Think Young Entrepreneurs Are a VC’s Best Bet? Harvard Says You Should Think Again
Experience counts. So does venture capitalists’ own desire to ink the better deal.
PHOTO CREDIT: Getty Images
According to Harvard Business Review's analysis of the founders of the fastest-growing startups selected by Inc. in 2015, the average age is 29. Similarly they found the average age of founders who have won TechCrunch awards over the last decade to be 31.
Yet, when I look around at my peers, co-workers and fellow founders in the entrepreneurial community of which I'm part, I see a significantly different representation when it comes to our age demographic.
This is true in Atlanta, where I live and our business is based, but it is also true when I visit incubators and other entrepreneur environments in cities as diverse as Boston, San Francisco and Bordeaux, France. Certainly these communities include a healthy representation of colleagues in their twenties and early thirties, but they are outnumbered by those of us in our later thirties, forties and fifties.
A new study sheds some light on why this is true. It also puts some teeth to the argument that successful startups are only the domain of the young.
The study, published in Harvard Business Review by Pierre Azoulay, Benjamin Jones, J. Daniel Kim and Javier Miranda, found that although younger founders aren't uncommon in software startups, the average age for successful founders across industries skews significantly older, from the early forties to closer to 47.
Their research can be summarized with four significant takeaways.
- When you look at the most successful firms, the average founder age goes up, not down. Among the top 0.1 percent of startups based on growth in their first five years, founders started their companies when they were 45 years old. Overall, the authors of the study write, the empirical evidence shows that successful entrepreneurs tend to be middle-aged, not young.
- Older entrepreneurs have a substantially higher success rate, with entrepreneurial performance rising sharply with age before peaking in the late fifties. "If you were faced with two entrepreneurs and knew nothing about them besides their age, you would do better, on average, betting on the older one," the authors write.
- Even when entrepreneurs launch a highly successful venture when they're young -- think Bill Gates, Steve Jobs, Sergey Brin and Jeff Bezos -- they still see greater success, and peak entrepreneurial potential, as they age.
- Having at least three years of prior work experience in the same narrow industry as their startup translated to an 85 percent higher chance of launching a successful startup.
Maybe. But a more viable explanation seems to be that VCs themselves are looking for the better deal.
Rather than identifying startups with the highest growth potential, VCs are seeking investments that will yield the highest returns. That important difference means that young founders -- who are probably more financially constrained than more experienced ones -- are more likely to cede upside to investors at a lower price, according to the authors of the study.
That helps to explain why VC behavior and tendencies toward startups with younger founders get so much attention. But consider this takeaway, whether you're a young entrepreneur yourself with a great idea who would benefit from partnering with a more seasoned co-founder, or you're an experienced professional with the great idea who would benefit from the encouragement that it's far from too late to dive into the startup community:
Ideas are great, but execution wins the race.
Ideas, without a depth of experience that enable you to execute, are just ideas. It's the experience that comes from sound strategy and smart strategic decision making that gets the startup from launch to success.
BY Entrepreneurs Organization