September 17, 2014

Same Sex Marriage and Venture Capital

Same sex marraige and venture capitalI heard on the radio the other day that California became only the second state (after Massachusetts) to permit same sex marriage. And that got me thinking about bad entrepreneurship research.

While it might be strange that my mind goes from same sex marriage to entrepreneurship research (and I won’t deny that such a leap is strange), there’s a logic to my thinking.

Much research about entrepreneurship looks at the correlations between two things and infers a causal relationship. For instance, the fact that people who are more educated are more likely to start businesses leads many observers to explain that education causes people to start businesses.

But a correlation between two things doesn’t necessarily mean that they are causally related. This is what leads me to same sex marriage and venture capital.

California and Massachusetts, the two states that permit same sex marriage, had $17.3 billion in venture capital investment in 2007. The rest of the country had $13 billion. Therefore, states that allow same sex marriage have more venture capital than those that don’t (although we don’t quite get a statistically significant difference if the variance in the two groups of states is different because only two states allow same sex marriage).

Maybe I’m missing something, but it’s difficult to see a causal relationship between same sex marriage and venture capital. It seems like the relationship is just an artifact of something else.

But back in 2002, Richard Florida published a book called The Creative Class in which he argued that places that have a higher proportion of gay people have more technological innovation. He explained that this statistical relationship exists because places with more gay people are more diverse, and diversity encourages innovation.

Could Professor Florida be right? Could states more tolerant of gay marriage have more venture capital because they are more supportive of diversity and, thus, efforts to encourage innovation?

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About the Author: Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of eight books, including Illusions of Entrepreneurship: The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By; Finding Fertile Ground: Identifying Extraordinary Opportunities for New Ventures; Technology Strategy for Managers and Entrepreneurs; and From Ice Cream to the Internet: Using Franchising to Drive the Growth and Profits of Your Company.

12 Comments ▼

Scott Shane


Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.

12 Reactions

  1. The mark of measurement should be the percentage of successful startups, not how much money is being thrown (away) by venture capitalists.

  2. Anita / Scott,

    I must say, this is interesting.

    However, is relating same sex marriage with the amount of VC money invested a good way to measure ‘investability’? I am as skeptic as you :)

    Cheers!

  3. One way to think about it from a sociological point of view is that states that have permitted same-sex marriage are more non-traditional, more willing to change institutions as culture changes occur, and focus on populations that may still be gaining acceptance in some social circles.

    In thinking about venture capital, isn’t that exactly the type of environment you would expect small businesses and new entrepreneurship to flourish? The two aren’t connected, per se, but they both come from a similar free-wheeling, change-creating culture. I don’t think gay = VC, but the underlying cultural forces for both have some similarities.

  4. I think Hyoun makes a great point here. There may not be a direct correlation that’s obvious, however, the tendencies of that culture and atmosphere are to be more open minded, less restrictive. Creativity flourishes when restrictions are minimal and that’s in any situation. Restriction creates confines and it doesn’t entice creativity.

    When there are no restrictions and the population is generally more accepting of change and open minded – that’s an atmosphere that can create new concepts, new ways of thinking and new acceptance.

  5. Anita, what an interesting way to broach up the correlation between diversity and innovation. Well, innovation in this country compared to the rest of the world, and the number of technology companies started by immigrants substantiates your point.

    There are several traits of entrepreneurship and innovation that foster in a diverse culture. Thinking out of box, finding new way of doing things, challenging and altering age old traditional processes to name a few. In a closed and restrictive society, such tendencies are naturally suppressed.

    It is good to see such open conversation taking place. The more we talk about it, the more people will take notice and mend ways.

  6. I have to agree that creativity is a result of open minded free thinking. Living in an area with less strict rules and regulations not only give you more freedom but also leaves you motivated to do more. If you lived in a housing plan that had to approve everything little thing you did to your home, you would never try to do anything. Too much resistance and you’ve lost the will to try.

  7. Quick note: my apologies for not correctly marking this post as having Professor Scott Shane as the author. He initially was listed at the bottom of the post, but the top had my name — probably confusing the heck out of everyone. I have now fixed that, and I’m sorry for the unintentional “puzzler”.

  8. I don’t know if data about venture capital proves anything one way or another, but just in general terms I think diversity helps us all be more creative and innovative.

    Your point, Sanjay, is an excellent one:

    “There are several traits of entrepreneurship and innovation that foster in a diverse culture. Thinking out of box, finding new way of doing things, challenging and altering age old traditional processes to name a few. In a closed and restrictive society, such tendencies are naturally suppressed.”

    It applies to all types of diversity. The business world is a richer place, not only for having both gays and straight people, but for having men and women, people of color, people from many nations and ethnic backgrounds, rural and urban, and so on.

    When we are open and in touch with people from many backgrounds, we tend to be more open to ideas and not stuck in a box.

    Anita

  9. Are the venture capitalists in MA and CA in a gay (happy) mood?! :) I have been to MA (Boston), but I haven’t been to the west coast yet… I have no problem to live and have a business in a place with a high ratio of gays and venture capitalists.

    Best Premises,

    Martin Lindeskog – American in Spirit.
    Gothenburg, Sweden.

  10. Funny. You sure know how to stir the pot. I’m not entirely sure you’re not smiling as your wrote this post. Smirk has become a pejorative term. But, I can see you with a quiet chuckle.

    Richard Florida argued that successful communities expressed an openness and tolerance for diversity, new ideas, for change, for innovation, for participation by the members of the community. That quality of openness, even an embrace, of new ideas translates economically into a diverse business community with, arising from, a constant source of entrepreneurial activity. The diversity allows it and its community to survive the inevitable down cycles in one industry with a balancing up cycle and growth in another.

    And that openness translates into many characteristics in a community including: better schools, greater participation by community members in community activities, cleaner air and water, a thriving art scene, a diverse religious and spiritual community and diversity in personal lifestyles, higher per capita incomes, lower unemployment rates, shorter unemployment periods.. and on and on.

    But then, having read Richard’s book, you knew that.

  11. It is a I enjoy a few of the articles which were written, and especially the comments posted! I’ll come back!

  12. Howdy! Good idea, but could this genuinely function?

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