Many people think they know what the founder of a tech start-up looks like: a 20-something man who spent his childhood playing on computers in his basement and who later dropped out of college to become a billionaire entrepreneur.
That describes Mark Zuckerberg, Steve Jobs and Bill Gates. But there’s just one thing: They are anomalies.
Most tech start-up founders who have successfully raised venture capital have much less unusual résumés, according to data analysis by researchers at the University of California, Berkeley, Haas School of Business. The average founder is 38, with a master’s degree and 16 years of work experience.
Yet if someone like that came to a top venture capitalist’s office, he or she could very well be turned away. Start-up investors often accept pitches only from people they know, and rely heavily on gut feelings, intuition and what’s worked before. “I can be tricked by anyone who looks like Mark Zuckerberg,” Paul Graham, co-founder of the seed investor Y Combinator, once said.
That strategy, however, means that investors are likely to be missing some good bets. As the tech industry tries to make itself more diverse, expanding the pool of people it finances could be good not just for appearances but also for business. Seed money fuels a start-up, so getting those choices right is critical.
“We have a myth in our heads of what the prototypical start-up founder is, and that myth is an early- to mid-20s white male who studied computer science at an elite school and dropped out,” admits Roy Bahat, who runs Bloomberg’s tech investment fund, Bloomberg Beta. “But a small number of data points ends up incredibly captivating our imaginations. The truth is we might just be wrong.”
Bloomberg Beta is taking a different approach. It teamed up with the Haas researchers to use the data about successful founders to try to predict who in the tech industry might someday start companies — before they had even begun the process. Then the investors contacted those people and asked to meet. (Asking whether a programmer in Silicon Valley plans to start a company is a bit like asking a waiter in Hollywood about his or her acting ambitions.)
The aim of the program, called Future Founders, was to find a broader group of people who might someday have a billion-dollar idea, since venture capital still relies heavily on referrals.
“Show me another industry where the way you find your customers is to wait for your friends to introduce them to you,” Mr. Bahat said.
It also had another effect: identifying a much more diverse group of people.
The Haas researchers — Toby Stuart, a professor of entrepreneurship, and Weiyi Ng, a Ph.D. candidate — analyzed current founders using data from People.Co, a recruitment company, and AngelList, a start-up investing site. They focused on companies started since 2005 in the Bay Area and in New York. Then they developed an algorithm to predict who in the tech industry in the same regions might someday start a company.
Some of the results upended assumptions. While only 12 percent of current founders are women, when they searched for potential founders based on the other characteristics of successful founders, 20 percent of the people they found were women.
“If you look at just the professional histories of the people who got funded, then it suggests people who share those histories are much more diverse than the people who get funded,” Mr. Bahat said.
Only 53 percent of founders have technology backgrounds, indicating that a computer science degree is not a requirement. Of potential founders, 8 percent of those with technology backgrounds are women.
The average founder has a master’s degree. College dropouts, meanwhile, were “statistically negligible,” Mr. Ng said. The average age is 38, and 38 percent of venture-backed founders are over 40.
The single most predictive factor determining whether someone started a company was perhaps less surprising: whether they had worked for a venture-backed company in the past. Working at Google was likely to turn someone into an entrepreneur. People who stayed at the same job a long time were unlikely to start companies, while people who had tried and failed to start one were more likely to succeed in raising venture capital on another try.
It is too early to know whether Bloomberg Beta’s strategy will work. For each of the last two years, the firm has found 350 potential founders. Last year, eight of them started companies, three raised venture capital and Bloomberg invested in one. Mr. Bahat said even if the people it finds don’t start companies, they might make good hires at companies in which it invests.
A few other investors also rely heavily on data to make investments. Google Ventures uses data like a start-up’s location and the founder’s track record. WR Hambrecht & Co invests almost solely by algorithm, but said founders as a factor of success have only a 12 percent predictive value; the market they are entering is more important.
“There is no one way to predict the future,” said Thomas Thurston, managing director of WR Hambrecht. “Everyone can put in whatever data they want.”
It’s true that start-up investing will never be a science. It depends too much on timing, luck and human judgment. But a more diverse set of founders might be financed by doing more than waiting for a kid in a hoodie to show up at the door.
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