299. The Decline of Entrepreneurship in America, Systemic Inequity in Supporting Small Businesses, and the “Capital vs. Labor” Debate (Seth Levine & Elizabeth MacBride)

Seth Levine & Elizabeth MacBride of The New Builders joins Nick to discuss The Decline of Entrepreneurship in America, Systemic Inequity in Supporting Small Businesses, and the “Capital vs. Labor” Debate. In this episode we cover:

  • Why did you write the book?
  • I’d actually like to start w/ Chapter 6, which is a history of entrepreneurship in the US… we can’t really do it justice in the interview but can you give us an overview of the history and where we are at today?
  • You cover that entrepreneurship has been declining in the US for the past 40 years and more significantly within the past 15. What are some of the big factors that have led to that decline?
  • Why are entrepreneurship and new business creation so important for the future of our country and society?
  • How does the Silicon Valley version of entrepreneurship differ from the reality of entrepreneurship?
  • What does the real profile of entrepreneurship look like vs. what we see in the data on the tech / venture-funded part of entrepreneurship?
  • What can Main Street entrepreneurs learn from the Silicon Valley model of entrepreneurship?
  • You did a lot of research and pulled together data sets/stats for the book — what were some of the most surprising findings from the data?
  • Can you define the ‘capital vs. labor’ debate for us and give us your stance on that debate?
  • Is this book a call-to-action… are you trying to encourage more broad-based entrepreneurship?
  • Seth, how do you reconcile your interests and recommendations from the book with your career which is geared toward funding a very small percentage of founders that are focused on building multi-billion dollar outcomes?
  • You address some issues that are systemic to our country — government policies, economic system, etc. — How big of a role do you think politics have in shaping entrepreneurship for the future?
  • What advice or final thoughts would you like to share w/ listeners?

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Transcribed with AI:

Elizabeth McBride and Seth Levine join us today from Alexandria, Virginia and Boulder, Colorado. Elizabeth is an award winning business journalist whose work has been showcased on CNBC, BBC Capital, The Washington Post. And she also writes for Stanford GSB. And Seth is Managing Director and Co Founder of Foundry Group, one of the leading early stage venture capital firms in the country. In their new book, “The New Builder: Face to Face With the True Future of Business”, they discuss the true future of business and many misconceptions. Seth and Elizabeth, welcome to the show.
Thank you. Thanks for having us.
Yeah, it’s a pleasure. Hi, Seth. Good to see you again. Um, so let’s start with some quick backgrounds. Maybe we’ll start with Elizabeth, can you talk us through, you know, your your two minute background and your path to what you do today?
My two minute? Well, it’s a that’s a simple question, because I became a journalist right out of college, and I’m one of the few people who is still doing it many years later. But so that’s basically the bottom line. But I started out, and there are elements of the new builders that reflect some of my early journey. I started out in newspapers, at a local newspaper in Lancaster, Pennsylvania, where I was both the business and the cops writer, and then eventually kind of transitioned to being the managing editor of Crain’s New York, in New York City. So I was there during 911, which was, you know, transformative moment for so many people, myself included. And after that, I kind of opened my my eyes up and became more of an international and financial journalist. And that’s the path I’ve been following now. Which led me in turn to entrepreneurship to the way that finance and entrepreneurship intersect. And that time that said, and that’s how we can write the book.
Yeah. Tell me more. How did you link up with Seth?
Okay, this is one of our favorite stories, because it’s so because we both have journeys that are not typical, I think in our respective professions. So I was working in Jerusalem, for a part of the UN that was helping Palestinian, the Palestinian economy. And part of that was meeting and interviewing Palestinian entrepreneurs. And so I was in Ramallah, and one of the Palestinian entrepreneurs mentioned that he was being mentored by a venture capitals from the United States who was investing in Palestinian entrepreneurs. And he said, hey, you’ve got to meet this guy. This is unusual. And so I remembered Seth, and looked him up. Some years later, a couple years later, and we fell into a relationship. And then we came up with the idea to write the book. Wonderful.
Well, coincidentally, I am interviewing a Jerusalem based investor today, later. But Seth, you know, we’ve had many of your colleagues here on the show over the past seven years or so. But we have never had the pleasure of you having on having you on. So I’d love to hear a bit about your path to Foundry and then you know, writing the book with Elizabeth.
Yeah, well, I’m glad it worked out for me to join your neck. I appreciate your having us on to talk about the book. I bounced around a bit more than Elizabeth did. I started my career in banking in New York is just not a typical for at least my generation of venture capitalists. I moved to Colorado in 96 to work for emerging telecom company competitive telecom company. And I did a bunch of things for them, including corporate development and and lots of m&a and the fact that in just before the sort of 2000 timeframe, 999, I jumped ship to go to what was a restart of another data comms telecom company. And my boss had left the first company and he brought me with him. I ended up actually being the corporate finance half of the CFO role there. I split the CFO functions with with our chief accountant, essentially, that company ended up it was it was actually kind of interesting. Enron was one of our investors. I some for some other story. I can talk about sitting across the table from Jeff Jeff Skilling and negotiating fiber agreements and things like that
some of us will know what
yeah, I might be good on dating myself there with that. But in any event, it was it was it was interesting. And it was an interesting time. Our other big investor was ended up being Texas Pacific group. And so I got to spend some time with David Bonderman, who was the founder there and it was anyway was interesting. In 2000, that company went public. I led that IPO we raised money from Microsoft sec and Lucent Technologies alongside that IPO and was very high flying for a very short period of time. The Internet bubble burst, we actually went went public two days before the NASDAQ hit a tie in 2000. And and when the bubble burst, that that business decided to focus on just sort of one very small segment of its business that’s kind of its future and so they put the wrap Have the business under me and I ended up managing was about a $55 million p&l is probably, I don’t know, 250 people, maybe something like that. And I ran that business for a year, kind of worked out some of the issues that they were having with cash flow and then eventually sold it sold in a couple different pieces. And then in 2001, they made me an offer to stay. I wasn’t particularly interested in where the business was heading. And I met Brad Feld, who will is the name is probably pretty familiar to many of your listeners, and least wants. Yeah, absolutely. I mean, it’s an amazing guy. And you know, one of my closest friends now, we’ve been been together for 2020 years now. And in any event, I started working with with Brad at what was then called SoftBank venture capital, or stay for Brad, I worked for Brad at SoftBank venture capital, eventually, that became Mobius venture capital. And in 2005, I think it was or so they were going to go raise another fund. And I sat down with Brad at some point and just said, Hey, I’m not quitting today. But I’m not going to stay for the next fund. I was. At that point, I was hired as an associate I, you know, was a very junior very junior partner at the time that we had this conversation, I just said that I’m not going to get to do anything on my own here meaningful. I’m going to start looking around for something else. And he said to me, hey, actually, the fundraising is not going as well as we had hoped. And I’m kind of thinking I should, you know, do something else. What do you think about starting a firm together, we eventually brought out or invited out Jason Mendelssohn. And Ryan McIntyre, who we were our colleagues at Mobius. They were in the Palo Alto office, Brad and I were in Colorado already. And and that’s what became foundry they those guys moved out in 2006. And 2007, we tried to raise our fund, it was extraordinarily challenging times, there were no, or very few emerging managers. At that moment. It wasn’t kind of like the world was today. And, but eventually, we got that fundraise, and you know, fast forward now, whatever, it’s been 14 years, and we’re, we’ve got three bill over $3 billion under management, we have hundreds of portfolio companies, we invest in other venture funds. So it’s, it’s been an interesting, interesting journey.
Well, at some point along the way, we’re gonna have to do a deep dive on the founding of foundry, because we’ve, we’ve spoken with, I think, Jacqueline and lindo and Brad and, and Seth and others now, but would be great to hear more about that story. I want to talk a bit about the book. So you know, what was the origin of the book, you know, why? Why did you guys decide to write it?
So it began as a light hearted believe or not a light hearted exercise, Seth and I were sitting in his office in Boulder, I was I was doing some work for a company in Denver. I’ve always kind of financed my journalism habit by doing work for companies. And so I was on the founding team of wealthfront, and was working with a company in Denver, whose name escapes me right now, consulting for them on their communications and product strategy. Anyway, so I was in Boulder and dropped into csef. And we kind of just came up with his idea, like out of thin air and said, Why don’t we look at entrepreneurs in the middle of the United States, and just see what’s going on there. Especially with our entrepreneurs on Main Street, we wanted to get at kind of the diversity of the entrepreneurial economy, both of us have a passion for social justice. And we thought, you know, there’s a lot of women, people of color starting businesses like what’s going on in that world. And so we started to look into it. And the research led us to the kind of inescapable conclusion, which was a surprise to us, that entrepreneurship in the United States is dying. It’s really been on an decline for the past 40 years, when you look at the world of entrepreneurship broadly. And so we were kind of shaken up by that, and took it to some of our peers in the worlds of journalism and venture capital. And let’s pick up the story here, because it was kind of shot tracking to us, but they didn’t really believe us. And Seth, you take it from here.
Yeah. I mean, the punchline is that we had sort of irrefutable data then that entrepreneurship was on the decline and the people that we people in our worlds didn’t believe it, because it because that’s what we see. Right. That’s the world of venture capital. Yeah. No, not at all. And by the way, this was a couple of years ago, right? I mean, it’s even more seven in 2018 was a bumper year first year that that inflows into venture backed companies exceeded those of the the.com bubble, right. So this is and this just slightly predates the those data being available. And and of course, as we know, now 2020 and through at least the first quarter of 2021, is incredibly robust and active, I have no reason to believe those numbers won’t continue through the rest of this year. That’s a really small segment of our economy. And I think one of the other things that we, we talked about in the book, one of the other key themes is that our view of entrepreneur has been overtaken by Silicon Valley right by people like me and my colleagues who have usurped that term. It used to mean really anyone starting a small business right way, way back in the day, it might be a farrier, a blacksmith or a shopkeeper, right? More more recently, it could be really anyone opening up a consulting business or a cleaning business, whatever it might be a shop on Main Street. But instead, it’s been been somewhat usurped. That was, and we can talk about that later. I mean, that was a very deliberate attempt by Reagan, actually, back in the 80s. To use entrepreneurship as a tool of diplomacy. It’s contrasted against communism, and it was very used it very effectively with the byproduct was that we narrowed this view. And as part of that narrowing, because we really have now equate entrepreneurship, with Silicon Valley style, entrepreneurship, tech entrepreneurship, we’ve come to that only value those companies that can grow really large right and grow large grow quick, right? I mean, we’ve in the valley, we’re right, I say the valley, I mean, in tech entrepreneurship, right? Obviously, I’m, I’m in Boulder, there’s lots of entrepreneurship, on the tech variety going going taking place all over the country, which which is great, right? I mean, I think we’ve been big proponents of that foundry but, but in any event, it’s just a small slice of the actual world, only about 1% of companies take money from venture capital. And so it’s, it takes up a lot of mindshare, it’s a lot of money, it’s an important segment of our economy, those companies tend to build products and services that benefit the broader economy as well, right? If you’re a restaurant, you’re running on toast, or you’re using Open Table or something like that, it’s not that those companies are important and impactful in the in the broader economy. It’s just, it’s still only about 1% of companies. And so that’s really important to understand. And then, you know, potentially related to that is this idea that we discovered, which is then became the really the basis of the books, why we call it the new builders, the people that are starting businesses today are just very different than they were 2540 years ago, specifically women, people of color immigrants, as they always have, are starting businesses at a much faster clip than than white males. In fact, Elizabeth just put up some some research that she parsed through that that suggests that white males are actually the minority of business owners now. And so those are the sort of the key themes that we we ended up basing the book out of. And we really would, as Elizabeth described, we really thought this was going to be kind of a coffee table style book that kind of talked about some interesting people starting businesses that were maybe a little bit outside of the mainstream business press I but instead, we we ended up with this much more important, we think narrative about what’s actually taking shape and America’s entrepreneurial landscape.
It’s amazing, you know, we’ve, we’ve hosted the show, and it’s largely focused on venture capital and tech companies, and you hear the at times dismissive or pejorative lifestyle business or, you know, small business, and it’s kind of amazing how much of the economy and how important that part of entrepreneurship is, and how little, maybe airtime it gets, because you don’t see the size and scale of dollars, or you don’t see, you know, the headlines in TechCrunch. You know, it’s, there’s also you guys talk about this in the book, but there’s this love affair with with big corporate america and big tech. And often that’s an opposition to these upstarts. You know, whether they’re small businesses or tech companies, you know, in certain ways, the big tech, or big tech in general is kind of anti entrepreneur. And we’ve seen that in some of the lobbying in Washington, you know, the, the Facebook’s of the world, they might not want to see the next social network capture consumer attention, you know, so I guess my question for you is, how do we support the little guy or or woman building a real business that creates jobs, it creates real value for the economy, when, you know, most people’s collective definition of success may be the Fang companies, or other companies that at times, maybe not in support of small business creation?
Well, I think what the conclusion we came to is not that people don’t want to start businesses. In fact, I think more people today want to start businesses, and that’s reflected in the number of people. There are 16 million people in the entrepreneurial economy, right all around us doing, you know, driving for Lyft or doing this or that doing tiny businesses, they’re solopreneurs. And a lot of them are not getting any attention at all. So there’s tons and tons of entrepreneurial energy in the economy. What’s breaking down is the is the support structure that used to move entrepreneurial people to business ownership. So that’s a key. Missing Link. Right?
It was that support structure. Elizabeth,
I think in the I think or say around the middle of the 20th century, we had a beautiful I mean, people have described it to me, it’s kind of like a crown jewel. It was a financial infrastructure was community banks. The SBA played an important role in the SPS and growing under the Biden administration, but community Thanks. And then I would you know, the media is also part of that infrastructure, right? If you looked at the headlines of in newspapers and community newspapers in the middle of the century, the narrative was all about the American dream, immigrants building businesses, right. So there were lots of parts of that infrastructure that have really broken down. And we ended up writing extensively about the financial system. Maybe one of the Starks that is next is that in the past, since the early 1990s, the number of banks has declined from 14,000 to 5000. And most of that decline is in the community banking system. So that’s really I mean, if we’re going to jumpstart this, government funding is important and helpful. But really, that kind of financial infrastructure, we argue in the book is really important to Is
it the financing component, that’s been the biggest change in in the biggest drop? That’s no longer supporting broad based entrepreneurship?
Well, you really, I mean, so I’ll just answer that quickly. And then said, I’ve been I just think that I’m a writer. So I think the narrative is always the most important thing. I think that’s the biggest and most important shift to recognize. But beyond that, yes, I would say that that kind of finance, infrastructure inside will jump in and say, it’s coupled with education and emotional support.
I mean, if you think about, you know, the middle of the 20th century, for example, and and, you know, organizations that that still exist, but that we don’t think of them in the same terms. I’m thinking like, Kiwanis or Rotary Club and things like that. I mean, they were really strong local chambers of commerce, where people got together and they supported each other, right. And business was more homogenous, in part because it was mostly white males who were starting businesses. And so they got together in these social clubs, and they helped each other out, they did business together, they gave each other advice, etc. Part of that is that they were also better able and better equipped to finance each other’s businesses or their own business, right. And so one of things that’s happened, we talked about this a bunch in the book, access to capital for people of color, and women is less than that, at that access for white males, not just venture money, right. And we’ve you know, I’m sure you’ve done plenty of segments that highlight some of the challenges venture has had with, with investing in diverse founders, hopefully, that’s getting at least a little bit better. But I’m talking more broadly, in our economy. There are a bunch of studies that we started to talk about access to bank financing, which is much more challenged for women and people of color, they have higher hurdles, that higher interest rates, but also just the overall wealth of, of families of color, black families, Latino families is 1/10 and 1/7, the wealth of the average white family so you, you know, you take all of these factors, you take sort of the lessening of the social safety net, the rise of big business, we will describe that in the book as well, right? It’s not the book is not anti big business at all. It talks about a balance between big and small, but you refer to this in your question earlier, take all of those factors together, and it’s decreased our entrepreneurial dynamism. And it’s I mean, that is those are that’s objective, right like that. That’s not our opinion. That’s actually what’s happening in our economy. Some people might believe that that’s good, right? We actually cited a book that’s called It’s beautiful, because we it was well written. And it was an interesting contrast to some of the arguments we were making. And we wanted to give it airtime. But you know, there are people, the authors there to two professors, who suggest that, you know, that’s fine, right, big businesses, taking care of care of things you can get anything you want from Amazon in far flung flung places, right. And that that isn’t that positive for certain aspects of our economy, what it takes away from other aspects of our economy. And so, you know, we need to just consider that small businesses declining 40% of GDP and 50% of employment in the US is driven by small business, and what are the repercussions of, of that this change in terms of the the balance that we’re talking about, and that’s what we really write about in the book is, is a bit of a call to action. And, you know, to the original point that Elizabeth made, as we were first talking about kind of what the key key theme is key takeaways of the book, we’re starting with just people recognize that it’s happening, right. And then, as we talked about, most people didn’t believe in the decline in entrepreneurship that we were seeing. Interestingly, there have been a few journalists who have who’ve been writing about it for a bit. But it’s just not getting airtime. People don’t want to hear about that. Right. I want to hear about the next Silicon Valley darling that you know, created a billionaire. And again, there’s nothing wrong with that. That’s, I mean, that’s my day job. I work with people like that all the time. And I’m proud of the work that they’ve done, and then we’ve done but that’s not the entire economy. That’s just a segment of our economy.
It’s it’s an very interesting topic, but I’m not sure it’s click Beatty enough or interesting and optimistic enough. Maybe you know, TechCrunch is wonderful, but you know, they want to write about massive fundraising rounds and crazy growth and probably don’t want to do a big story on declining Entrepreneurship would be my
guess. We and we pitched it to them. Right. So they and they had me on their Twitter spaces. Right. And we and that was great. We had hundreds of people join in on this Twitter discussion, I had a whole bunch of follow up from that. I mean, it really seemed to resonate. But I couldn’t, I’m still gonna try, but I couldn’t get him to write about the book itself. Right. So that was, again, I appreciate the support that they gave us by having me on their spaces. But but but I, I totally agree. It’s not quite as, you know, people like optimistic stories, right? And so maybe we need to figure out a different hook there.
Maybe a missed opportunity? Well, you know, you talked to you both talked a bit about the homogeneity of entrepreneurship, historically, due to a lot of factors. But I’m curious, you know, what is the real profile of entrepreneurship and the real face of entrepreneurship look like, versus the standard sort of white male, young technical idea that I think a lot of folks have entrepreneurship?
Well, I’m, you know, before the so one over all issue is that there’s not a whole lot of good data about the Small Business economy like this is a perpetual problem. But the data we have suggests there before the pandemic, there are about 24 million businesses in the United States, in 2020, maybe a quarter of them went under, which is a shocking number, right. And since and late in 2020, there’s a huge surge of business starts. But what we believe is, as, again, that’s reflecting people want to be entrepreneurial, but in fact, are going to have a very hard time building anything that supports and sustains themselves, or has the potential to grow. And if you look within that universe, we’re talking maybe about 20 million businesses now. The majority of them are solopreneurs. In other words, they’re formal enough to be recognized. So I think that’s about 80%. Of all small businesses are one person shops, and they’re businesses that do owe taxes to the government. So they’re not, they’re not the Lyft drivers, right? They are, they have something more formal than that. And that’s the vast majority of businesses, the number of VC funded startups is only a couple of 100,000 in the whole country. And if you look at the stats of the people who are starting them, I’ll just throw a few out, immigrants are twice as likely as native born Americans to start businesses. The fastest growing group of entrepreneurs today are black women. And women of all colors have been starting businesses at four times the rate of the rest of the population, for the past couple of decades. Wow.
That’s amazing. Yeah, amazing. Yeah. You know, I’m curious, you mentioned there’s a lot of data that doesn’t exist in this segment. But I know you did a lot of data research and you source a lot of data during the process, what were maybe some of the more surprising findings, you’re analyzing and in aggregating this data,
I think, when you look at the net number of new business starts annually, and you graph it out. And this, this goes to the fundamental thesis in the book, which is entrepreneurship is declining. And we need to be aware of that and take action to change it. It’s, it’s really fascinating to chart that out. And so when we actually looked at those data and saw the net number of businesses, so businesses started less businesses that that go out of business, right, because there’s a certain natural, we’re talking about it like a healthy forest, right, any healthy ecosystem has birth and death, because new ideas need to pop up. And, you know, businesses that have kind of run their course need to need to go up go out of business. But when you look at those data, it’s actually it’s actually incredibly striking to see that graph. And in fact, in just after the Great Recession, 2008 2009, there were several years when the net number of new businesses in the United States actually declined. There was a negative new business start net new business start rate, very surprising. And then related to that is if you look at the graph of the average age of a business, which kind of shows the same dynamic, the average age of a business is going up, it’s gone up actually substantially over the last 20 years. And that’s just reflective of fewer new businesses getting getting started, right of our business age, if you will, is so different than population data, right? You need new births and young people to kind of fill in as, you know, as the population ages. And we talk about, you know, for example, various countries in Europe that have aging populations as a negative thing, that’s the same thing is true for businesses, right, there needs to be this sort of constant rebirth and renewal. And we’re starting to lose that in ways that are really pernicious.
I’d say there’s one other thing that it may be surprising, particularly to your listeners, which is the role that the government played in the founding of Silicon Valley, which is not often recognized. And runs totally counter to this whole, like libertarian mindset that a lot of leaders in Silicon Valley will kind of adopt and make use of. But the fact is like in you know, Silicon Valley really grew out of the space race, right? When Sputnik was launched in the US poured so much money into research and development, and did it and the US government did it in a very smart way without a lot of strings attached. And that freedom really created kind of the petri dish where Silicon Valley grew up. And we’ve been running basically on those innovations for the past 50 years. So now the question is, and we kind of pose this in the book is, okay, if we did that before, what would happen if we figure out a way to invest in this generation of entrepreneurs, if we figure out what are the kinds of innovations we need, gear it to the women and people of color, because that’s you starting businesses? And do that with an open mind right now with a controlling? Oh, we’re going to give you, you know, 25 to $25,000. Grant, right, but more along the lines of what we do for white men? What if we have these blank checklists and say, hey, you’ve got a great idea. Go for it. What would the world look like?
Yeah, it’s a great question. And, you know, I’m curious, Seth, you know, how do you reconcile sort of your interests and your recommendations from the book, you know, with your career, which is largely geared toward funding a very small percentage of entrepreneurs that are focused on building multibillion dollar outcomes?
Yeah, well, I mean, I’m a capitalist in Boulder, Colorado. So I live in, you know, in a world of dissonance in some in some cases, but no, I think it’s a very fair question, Nick. And I think, you know, there’s nothing wrong with the venture model. And I, you know, I don’t believe that we were critical of venture in the book in the sense that we were not saying, venture is bad. Now, venture does need to diversify significantly. And I, you know, I hope I’ve not done as much as I should. If I look back over the 20 years, I’ve been a venture capitalist, but I hope over the last five, that if when I pick up a shorter period of time that I’ve, I’ve started to kind of wake up to that. And I hope that on the leading edge of pushing for this kind of change, including significant investments that I would, that I that my wife and I made Perth personally, but also, that we’ve made through founder group, particularly now that our focus tends to be more on fund investing on on investing in funds with diverse, diverse GPS. So I hope that that’s at least a start to some of the needed change that happens in venture capital. But that said that, that we’re still funding that 1% of businesses, right, whether that founder is female or a person of color, there’s we still fund technology businesses that grow quickly, because that’s the financial model. And I think what I’ve been really interested over the last couple of years, is sort of like one of my side jobs, right, as Elizabeth described my interest in Palestine, for example, in the Middle East as another side job of mine, which is really about kind of the power of entrepreneurship to lift communities up and, and be a beacon for, you know, for economic empowerment, if you will. But but it’s I’ve been thinking a lot and working with some funds that are working on different forms of capital models, because I believe what you know, whether that’s guava, which is a bank for black people, or a collab capital, which is a fund that just got raised in Atlanta, that’s using some different different forms of financing models, a couple of others similar to that CamelBak ventures and others that I’ve been involved with. But it is something that I’m trying to devote more time to, we have investors and we have a business model. And so I’ve you know, I’m limited in terms of what we can do within the foundry framework. But I also happen to be in an industry where I have some flexibility in terms of how and where I spend my time as long as my day jobs working well. And I’m getting that done. And so I’ve been trying to devote a little bit a little bit more time to that, because I believe the future of finance actually lies in this massive middle, if you will, right. 17% of businesses today take money from venture capitalists, sorry, from banks, one percentage we’ve we’ve mentioned before, take money from venture capitalists, both those numbers could increase but the vast majority of businesses don’t take money from formalized capital. At the moment, I think that’s where there’s a huge opportunity. In the finance system. I actually say that too, when I speak to business school classes or other entrepreneurial sort of groups, especially young people that if I was starting my career over, that’s where I would spend my time.
You know, question for, for both of you. Is there an element here is part of your recommendation related to education or exposure to young people to entrepreneurship. And the reason I ask is, you know, I’m probably a bad example, but I’m a white male. I was raised in the Midwest. And, you know, I had this upbringing that was very, very focused on, get a get a great corporate job, climb the ladder and it was, you know, highly structured and very direct. And it took me until the age of 32, to kind of break out of that, and to start my first real business. And you know, now I could never be happier. But I think, you know, there’s this element when you’re young, you’re taught sort of a view of the world. And you’re given these impressions of what success looks like, by the people that I’m teaching Gaiden. And parents, you and I, you know, I’m wondering if, if there’s a part of kind of, you know, your learnings or maybe your recommendations from from the book that have to do with the youth?
Yeah, I mean, I’ve thought so much about this over well, lifetime, right. As a woman, I’m one of the few women in financial journalism, I’m always avid I, whenever I’m always like, the the third, the 1/3, I’m so often in a group of two men and me. Or sometimes I’ll be like, the only woman at a table with like five or six men. So I can speak to it very much from the perspective of women and the research that’s been done around how you set girls aspirations, one of the so here’s a striking piece of research, that the number one factor in whether a girl becomes a doctor is whether there’s a woman doctor on her Street, when she’s growing up. Wow. which I just think is like so, you know, indicative of the fact that role models and women who have succeeded in business and as entrepreneurs, I hate to put the extra pressure on women, because I feel it myself, but right to be out there and to mentor and support girls, I think what I was gonna add is, besides this in the book, right, the chapter where we really focus on women entrepreneurs. One of the funny things that we looked at or found is a series of books called the baby sitters Club, which is an example of the kind of messages that women get, and it’s sometimes held up as a positive role model, right? You can be entrepreneurial, you can start your own babysitting firm, but that’s its core, it’s sort of a closed, you know, it’s a closed system. And it gives girls the ideas that the companies that they start will be small, will be service oriented, right, it already sets them off on this path that has less to do with ambition. And I will say the last thing I’ll say, is that when you were telling your story, what I was thinking is about research that was done out of Stanford, which looks at the way parents talk, and educators talk to boys and girls differently, where boys when they are growing up, are praised for their qualities, right? Oh, you’re open minded, you’re adventurous, you’re this, you’re that where girls are praised for what they do and their accomplishments. And I would just suggest that your ability to turn and pivot in your early 30s is probably rooted in a really strong sense of self identity. And that’s something that women don’t naturally get in our culture. Wow.
That’s shocking and disturbing, maybe to transition a bit, you know, we came across this topic of the capital versus labor debate. Can you can you tell the audience maybe what that that means? And then also kind of provide your stance on this debate?
Yeah, we just wrote an article for international economy that describes the this sort of what we believe now to be this false narrative between capital and labor. It used to be 40 or 50 years ago, you either were sort of in the capital class, meaning you were an investor, or you worked for a company, right. I mean, you were you were labor. And that’s become increasingly accurate. anachronistic, right? I mean, the truth is, Elizabeth referenced this earlier, 16 million people participated in the gig economy. Well, if I work in the gig economy, I’m both capital and labor, right? I mean, I’m, I’m participating kind of in both and we try in the article, we talk about sort of the uproar that happened when Dolly Parton repurposed her, her famous nine to five sahong for that Superbowl ad that was all about the gig economy, and why why it disturbed people. And I think what’s the reason it disturbed people in our view is because they like things to be in these clean buckets. And the truth is that those buckets have become kind of muddied. And actually one of these we talked about in the book as as an important catalyst for helping lift broader sectors of our economy up right and more people give more people more options to for example, Nick make the change in their life that you made in your early 30s is to create more capitalists right. And so, you know, we make we make a number of arguments around this but but, but the main one is that the more capitalists we have the more people that are participating in the capital class. However that might be and we come up with in the book, we talk about some suggestions for how that might might come about the better office in economy will be because we’ll have more investors, right, whether that’s people who are investing $100 through some sort of, you know, crowd rise or invest or something like that, or people that are, you know, investing in 529 plans, or we’ve got some proposals for baby bonds and things like that. All of those things create the ability for people to accumulate capital and then invested either in someone else’s business or in their own. And and we believe that that is incredibly important if we are to regain the entrepreneurial dynamism that’s gone missing. And, by the way, we’ve seen some evidence of this recently, right? I mean, the the COVID pandemic, has caused a lot of people to think about how they are going to make do right create, create, you know, economic stability for themselves. And and because of that, we’ve seen an uptick in new business license applications. And that’s perhaps a silver lining to the COVID pandemic. But but one of the one of the catalysts for that uptick has just simply been the relatively small from a business perspective, but but meaningful checks that have gone to individuals as part of the stimulus plan. There was an Upshot article a couple months ago, in the New York Times it asked this question, listen, I kind of laughed when we saw the article, because the the answer was incredibly obvious to the two of us. But you know, are these stimulus checks $1,000 that are coming to individuals causing these upticks in business stars? And the answer is, of course, they are right, people have lots of ideas for new businesses, they just don’t have the way to start the means to start it. And so why $1,000 may not seem like a lot of money. Again, in a business context, it was enough to get enough people kind of, you know, their start in in their business idea. And so imagine if we were to sort of put a real program around that, right, it’s sort of like the the stimulus checks, were like trying to get a glass of water in the rain, right? I mean, eventually you’ll do it. But it’s not the most efficient way. You know, what if we directed that, that money a little bit better, and we’re able to enable businesses to get a $10,000 or $25,000 loan, and we know that that’s effective, we’ve got we’ve had, we did it in Colorado, through the pandemic, through the Colorado gap fund. And the average loan size was $25,000. And it did a huge amount to help stabilize, and then eventually enable businesses to grow through and then hopefully, knock on wood coming out of the pandemic.
Got it, got it. Any other suggestions you have from a maybe political government or subsidy, even even for the audience with regards to you know, how to support, you know, more entrepreneurship and business creation.
We did a whole podcast on that. Lots of ideas, some of which I’m fortunate enough to be close to a number of, of senators and congresspeople. And so I’m, I’ve been been lobbying for some of some ideas that we have around how government can both support but also, in some cases, get out of the way of the, you know, finance systems, community banking system, things like that, to help create this better, better ability for small businesses to be funded. But I think there’s so we chapter 16, outlines a handout the handful of these in the book, so I’d encourage people to go buy the book, of course, and, and read it. But you know, the ideas range from ideas around creating more more capitalists, more people in the capital class to ways that the government can help match money, which we’ve seen to be very effective, especially at the state and local level around community loan funds and access to capital two ways the government can unregulated, the banking sector that got over regulated in 2009, with Dodd Frank, and real and prop up the community banking side of our banking world, to some thoughts around the CRA credits that larger banks are required with reinvest Community Reinvestment Act credits that larger banks are required to spend their time and money investing in, and how we might sort of modify that to some ideas around the opportunity zone, like concepts that relate to investing in community banks. And then of course, for people that are listening, there are lots of great platforms out there that they can just simply make direct investments in new builder businesses, through through essentially crowdfunding, right, that were enabled by the JOBS Act and the subsequent 2016 interpretation of the crowdfunding rules. Hmm,
lots of progress made there. Before we finished sort of the capital versus late labor, part of the discussion, you know, there’s, there’s, if we think about, like, stakeholder analysis, you know, I used to work at a company whose motto it was, or whose motto was we compete for shareholders. And I think over time, you know, I’ve I’ve worked with many startups, and I think largely speaking, a lot of mission statements have reframed around the customer Which is great. I think that’s very important stakeholder. But But I hear very few that are valuing the employee as high as these other stakeholders. You know, can we I guess the question is, can we as a capitalist nation, you know, evolved to put the employee up on similar pedestal as, as financial stakeholders and customers?
Wow, that’s it? Well, yeah. Can we evolve in that direction? Clearly, right, because I’m in the early 20th century saw the labor movement, right? It just the labor movement has declined in power a lot. Yeah, as the dynamics in the economy has shifted. So and if you look at what’s happened in this worker shortage, right, for the first time, kind of workers at that end of the wage scale are now making more than $15 an hour. So that’s a big shift. So it is happening, we are evolving in that direction. It took the pandemic, maybe for employees to realize how valuable they were and to stand up for more. I think the root of it, the change has to come, though, in something that happens at the top of the economy, right? It’s just so unhealthy. I, I’m a little bit more I think of less of a free market advocate than Seth is right. But I just regard it as so unhealthy that you’ve got Bob Iger, the CEO of Disney making so much money when his employees can afford their diabetes medicine. I mean, that’s just not okay. Right. And as a society, we have to kind of centralize ourselves around that idea, again, that we need to create a world that works for everybody, and not just the wealthy few.
It’s a really interesting framing of the question, Nick, and one of things we talk about in the book quite a bit is is this shift in thinking right from the Milton Friedman, shareholder primacy of the 1970s, to the Business Roundtable, declaring a couple years ago that actually stakeholders, right, which includes employees, although I think are often overlooked, an overlooked part of that concept of stakeholders, but with the idea that, that the Business Roundtable proposed that that businesses should actually exist for the benefit of all stakeholders, and, you know, we see the rise of the B Corp movement and other things that suggest that companies at least are starting to think about other constituents. Now, I don’t, the data don’t suggest that the signatories to the Business Roundtable letter relating to stakeholder primacy over over shareholder primacy are actually changing their actions in meaningful ways. And I think a great way I really haven’t thought about this, I think it’s a great way to think about it is how do these companies treat their employees? Right, Elizabeth point about Bob Iger and you know, yet employees who can’t can’t afford their their health coverage and their diabetes medicine. And so that might be a good lens test, or litmus test to sort of think about, Hey, if you’re talking, if you’re talking stakeholders, do you? How do you treat your employees? Because that’s, you know, you think about sort of the stakeholders of the business. People often think about customers, suppliers, and of course, shareholders, but but lost in that occasionally, or often, I guess, is, is what what people do what what companies do for their employees? 100%?
I think you should ask that question. When you have venture capitalists on, you should ask that question. So when you look at companies in your portfolio, do you pay attention to how they’re treating their employees? So you you helped change the diamond?
Well, that’s why we’re here, Elizabeth. And to be honest, I think one of my observations, you know, after being in the VC world now, for seven ish, eight ish years, you know, there’s a, there’s a base level of compensation and financial requirements to make sure that, you know, people are fairly compensated and can live, you know, above a certain economic level, but I find largely speaking that humans are irrational. And it’s not really just about financial incentives. Right. As you guys talk about culture and how you’re treating your employees, that tends to be a much bigger factor in happiness and level of engagement in what people are working on. And I see it every day with tech companies. Because, you know, we, I mean, we have 35 portfolio companies, and my goodness, these founders and employees are often working like dogs. And, you know, they’re not being paid what they could if they went to work in big corporate or big tech, for that matter. I just saw Junior dev last week, a junior dev at one of our companies leave, you know, he was paying being paid low 100,000 which is still, you know, a great compensation like 125,000 but he left to go to work for a Fang company because he was offered 400,000 a year with a $400,000 sign. Bonus, which is incredible, incredible money I can’t even imagine for a junior Dev. Now,
you know what I’m sure you get the advice for your portfolio companies that we do, which is you’re not going to compete with that right now, the answer isn’t go off for $40,000. To a junior developer developer, the answer is create, create a sense of community around your company, and and you know, value things other than just dollars. And some people, that won’t be important, and they’ll have other obligations, and they’ll decide to take the $400,000. And other people make a different choice, right. I mean, I, one of our portfolio companies just went just went public a couple weeks ago, like says a month ago now. And I remember fighting with the CEO, he was when I, when I joined the board, he was making $75,000 here, and he didn’t want to make any more, right, that was what he wanted to make. And eventually, sort of me it’s funny too, because he’s a well under compensated relative to sort of public market peers, it’s, I didn’t, I don’t check track the stock, but it’s a couple billion dollars and $3 billion value company now. And, you know, in the bankers were like, Hey, you got to kind of bring it up. And he kept fighting to be like, the very bottom end of that. And I think that says something about the type of business that he wants to run, he happens to have run a business that has some machine shop floor employees, and many of them came to the to the bell ringing at the NASDAQ in the end, the IPO party, and several of them who were the long, longtime employees of the business, you know, we received at the CEOs request some stock grants just before the IPO that, you know, we believe will end up being really valuable for them. So it’s, you know, it’s a mindset in terms of what what people value.
So there’s a, there’s a company, look into this more, but there is a, there is a small movement, in some very progressive companies that pay everyone the same, which is fascinating. $70,000 is like sort of the salary and what happens if you pay that to your janitor and your CEO, and everybody in between?
So you might break capitalism in the process?
I don’t know, I don’t know. But it might be worth a shot. Right? I’m we’re living through this climate change summer and wondering about the fruits of unfettered capitalism. So
very good question. All right. Before we wrap up here, you know, what Final Thoughts? Would you like to leave with listeners, you know, on on the book, and, you know, what you would encourage folks to do you know, going forward to help support innovation entrepreneurship?
Well, here’s the number one thing I think the listeners of this show could do, which would be get involved in supporting small businesses in your community, which might mean being part of an angel network, it might mean investing in one of the platform’s like, main best, that Seth reference, um, it might mean, just speaking out, right? In the circles of influence, where you are with elected officials who probably don’t even realize that entrepreneurship in the US is declining?
Seth any love it? Well, I
mean, you know, we talk about seeing new builders, and appreciating them, right. And I think one of the things that has happened for me, as I’ve been diving into this work for the last several years is just, I, I think differently when I walk into a, you know, corner shop, or I’m dealing with a vendor, really of any kind, right, if I know it’s a small business, I pay them more quickly. For example, if I’m, you know, dealing with, you know, the local plumbing shop or something with someone like that a service provider that’s coming to my house, I think about that, like, I can pay them right away. And I think too many people think about, you know, they, whether they’re, they’re talking about individual dollars, or their company’s dollars, they pay as late as they can, right? I mean, you know, the big, big companies stretch out payments to smaller, smaller businesses, because they can I think that’s, that’s backwards, they’re gonna get, they’re gonna pay it, they’ve got the better cost of capital, just pay right away. And then when I’m in a shop, I’d you know, I try to engage and at least be thoughtful about the fact that the person behind the counter, you know, maybe the owner of the business, I often ask, I love hearing those stories. I think it’s really interesting, but I also recognize it, you know, they’re the chief merchandiser. They probably do the accounting at night, right? They, they, they are wearing a lot of hats. And I think that that’s really important for people to understand as they, as they kind of go through their daily lives that we’ve taken. business owners, small business owners, in particular new business owner, new builders, especially for granted. And they’re very small, simple things that you can do to just acknowledge the people around you that that have created these wonderful experiences that you you know, get to enjoy as you walk down Main Street in your favorite, favorite hometown.
The book is the new builders face to face with the true future of business. She is Elizabeth McBride and he is Seth Levine. Thank you both for joining us today. I look forward to the feature on TechCrunch. It’s got to happen, but it could happen. Thanks. All right. Thanks, guys. Appreciate it.

Transcribed by https://otter.ai