Tech founders are wrong about merit-based hiring – and it’s hurting Europe

"I actively try to get the best people,” says Harry Stebbings, founder of 20VC and one of Europe's most prominent voices in venture capital. “I don't try to get more women or more dropouts or more Asian people or more Buddhists. I don't because that would be discriminatory against everyone else. I will try and get the best people.”

That was Stebbings’ reply when Impact Loop asked him in an interview last year why the vast majority of the 100-plus founders he's backed are white and male. He didn't answer defensively, but matter-of-factly – reflecting a subtle but harmful oversight that seems to be gaining traction in European tech.

The myth of meritocracy

One of tech culture's most pervasive myths is that exceptional people rise on talent alone. That the Musks and Zuckerbergs of the world built game-changing companies through sheer intellect and obsessive determination. A nice story, sure, but it's missing a few key details.

Musk was the son of a South African engineer who co-owned an emerald mine. He grew up wealthy, received a $28,000 loan from his father to help fund his first company, and attended elite private schools before heading to Penn and Stanford. Zuckerberg was the son of a dentist and a psychiatrist in one of New York's wealthiest suburbs, attended Phillips Exeter Academy – one of the most prestigious prep schools in America – and arrived at Harvard already an accomplished programmer whose parents had hired a private computer tutor for him as a child.

Merit is real, but it doesn't exist in a vacuum. Access to education, networks, capital, and the freedom to take risks are all unevenly distributed. What looks like pure merit is actually merit plus a whole lot of structural advantage. And this is what so many tech founders seem to overlook.

Alan Chang, CEO of UK renewable energy startup Fuse Energy, made a similar assumption recently, while simultaneously rejecting another one of tech's favourite punching bags right now: Diversity, Equity, and Inclusion (DEI).

“When we were raising our seed round, we received a term sheet with the condition of putting a DEI policy in place, we rejected this condition all together,” Chang wrote in a widely shared, and also criticised, post on LinkedIn in March. “Our only acceptable hiring policy is based on merit.”

Chang is implying that DEI is in direct conflict with merit, but it isn't. What DEI actually does – when it's done properly – is remove the barriers that stop qualified people from reaching the interview in the first place. Chang also seems to be confusing a diversity policy with a diversity quota – no serious DEI policy hires unqualified candidates on the basis of gender or ethnicity.

This is what Marc Andreessen, perhaps the world’s most powerful venture capitalist, missed when he called DEI “potentially lethal” and "a form of discrimination." It’s also what Scale AI CEO Alexandr Wang missed when he launched his company's controversial "MEI" policy – standing for "merit, excellence, intelligence."

A missed opportunity for Europe

Opposing DEI in the name of meritocracy doesn't protect merit. It protects the status quo, which has never been meritocratic. And if the moral case doesn't land, the financial one should.

Harvard Business Review research found that diverse investment teams perform 10-30% better than homogenous ones. At the startup level, a Kauffman Fellows study found that diverse founding teams who reach an exit return 30% more capital to their investors. And for those who think this is just a pipeline issue: female-led or female-cofounded startups generated 78 cents of revenue for every dollar of venture capital invested, compared to just 31 cents for male-led startups, according to research by consultancy BCG.

For Europe, the stakes are high. The continent is already fighting to close a competitiveness gap with the US and China. Falling for the myth of meritocracy is only making matters worse, and rejecting DEI policies is directly harming European competitiveness. But the ramifications could be even broader and longer-lasting.

The startups being built today will shape the products, infrastructure, and economies of the future. More diverse founders bring more diverse perspectives on the problems worth solving. More diverse investors mean more diverse founders get funded. If tech doesn’t open up the talent pool, it will miss countless opportunities to build better products and services for more people.

Stebbings says he hires the best people. He probably does – from the pool available to him. The question worth addressing is how much talent never made it into that pool, and what it's costing all of us.