The Truth About Entrepreneurs: Twice As Many Are Over 50 As Are Under 25
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I mention this because I think that there are a lot of people between 40 and 50 right now who are the first generation of true digital natives (for example, I have no idea what it was like to work in a pre-email office). Many of us weathered the dotcom boom and bust. From where I'm sitting, this cohort is quite well equipped to found successful tech companies, despite the fact that we tend to have families and children.
I would disagree with this, depending on the focus. That is, if the person who spent 20 years at "Big Corp" was doing a startup in a related domain to "Big Corp," she would have a large network of contacts, and years of domain experience in the problem-space she's tackling. The person who spent 3 years at Zynga likely only has a brief experience of how to poorly run a company, and few contacts outside of the gaming world.
I've worked with more than a few mid-20 somethings that stepped out on their own only to immediately drive their company in to the ground because they a) didn't understand "business" (profit) and b) assumed the 'old people' around them didn't understand the new economy.
This isn't to say that there are not outstanding young business owners out there, but to assume that 20 years of work experience provides no, or little, benefit when it comes to running a start-up is short sighted at best.
The "Brave New World" ideas put 25 year olds on equal/better footing than 50 year olds, since they tend to be everything new.
The "Better Faster Cheaper" ideas leave the 50 year-olds with the advantage: They have a better sense of what the market wants, and what features are important/not important, since they've been working in the field about 6 times as long.
There's difference which is much bigger though: VC's can take much bigger advantage of a 25 year old than a 50 year old.
Edit: Notice the article was about an iPhone EKG (better, faster, cheaper) + 50 yo who used his own money.
This deserves more attention, in light of ageism concerns.
If a 50 yo founder has used his time wisely, built up connections, deep domain knowledge, general know-how, decent bank account, there is little reason for him to take external investments. Even in the rare occasions he does, he is well aware of his value, and demand favorable term sheets.
On the other hand, if a 50 yo founder doesn't have the confidence, connection or personal wealth to fund his own venture without a good reason. He is looked much less favorable than a 20 yo in the same state.
In short, the older you are, the more is expected of you.
This is a persistent myth, but if you examine the math it doesn't work out. A VC firm could improve their returns by at most 2x or 3x by extracting really good terms from an inexperienced founder. But that's rounding error compared to the 100x difference between a big success and a small one.
This is a subset of the more general rule that there is no "value investing" in startups. All the returns are concentrated in a few big hits, and a VC does well iff they invest in them, regardless of the terms.
The empirical evidence confirms this. Google and Facebook are among the biggest recent hits for VCs. Both had young founders. But the reason VCs made so much from these deals is not that they extracted unusually good terms from the founders. In fact, the founders extracted unusually good terms from the VCs. The VCs made a lot despite that, because the companies were so successful.
Can you explain this? If by some method you can get overall 2x the returns, why does it matter that most of the income is in the big hits? 2x is 2x regardless.
Say there are two different people playing the lottery. Every day they buy a number of tickets. Person A buys tickets in a pool along with someone else. Person B buys tickets on their own. Thus, if Person A wins the lottery they'll have to split their winnings, whereas Person B gets to keep it all.
OK, so who ends up being better off? The answer to that is entirely decoupled from their share of the lottery winnings, what matters is entirely whether or not they won the lottery. In terms of VC financing, the RoI from "winning the lottery" by hitching your horse to a small company that grows until a multi-billion dollar enterprise in a few years is going to dwarf any other aspect of investing and returns. Thus it's vastly more important to ensure that you are doing everything possible to maximize "winning the lottery" rather than trying to maximize the share of the prize you'll get. 2x or 3x may seem like a lot, but it's nothing compared to the 100x, 1000x, or 10000x that you'll get from being on the ground floor of the next big thing.
For example, Horace Rackham was an early investor in Ford and he received a 1300x RoI, Peter Thiel received a 3000x RoI on his investment in Facebook, while Kleiner and Sequoia capital each turned $12.5 million into $2 billion through their investments in google.
Sure, if you just consider the winning ticket, it doesn't matter whether you are paying $5 or $10 for it. The thing is that you don't know whats the winning ticket, and it does matter whether you are paying $5 or $10 for each.
20% of DuckDuckGo is a rounding error compared to 10%, 5%, or even 1% of google.
If you really believe that the terms don't matter, then I'm sure lots of YC startups are happy to take money from you at terms that are 5x better than what YC offers.
The reason I like the lottery example is that two venture capital firms don't have matching portfolios (if they did, then valuation would matter for relative performance). In reality, when you compare firm A vs firm B it's the performance of the startups that determines the winner (not the amount of equity owned).
We can now proceed in one of two ways. a) Make the minimum offer that we know all of the start-ups will accept.We now have a portfolio of 100 investments.
b) Make a lower offer that only some of he start-ups will accept. We now have a portfolio of say 90 investments.
The question is which portfolio will portfolio will perform better. If there is no difference in average quality of start-up between the portfolios in a) or b), then portfolio b) will do better (because we have obtained better terms).
There is no guarantee that this will happen. It could be that he or she has lost the only 10 companies that will be successful.
This is the problem that the VC has to face.
The argument that really seems worth considering, but which wasn't made, is that firms do not operate alone. Offering better terms is a competitive advantage vs. other firms who might vie to fund the same opportunities. Even minor changes such as paying one's own legal bills seem to generate substantial goodwill among entrepreneurs. When there are multiple firms involved, friendlier terms might be good strategy. That still does nothing for founders who struggle to find funding on any terms, though. Cases like those you cite are the exceptions; it's still "race to the bottom" in the common case.
I'm sure there are VC firms who do scout out pushover startups and bleed them. But then, most VC firms fail to generate attractive returns.
If I'm right, they could make pretty good partners.
If I had to choose between productivity and a better/more creative outcome in the startup world, I'd personal think the the good, creative decision would be more important.
(More studies: http://bit.ly/ZBpsxJ)
Interesting observation....
I'm surprised it's only twice as many...
21.5 million age 20-24
vs
58.9 million age 50-64
80.4 million age 50-74
(from https://www.census.gov/population/age/data/2011comp.html)
Plus, the marvelous yet infuriating problem that we have in this industry is that the people who succeed young often make a lot of money and check out.
I always take Wadhwa with a grain of salt... as you say, he definitely has some sort of agenda / ideology thing that he's constantly promoting.
How are they defining entrepreneur here?
Well, IF you assume that the rest of this paragraph applies to the same research mentioned in the first sentence, then no, they aren't talking dry-cleaning shops, laywers, etc.
I'm not sure that's a safe assumption, but it is the way I initially read it.
Research that my team completed in 2009 determined that the average age of a successful entrepreneur in high-growth industries such as computers, health care, and aerospace is 40. Twice as many successful entrepreneurs are over 50 as under 25; and twice as many, over 60 as under 20. The vast majority -- 75 percent -- have more than six years of industry experience and half have more than 10 years when they create their startup. Nearly 70 percent start their companies to capitalize on business ideas that they have -- which they see as a way to build wealth.
And are they having the kind of success as Zuckerberg, Gates, Jobs, Page/Brin, Yang/Filo, Omidyar, Musk, and on and and on and on?
You sound skeptical... any particular reason so? Do you find it improbable that more successful entrepreneurs actually are older?
$1B+ exits (not all are exits of course, but I'm talking personal financial impact) are a pretty narrow way of defining success. Most people would call anything 7+ figures winning at life, and I'm sure there's tons of those who are 50+.
A billion dollar company after 10y of being in business is not impressive. If you have some money to start with that's easy. The art is to make a billion dollar company with no in itial funding and within 1 year. Talk about resourceful.
I refer to "Twice as many successful entrepreneurs are over 50 as under 25; and twice as many, over 60 as under 20. ... ". That takes a bit of parsing and visualizing to actually make sense of, and is pretty central to the topic of the article.
That sentence describes some sort of log-normal bump distribution. But you'd want to compare it to the some-sort-of-lognormal distribution of population per age to draw a conclusion.
The assumption may be "our readers are too math-dumb to read a chart". If true, why is that? Most people can read a map, so I wonder what percentage of people can read a population distribution and make some sense of it. How can it be improved?
[ I created GridMaths.com [ early demo stage], so I'm actually interested in how to get Math concepts across to young people. ]