectations of founding a startup puts founders from working class backgrounds at a significant disadvantage.
And these disadvantages are particularly acute for first time founders in the early stages of their journeys. Don’t believe me? Keep reading.
Low to no salary
Firstly, there’s the “low to no salary” conundrum. Founders often go months or years without paying themselves a salary. And that’s a scary thought. For obvious reasons, access to personal wealth or financial support from family makes the big leap much less daunting.
But it runs deeper. Without a war chest in place, external investors might think you’re too risky.
Recently, a friend and early stage founder recounted how an angel investor interrupted his pitch to ask about his personal savings. He explained that he had a six month savings buffer. The investor abruptly replied, “You’ll need two years of savings or you’ll rush back to a job too quickly. This won’t work.”
I wasn’t surprised. I had experienced these awkward conversations myself. To many investors, early-stage founders without ample savings are uninvestable. If you’re from a privileged background, that’s not an issue.
Okay, you have plenty of savings and won’t be joining a management consultancy anytime soon. Here comes the bigger hurdle — the friends and family round.
Friends and family
Very few founders have enough early traction to raise money from institutional investors. Early on, founders are expected to raise money from friends and family. That’s just how it works.
When asking for money, start with the people you know. It makes sense.
“Cheques from family are becoming a ‘need to have’ as opposed to a ‘nice to have’.”
But I’m seeing a trend where cheques from family are becoming a “need to have” as opposed to a “nice to have”. This creates an impossible barrier for people who aren’t from affluent backgrounds and need to raise directly from angels or pre-seed funds.
During my first ever fundraise, an angel asked how much had been committed from my immediate circles. £30,000, I politely said. His reply was shocking: “That’s not much… I want to see you put £500,000 from your own pocket, friends and family — and then I’d tag along.”
I was a rookie at the time but learned from others that these snide comments were commonplace, a rite of passage for first time founders without cash flowing in from the bank of mum and dad.
To be clear, not every angel will have these expectations. But in an investor landscape known for its herd mentality, a few friendly cheques are guaranteed to make any pitch sound more compelling.
Unfortunately, even crowdfunding platforms dance to the same tune. Albeit, indirectly. They require founders to gather pre-commitments to show the crowd that your proposition is garnering interest right from the beginning, which in turn makes your campaign more desirable. Most platforms won’t onboard your startup if you can’t show 25% to 40% in pre-commitments.
“Most crowdfunding platforms won’t onboard your startup if you can’t show 25% to 40% in pre-commitments.”
A friend of mine, from a modest background, was crowdfunding and an angel who was acting as lead investor pulled out abruptly, leaving her with £0 in pre-commitments and a lonely crowdfunding page. She got an angry call from an account manager urging her to pinch family for money and that her parents should take a loan if they didn’t have any spare savings. The nerve.
Even with crowdfunding platforms, the so-called democratisers of startup financing, it’s an uphill battle if you don’t have affluent friends and family who can effortlessly write a few cheques.
For clarity, I’m not promoting class warfare between founders. Definitely not. But I think the startup ecosystem needs to address socio-economic diversity with the same conviction that it’s used to increase diversity across race, sexual orientation and gender.
By lowering these barriers, we can increase the supply of ambitious founders, ideas and startups rubbing against each other, growing, collaborating, and competing fiercely — the perfect cocktail for greater innovation and economic growth. Everyone stands to win here, from local investors to policymakers.
So please, pretty please, let’s start talking about socio-economic diversity. It’s important.