Image Credits: Manuel Romano/NurPhoto / Getty Images
There is a classic stereotype of the Silicon Valley entrepreneur: often a computer science nerd, almost certainly male, ambitious and, most importantly, young — very young. Founders who have been covered extensively by the media, like Bill Gates, Steve Jobs and Mark Zuckerberg, started their companies still glimpsing their teenage years, and that reputation has spread widely across the industry.
Now, a group of economics researchers have conducted a comprehensive investigation of the starting age of founders of high-growth startups — and found that that stereotype just doesn’t match the data.
In a new National Bureau of Economic Research working paper, Pierre Azoulay, Benjamin Jones, J. Daniel Kim and Javier Miranda connected a variety of administrative data sets to investigate the age of founders of new businesses, and particularly the age of founders of high-performance startups. Administrative data sets are the “gold standard” of data, because unlike surveys or other statistical sampling methods, they represent the entire population under consideration.
What they found is that the average age of a startup founder is about 41.9 years of age among all startups that hire at least one employee, and among the top 0.1 percent of highest-growth startups, that average age moves up to 45 years old. Those ages are taken from the time of the founding of the company.
The researchers broke down the population of founders along a number of lines, including geography and industry. They found little difference in their results between subcategories, and, in many cases, the subcategory definition actually increased the average age. For instance, industries like oil and gas can have average founder ages as high as 51.4 years old. The researchers wrote that “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.”
One interesting dynamic in the data is that older entrepreneurs appear correlated with better startup performance. “For example, the 1,700 founders of the fastest growing new ventures (1 in 1,000) in our universe of U.S. firms had an average age of 45.0 (compared to 43.7 for the top 1% and 42.1 for the top 5%),” the researchers wrote.
Indeed, it’s not just that older entrepreneurs are more successful, but that younger founders are less successful. “Overall, we see that younger founders appear strongly disadvantaged in their tendency to produce the highest-growth companies,” the researchers wrote (italics in original). One reason, they argue, is that older founders tend to have more years of experience in their industries.
With those results out of the way, there is a critical question: If indeed the most successful ventures are run on average by founders in their 40s, why is it that VCs seem to focus so intently on younger founders who seem to be wildly statistically unsuccessful?
The authors speculate that the reason could be that younger founders are “more in need of early-stage external finance” because older founders have the connections, networks and personal wealth to fund their ventures. VCs don’t have access to those deals, so they gravitate to the kinds of deals they can potentially fund.
I think there is a more blunt reason for this dynamic: VCs believe they have “pattern recognition” abilities that they simply don’t have. Instead, they rely on suppositions and stereotypes that don’t match the underlying data on startup success. The same reason why older founders are ignored by the ecosystem is the same reason why women and other minorities struggle in the Valley: It’s really not about what you build, but what you look like while building it. Data like those found in this paper should force all of us to reevaluate what kind of founders with whom we should be partnering.