As longtime Fools, your Motley Fool Answers co-hosts Robert Brokamp and Alison Southwick have spent their fair share of time looking into the tech sector. And what do they see when they gaze at the bubbling cauldron of digital ambition that comprises the start-up scene? A whole lot of 20-something dudes in hoodies, jeans, and sneakers.
But is that really the demographic that smart venture capitalists should be handing sacks of cash to? Is the ubiquitous stereotype of the brilliant -- and overly casual -- young tech bro concealing the truth about Silicon Valley? In this episode's "What's Up, Allison?" segment, Alison reveals what researchers at Northwestern's Kellogg School of Business found on the subject.
A full transcript follows the video.
This video was recorded on July 10, 2018.
Robert Brokamp: What's up, Alison?
Alison Southwick: Well, Bro, I've discovered something amazing, it's that I have psychic abilities.
Brokamp: Really? What am I thinking right now?
Southwick: Are you ready? I can read minds. To prove it, I want you to picture in your mind a successful tech entrepreneur. Do you see that person in your mind?
Southwick: Is it a man?
Southwick: Is he in his twenties?
Brokamp: He's younger.
Southwick: Is he wearing a hoodie?
Brokamp: Something like that. He's very informally dressed, I'll tell you that.
Southwick: Yes. I can't actually read minds, it's just a pretty common bias that tech entrepreneurs are young dudes in sneakers -- emphasis on young, emphasis on dudes. Sneakers, eh. As Mark Zuckerberg told an audience at Stanford back in 2007, young people are just smarter; although, now that he's a father, I doubt that he feels the same way. New Republic noted in an article about ageism in Silicon Valley that the website of ServiceNow, a large, Santa Clara-based IT services company, featured the following advisory in large letters atop its career page: "We want people who have their best work ahead of them, not behind them."
Well, meet Dan Scheinman. He spent many years at Cisco, and eventually decided to start out on his own as an angel investor. While launching his VC fund, he knew he needed to identify a niche for investing. He needed to find an area that was perceived as less desirable and less competitive because he was a little guy in a big pond of big sharks. He said during a presentation with a couple of bratty Zuckerberg wannabes, it hit him: older entrepreneurs were, "the mother of all undervalued opportunities."
Indeed, of all the ways that VCs could be misled, the allure of youth ranked highest, they wrote in this article. As the founder of the start-up accelerator YCombinator, Paul Graham told the New York Times in 2013, "The cutoff in investors' heads is 32. After 32, they start to be a little skeptical."
Why do we feel this way? Well, we assume young people are more likely to have transformative ideas and embrace technology. They're also less likely to have distractions like family. And, of course, we have the iconic success stories of Zuckerberg starting Facebook, Brin and Page starting Google, that kind of thing. Ouch!
Is it true that all of the successful tech entrepreneurs are cocky little jerks in hoodies? Well, let's check out the Kellogg School of Business at Northwestern and their recent research that came out this last week. They decided to look into it. Kellogg professor Benjamin Jones teamed up with Javier Miranda at the Census Bureau, as well as Pierre Azoulay and J. Daniel Kim of MIT.
The researchers found that, contrary to popular thinking, the best entrepreneurs in tech tend to be middle-aged. Among the very fastest-growing new tech companies, the average founder was 45 years old at the time of founding. Furthermore, a 50-year-old entrepreneur is nearly twice as likely to have a majorly successful company as a 30-year-old. Let's dig into the data some more, shall we?
Brokamp: Let's do that.
Southwick: Is this making you feel good about your age?
Brokamp: [laughs] Yes. I'm closing in on my peak!
Rick Engdahl: I'm ready to go start a company.
Southwick: Do it! Among the founders that they looked at in their Census Bureau data set, the average age of a company founder at the time of founding was 41.9 years. That's all the founders. They limited their data set to include only tech companies, and further winnowed that down to the fastest-growing 0.1%. In other words, this is the one company out of every thousand that saw its sales or number of employees increase the most in its first 5 years. Among this subset, the average founder age was 45.
The researchers decided to look at it another way. They looked at firms that had successfully gone public or were acquired by another company. The average founder age there was 46.7. Finally, they created a batting average. The odds that the founders of different ages would make it into the top 0.1% percentile? The data revealed that a founder who is 50 years old is 1.8X more likely to start a top company than a 30-year-old founder; and that a 20-year-old founder has the worst chance of all.
While researchers didn't dig into the why, they did offer that founders with three or more years of experience in the same industry as their start-up are twice as likely to have a 1/1000 fastest-growing company.
Let's revisit Dan Scheinman and his old farts venture fund. How's it doing? Well, when his skeptical wife asked to see where the money was going, he showed her the results, and her response was, "Keep going." He's now one of the leading angel investors in Silicon Valley.
Brokamp: Wow! You wonder if, A, it's a question of survivorship bias. We hear about the Zuckerbergs and all those folks, but we don't hear about all of the other 20-somethings who tried to start a company and it didn't work. Also, who the media chooses to profile and make a celebrity CEO, it just might be a flashy story to find some kid who's doing something.
Southwick: A wonderkid, yeah, as opposed to some old dude who's like, "I ground it out at Procter & Gamble for 30 years!"
Brokamp: Let me make it clear here that mid-40s to 50 is not old.
Southwick: Oh, no! It's not! It is not, by the way! As I am approaching my 40th birthday, no, no, it's not.
Brokamp: And tomorrow is my 49th.
Southwick: Is it?! Tomorrow's your birthday?!
Brokamp: It is, yeah.
Southwick: I didn't know that! Happy birthday!
Brokamp: Thank you very much. Yeah, my birthday is July 11th. In celebration, 7-Eleven always gives out Slurpees. Go get your free Slurpee.
Southwick: It's also my dad's birthday. Did you know that?
Brokamp: I didn't know that.
Engdahl: I thought the Slurpees were for him.
Southwick: For my dad? Oh, yeah, they're for my dad, not for you.
Brokamp: It's for both of us.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Alison Southwick has no position in any of the stocks mentioned. Robert Brokamp, CFP owns shares of FB. The Motley Fool owns shares of and recommends GOOGL, GOOG, and FB. The Motley Fool has a disclosure policy.