From the January 2012 issue of Investment Advisor • Subscribe!

December 28, 2011

Why Age Matters in Entrepreneurship

I am an investor in and director of an ambitious new retail venture. The founder of the company, the visionary, is a young man in his early 30s. Due to the scale of the venture, the investors, along with the acquiescence of the founder, maintained that it was critical that the CEO position be held by a seasoned suit—a gray-haired retail executive.

After a short time it was clear that the CEO was not working out, prompting the board to ask for the CEO’s resignation. When contemplating his replacement, the board chose to pass on naming the founder to assume the CEO role, even on an interim basis, because as in the words of one of the other directors, “I don’t want to pay his tuition”—a postulate popular among venture populist pundits.

The question of the ideal age of early-stage company founders has received a lot of attention in the wake of Steve Jobs passing, Mark Zuckerberg’s ascent and our troubled economy. The unemployment rate is especially high (17.4%) for young adults with the total number of jobs for 18-34-year-olds 2.5 million below the pre-recession level. A recent survey of young Americans on entrepreneurship and the economy cite that 46% plan to start their own business.

Brian Roberts at venture firm Venrock believes that “experience is overrated. By and large, the world is changed by the young and the hungry. Experience can be enabling or constraining, but it is not even close to the silver bullet many believe it to be.” To many this notion is counterintuitive. Are the so-called millennials really good bets to execute a startup business plan?

It is true that conventional wisdom among venture investors pegs the peak age for entrepreneurship at 25 and that younger founders are more likely to introduce disruptive business models and innovation than their older counterparts. Their data is mostly anecdotal, citing dozens of 20-somethings in Silicon Valley who have founded great companies that have enjoyed high-multiple exits. But considering that Reid Hoffman was 35 when he founded SalesForce.com, Evan Williams of Twitter was 35 and Mark Pincus of Zynga was 41, I certainly don’t see any evidence that places a premium on youth.

Last year, the Silicon Valley-based Founders Institute engaged research scientists to review their 1,000 enrolled members and 3,000 worldwide applicants to examine the traits of their most successful founders. They found that older age was actually a better predictor of entrepreneurial success up to the age of 40, after which age had little or no discernible impact. They noted the role that accumulated “life experiences” have in developing a more discerning disposition—a desirable trait for entrepreneurs.

Older individuals have generally confronted more complex life, business and financial scenarios such as buying cars and homes, raising families, shopping and negotiating for services, and interacting with employers, colleagues and co-workers. The combination of life experiences and project completion skills invariably enables older entrepreneurs to make better business decisions.

Venture investing is a bet on people, not product, and while the notion of a truly disruptive technology originating from the mind of a young founder is romantic and inspiring, these stories are not the norm. In my experiences, the most successful entrepreneurs are those with multiple real life and business experiences, who have domain knowledge and personal exposure to markets where opportunities are being left on the table.

That is the same conclusion the board of our retail venture came to. Capital tends to favor competence when betting on leaders, and competence is the direct by-product of experience.

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