Celebrating entrepreneurship, startup people are full of enthusiasm for their ideas and projects. However, compared to conventional businesses, they don’t have the necessary resources to make their dreams come true. That is why they need to rely on a broad range of support from quite a bunch of different people. Despite technical support and business advice, many startups find themselves in the position of trying to raise money for their risky adventure. So is it because of pure altruism that family, friends and professionals help you out?
Ok, admittedly, this is an easy one: They certainly don’t! Even most parents wouldn’t simply give away their money and ask for nothing in return. Consequently, we need to ask: How much does a favour cost you? What’s thereturn policy?
The mystery of the gift
In The Gift, first published in 1925, French sociologist Marcel Mauss outlines a theory of reciprocity that helps us understand the principles of non-market exchange. Opposing the idea that personal interests dominate all types of exchange, Mauss highlighted the central role of social obligations.
The moral aspect is visible in the time lag between giving and reciprocation. The given object appears as a gift but the presentee feels an obligation to return the favour. For example, if someone invites you for lunch, you don’t simply give them the money as soon as you leave. Most likely, this would be considered an insult. Instead, next time you offer to take the check. The score is even again.
Reciprocity is one of the key principles guiding exchange relationships in what Nico Stehr refers to as “moralised markets”. But can one distinguish between markets and other social relationships? How can one identify the price and the right way to pay in a non-market exchange?
It is obvious that gifts tend to be more common between friends and relatives, to whom we have strong social bonds. Here, a favour is completely oriented towards the need of the other person and there is no clear rule of how and when to reciprocate. Your parents might offer you financial support for your first business project because they trust you and see how committed you are. You won’t sign a contract or pay interests but they might expect gratitude, you being around more often and helping them out once in a while. We clearly see that this is a strong and very general type of obligation.
Just think of the opening scene of Francis Ford Coppola’s movie The Godfather. When asked by a fellow Italian to kill two guys for money, Don Vito Corleone is insulted and refuses to help. Only after the other accepted the Don’s “friendship”, Vito grants him the favour. A strong bond of loyalty and support is created. Whatever service the Don will ask in the future, it better be granted!
In contrast, asking a stranger to help you out, one tends to offer immediate compensation. For example, if you borrow someone’s mobile, you would probably tell them that you will pay for your call. It’s the same situation you find yourself in when dealing with professionals. If you need professional help with a legal matter, you consult a lawyer, and you pay the regular fee.
The startup gift economy
As a startup entrepreneur, you can’t do everything yourself. You need support but don’t have the access to conventional funding and resources. That is why you might rely on people who trust you and are ready to do you a favour. There is only one problem: You shouldn’t be trusted! If family and friends decide to invest in you, chances are very high that they will lose their money. They might prefer to go to the casino and play roulette. Choosing red or black, the chances to double the money are higher.
Fortunately, people close to you don’t simply consider you a business partner. That is the reason why friends and family are by far the largest source of startup funding. However, applying the lessons learned from the gift economy, we know that fast and easy money from the “3Fs” comes with strings attached. Owing money to family completely changes your social environment. Your business partnership will interfere with your most private relationships. Business talk, guilt and moral pressure will inevitably invade the dinner table.
So why not simply leave family and friends out and turn to professionals for financial and other kind of support right away? We already touched on this one: Professionals won’t just help you out; they exchange services and prefer specific return policies. But what do statups have to offer? Well, above all, they can provide you with a share of their company. As we know, this is the common way of funding with VC and angel investors.
The relationship between founders and investors is not limited to a common destiny. Many investors take on an operative role in the company for a limited time. Turning to the insights from the gift economy, we can see that this is not only about control or business support. By engaging with each other, startups and investors create a relationship of trust and mutual obligation well beyond the initial legal and financial terms.
More generally, the startup scene can be understood as a social milieu were similar people mingle and get to know each other. This community provides a climate favourable to the gift economy. However, the family-like atmosphere ceases when it is time to slice the pie.
When asking yourself to turn to family, friends or professionals, it is important to keep in mind what a favour will cost you. What price are you willing to pay?
About the author:
Alexander Hirschfeld is a 29-year-old sociology Ph.D. candidate who has studied, worked and lived in Bamberg, South Carolina, Vienna and New York. His doctoral thesis is on the changing perception of the human psyche, which he investigates by analysing the emergence of the so-called Burnout Syndrome. His main interest lies with sociological theory, which means lots of reading and knowing the nicest libraries in every city by heart. Apart from that, he enjoys cooking, soccer and watching the same old movies over and over again. Alex lives in Berlin.
Read more about the origins of the “From the sociologist’s notebook” series by our co-founder: Introducing: From the sociologist’s notebook
Here is the rest of the series:
Part I: The habitus of IT entrepreneurs and startup geeks by Manon Pierre
Part II: Commitment turned commodity? by Alexander Hirschfeld
Part III: Is God an Entrepreneur? by Alexander Hirschfeld
Part IV: Startups, buzz, and glory by Manon Pierre
Part V: Is the party over? Startups and the experience society by Alexander Hirschfeld
Part VI: One startup culture for all? by Manon Pierre