People often associate successful startups with young, bright, tech savvy founders like Mark Zuckerberg. The next big disruptive company won’t likely stem from that demographic, however.
In a recent National Bureau of Economic Research study, researchers at MIT, NBER, Northwestern and the U.S. Census Bureau scoured several administrative datasets to analyze the ages of founders of “growth-oriented startups in the past decade”. Here were their results:
#1 – They found that “successful entrepreneurs are middle-aged, not young”.Investors may be surprised to discover that the mean founder age for the top 0.1% of the fastest growing new US ventures is 45. Even “the most successful entrepreneurs in high technology sectors are of similar ages”.
#2 – Middle-aged founders as opposed to younger founders were also more likely to have successful exits. They calculated that a 50 year old founder is “1.8 times more likely to achieve upper-tail growth than a 30-year-old founder.” Moreover, they said those that start a business in their twenties actually have the “lowest likelihood of successful exit or creating a 1 in 1,000 top growth firm”.
#3 – Having a novel idea is important, but experience also matters significantly. The researchers reported that “prior employment in the specific sector predicts a vastly higher probability of an upper-tail growth outcome or successful exit, with success rates rising up to 125%”.
#4 – The researchers also looked at potential differences in the results based on geography and industry, for example. Even still, the “only category where the mean ages appear (modestly) below age 40 is when the firm has VC-backing. The youngest category is VC-backed firms in New York, where the mean founder age was 38.7”.
#5 – So why are top VC firms so focused on funding young entrepreneurs?The researchers posed a couple of potential answers. First, young founders may be “more in need of early-stage external finance” as opposed to older founders with more connections and wealth to get funded. Second, because “VCs are seeking high returns, which is not identical to high growth, it may be that younger founders tend to sell their equity at lower prices, and thus VCs are making optimal return decisions.”
Bottom line, successful young entrepreneurs are the exception not the rule. Those that want to invest in higher-growth firms should consider middle-age founders with experience in their startup’s particular industry, as they have a track record of much higher success. We recommend the same when looking at the founders of public companies, even in the tech sector.
If you want more details, here is a link to the study.