Do you need rich parents to be a successful entrepreneur?

There is a deep-rooted belief that those who start highly successful businesses have succeeded solely through wisdom, ingenuity, and an innate entrepreneurial spirit destined to become millionaires.

One claim making the rounds on Twitter is that In case of airdrop As one of the “Third World Countries with $5 in Your Pocket”, he will be a millionaire in a few years.

However, research shows how much family background can help you achieve success. According to a paper by economists Ross Levine and Jonah Rubinstein, entrepreneurs “tend to be male, white, well-educated, high-income, and from families with his two parents.” I understand.

The story of Microsoft’s rise to dominance begins with Bill Gates and Paul Allen humbly working in a garage. It is now well known in Silicon Valley. But while Gates wasn’t super rich, he grew up comfortably in the upper middle class, said Oana Tocoian, an economics lecturer at the University of California, San Diego.

His family ties have been critical to Microsoft’s success, she said.

According to CNBC, IBM turned to Microsoft for the project when it was looking for a software maker to develop an operating system for its PCs. IBM’s chairman John Opel knew Gates’ mother, Mary Gates, through a non-profit organization Gates and Gates both serve on the board of directors, so Microsoft came to his IBM’s attention.

Even if Gates had no direct relationship with IBM, family wealth was important in gaining access to credit, Tocoian said, because loan access was conditional on having collateral. Stated.

Trying to be successful as an entrepreneur is also inherently risky, and without family wealth there is no safety net to fall back on.

About a third of new businesses fail by the second year, and half by the fifth year, according to John Deary, founder and president of the American Entrepreneurship Center.

Deary noted that the capital requirements to start a new business are sometimes less than they were five to ten years ago. for office space. However, he explained that there is still a lag between starting a business and actually starting to make a profit.

“Most start-up businesses suffer losses over several years,” he said. “If you have the wealth of your generation, you don’t have to work another job to pay the bills.”

But Dearie said it would be very lucrative if successful. “So there’s a very important relationship that goes both ways,” he said. “Generational Wealth, Supporting Entrepreneurship, Entrepreneurship Generating Generational Wealth”

Tocoian said white men generally have more assets to begin with. This means that women and people of color are particularly disadvantaged.

According to a Harvard Business Review article, 17% of black women are looking to start or run a new business, but only 3% run “mature businesses.” And 29% of black female entrepreneurs live in households with incomes above her $75,000, compared to 52% of white males, according to data from the Global Entrepreneurship Monitor.

Gabe Horwitz, senior vice president of economic programs at Thirdway, said:

Last year, Third Way partnered with the National Urban League to launch a partnership called the Alliance for Entrepreneurial Equity. The partnership aims to change federal policy to help more women and people of color start and scale businesses, Horwitz said. Next year, AEE will try to find the “variety of policy instruments” needed to improve equity. For example, Horwitz said more government contracts could be awarded to disadvantaged companies.

According to Horwitz, data shows that white entrepreneurs start with about $107,000 in working capital, while black entrepreneurs can start with as little as $35,000.

“The cost of just getting started is higher for both women and people of color,” Horwitz said.

Horwitz said companies sometimes struggle to raise money because they don’t have relationships with lenders. He noted that businesses that have relationships with lenders were able to get faster help from the Paycheck Protection Program, which aims to provide relief to businesses at the start of the pandemic. In areas with a predominantly Latino population, there may be few lenders.

“You don’t necessarily need a family fortune to start a business. There are plenty of entrepreneurs who can go out and start and grow their business without it,” Horwitz said. “But this is a big thing, but having it at the beginning of your business gives you a huge advantage over others.”

Dearie believes America’s expanding entrepreneurship laws are one way to diversify the sector. The provision will raise the venture capital fund cap from his $10 million to his $50 million, allowing his fund manager to invest in more entrepreneurs and increasing the number of people he can invest in the fund. will be

There are also widespread economic factors that have made it even harder for entrepreneurs to succeed over the years.

“Market competition is becoming more difficult for the little guy as consolidation continues,” Tocoian said. “So there are fewer and fewer opportunities for small businesses to compete.”

According to Tokoian, students 10 to 15 years ago were more likely to say they were more interested in starting a new business than they are today. Even if you have the funds, you should consider student loans. For example, some of them are now looking to investment banking. That’s because they feel most rewarded, she said.

“As a society, we believe in freedom to pursue the American Dream,” Tokoian said. “The degree to which young people’s life opportunities are dependent on family resources is profoundly un-American.”