I can't speak to "over 50," but I can speak to "over 40." I founded my first software startup in 1995 while I was still an undergraduate. I had the good fortune of timing it so that after a year and a half of toil and obscurity we hit the wave of the dotcom boom, and I was able to establish myself as a proven serial entrepreneur and have been able to found a series of moderately successful tech companies over the years. I'm 42 now, and I'm currently getting a new startup off the ground with three other co-founders who are also in their early forties. We have the good fortune of all having had at least one big success in our careers, but I can attest that our experience has been valuable, and we haven't had a particularly hard time raising money.
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 think you and analyst74 make some good points here. It doesn't surprise me at all that VCs are happy to invest in a start-up with founders who have experience like yourself. At your age - that is going to be expected. If you were 42 and spent the last 20 years working in Big Corp - even if you did impressive work - I'm sceptical you'd be on an even-footing with a 25 year old who spent 3 years at Zynga.
If you were 42 and spent the last 20 years working in Big Corp - even if you did impressive work - I'm sceptical you'd be on an even-footing with a 25 year old who spent 3 years at Zynga.
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.
"If you were 42 and spent the last 20 years working in Big Corp - even if you did impressive work - I'm sceptical you'd be on an even-footing with a 25 year old who spent 3 years at Zynga."
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.
VCs tend to break investments into two classes: "Better, faster, cheaper" and "Brave New World"
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.
VC's can take much bigger advantage of a 25 year old than a 50 year old
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.
OK, so they have a bigger pool of investments to choose from if that pool includes founders who would reject lousy terms. I get that, but it doesn't change the math. VCs can still only invest in so many companies. Perhaps having a 50% larger pool allows them to raise the bar slightly on who they fund, but the difference that makes is still proportional to how well they can pick winners in the first place. That's probably a smaller effect than many other biases to which they're prone, and far smaller than the difference in what they get out of each deal based on the terms. Many small wins or few big ones, "2x is 2x" still seems like the guiding principle for a firm operating alone.
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.
It doesn't do that because most startups fail. Selecting for the ones from which you can extract the best terms just gives you more of the failures. Negotiating strength isn't just a proxy for company strength, it's also an intrinsically important business skill. This is one of the more basic illustrations of "adverse selection" you can find.
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.
I challenge you to find statistics showing that any VC favors the tough negotiators over the easy ones, or that there's any correlation (let alone causation) between negotiating strength and future success. Yes, it's an important skill, but negotiating with VCs and negotiating with customers are two different things. That particular subset of negotiating skill pales in comparison to things like having a good vision, hiring good employees, or executing the rest of a business plan well. The world already has too many people whose only skill seems to be schmoozing VCs.
> 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.
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.
The point pg is making is that it's not an averages game, it's a lottery game.
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.
If strategy A is buying lottery tickets at $5 and strategy B is buying the lottery tickets at $10, A is twice as good off. It doesn't matter that the earnings are dominated by one single winning lottery ticket; strategy A is always twice as good as strategy B. So getting terms that are twice as good for a VC will double their expected earnings.
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.
I'm not getting it because the reasoning is not sound. Your reasoning is basically "the numbers are BIG! so a factor of 2x doesn't matter". If you can get your lottery tickets for half price, you can buy twice as many lottery tickets, and double your chances. Equivalently, getting 1% of Google or 5% of Google is a 5x difference, which is huge. That could easily mean the difference between a net profit or net loss for an investor over all his investments.
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.
As it turns out, the numbers are BIG! so a factor of 2x doesn't matter. This is literally how it works. The only thing that matters in venture capital is being in the small number of companies (15 out of about 4,000 per year) that generate 97%+ of the returns. Those can pay off 1,000 to 1. Fiddling around on terms or bargain shopping or refusing to pay up for quality all reduce your odds of being in the winners, which kills your chances of winning as a VC.
Lottery tickets are a good example in this case. By definition, strategy A and B cannot both be winners (there is only one winning ticket). So the only thing that will set either apart is if one of the two strategies has the winning ticket. The price per ticket is only relevant if neither has the winner, in which case you're comparing who had bigger losses.
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).
Yes, in the end the VC with the winner is going to win, but that's beside the point even if there is a single winner in the world (which in reality is obviously not true, there are not dozens but hundreds of huge ROI winners). The point is that you don't know the winner beforehand. A VC who is getting 2*x% equity for $y is expected to perform twice as good as one that is getting x% for $y. The arguments that are being made here are incredibly vague. I'd love to see an argument based on solid logic why valuation doesn't matter much. I'm sure PG is right, but I'd like to understand why.
It's not the same equity. Quality is not distributed equally among the sample set of companies. The great startups (as judged retroactively via returns -- e.g. Facebook and Google) often (but not always) can get multiple competitive offers from top-tier venture firms, so having some abstract theory about how you're going to only pay low prices significantly damages your opportunity to invest in the companies that are going to generate all the returns.
Trying to maximize your share of individual deals causes you to lose the best deals. This is because a) the best deals are often expensive, and b) maximizing your share empirically causes people to consider you a dick, and people with reputations for being dicks don't get chosen by the best startups.
The point of this whole debate is this: VC return = equity * performance. Optimizing for the former is much less leveraged than the latter, since performance can vary by 10000x. If asking for better terms means you lose out on any deals then doing so is probably not in the firm's best interest.
Suppose we select the top 100 start-ups according to whatever criteria we use.
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.
> 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.
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.
And that's the fucking truth right there: VCs love to find young stupid (but bright) kids. They are easy to fool, will jump at any opportunity, and most importantly, don't know shit about money. Meaning that they can get them to work for peanuts. That is why the tech industry likes them young.
I'm going to guess--I have no proof--that entrepreneurs over 50 tend to be looking for a technology to meet a specific market need that has been eating at them for a long time, while those under 25 are more likely to be looking for a market need they could address with the brand new tech skills they've been developing.
If I'm right, they could make pretty good partners.
There's some good research showing that such diversity leads to more conflict, less productivity, but better and more creative decisions.
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.
We tend to see the opposite. The high-quality young founders tend to be pursuing a single great idea. The high-quality older founders tend to decide to start (another) company first and then try to figure out an idea worth pursuing. The fact that the older founders tend to have more domain experience helps them with this strategy.
Ah, interesting point. This isn't quite the opposite of what I was saying, but it's definitely different. You're saying the youngsters are passionate about solving a specific problem, which is opposite of my speculation that the oldsters have the problem in mind. But you aren't saying that the oldsters just want a vehicle for their technical skills, you're saying they want a vehicle for their business skills.
I'm amazed no one has commented on the fact that the pool of potential entrepreneurs under the age of 25 is incredibly small (most kids ages 0-18 aren't out there starting companies, and a big chunk are in college) versus if you're 50+ there is a much bigger pool (reasonably ages 50-75) and you probably have the means and connections to be more successful.
There aren't that many qualified people over the age of 50 with the energy and determination to mount another startup effort again. It happens, but often people who have done well in their careers simply won't subject themselves to that level of trauma again.
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.
Wadhwa must be taken with very large grains of salt as he is relentlessly pushing an agenda which is probably not completely accurate. How are they defining entrepreneur here? Including dry cleaning shops and law practices? 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?
Most 24 years old never achieve those levels of success either.
$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+.
There is a lot between web startups and dry cleaners. Both companies I worked for as an engineer were founded by guys in their 40's. The industries were defense and telecom (cutting edge stuff in the defense area--I was talking with a VC the other day who was surprised we were 5-7 years ahead of VC funded efforts in that area). Both had PhDs and a deep well of expertise. Have they achieved zuck level luck? No, but unlike most web startups (and like dry cleaners I guess), they have revenue and are self sustaining (10+ years now) without VC money rolling in or an exit.
Wadhwa must be taken with very large grains of salt as he is relentlessly pushing an agenda
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?
Yes, I think the percentage of under 30y old entrepreneurs outweighs who do highly scalable startups outweighs the over 30y olds by far.
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 never trusted a man who poses with arm crossed in a fucking suit for his God damn twitter photo. He changed that recently, but I still don't trust Wadhwa - nor like him.
I'd rather say experience in corporate correlates negative with the ability to innovate. Who do you think is gonna create the next billion dollar company, someone with 20y experience in IT or an crazy student who thinks he can take over the world.
One thing that struck me about this article is the anti-pattern : Describe the distribution in words, then don't show the chart / graph.
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. ]
If the data was collected in the last 10 years, I would be curious as to what percentage of the over 50 crowd of entrepreneurs had their existing retirement plans affected by the last two economic downturns, thus influencing their decision to go into, and in some cases back into, building businesses.
Oh yes. There was this rash of startups in 2003 when there was the first big round of layoffs from chemical and pharmaceutical companies and venture capital wasn't quite as tight as it is now.
My first reaction is that this makes sense if you're counting restaurant owners, etc. Also, the media isn't going to draw attention to someone of average age doing something average, so the misconception seems expected, although I've met very few 50 year olds hacking away on their Web 2.0 startup.
It's also likely people over 50 have more money saved, so it's just easier for them to start a company. Both because they can use savings for living expenses and because potential investors are happier when the founder has some skin in the game.
Statistically, one cannot locate a mean or establish a standard deviation using only the provided remark -- the values could be nearly anywhere, with some broad limitations.
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.