What makes a good startup founder? It’s a question asked from all angles, on topics ranging from education to technical literacy to personality types. But one of the most interesting debates centers around founder experience.
This debate is divided into several factions. One group sees age—and by extension, experience—as a negative signal. This view has been expressed explicitly by some, and appears implicitly endorsed by several prominent investors. For example, Peter Thiel recently started a fellowship program that invests exclusively in teenagers, and founders in Y Combinator, Silicon Valley’s leading incubator, are an average age of only 26.
Many others believe that experience greatly improves a startup’s chances of success. Proponents of this view point to studies like Aileen Lee’s popular “unicorns” post that found that most billion-dollar companies were started by experienced founders.
Those that take this view, however, are often split on the reason. Some have argued that experienced “serial entrepreneurs” are more successful because they possess some innate skill that helps them succeed. They’re “smart, adapt quickly, and passionate about innovation in a general sense.”
Others credit experience for serial entrepreneurs' success. According to this view, skills and social connections from previous ventures drive success, not innate ability.
So which is it? Youth versus experience? Nature versus nurture?
Are Startups with Experienced Founders More Likely to Succeed?
As mentioned in previous posts, there’s no straightforward definition for startup success. A couple indicators, however, are generally accepted. First, raising money shows that a company has customers and is growing. Second, company exits (usually through an acquisition or IPO) are typically considered positive events for a company. While there are notable exceptions to both—GitHub became very successful before raising any money and Craigslist has been valued as high as $3 billion but shows no intention of selling or going public—such cases are rare.
According to data collected from CrunchBase, by these metrics, the more experience a founder has, the better his or her startup tends to perform. The table below shows the average number of funding rounds and company exit rates by founder experience. Because VCs tend to focus on the big win rather than many small successes, the table also includes “large exits”—acquisitions of at least $100 million or IPOs.
The table above shows experience by founder, not by company. Though this has some obvious problems—companies with multiple founders will be counted multiple times, it implicitly attributes company outcomes to a single founder rather than a founding team—looking at experience by company is no better. Doing so would require assigning a single experience level (and as will be discussed later, single ages and measures of previous success) to founding teams, which is particularly problematic when comparing different size teams.
Nonetheless, to make sure this doesn’t severely alter any conclusions, the table below compares outcomes by company experience, where the company’s experience is assumed to be equal to that of its most experienced founder. As the table shows, the results are little changed.
Therefore, for founder and founding teams, experience is correlated with success.
Nature or Nurture (or just Age)?
Entrepreneurs' second and third efforts tend to more successful than their first companies. Is this the case because of what they learned from previous companies, or because those who want to start multiple companies have innate skills that make them successful?
These arguments aren’t necessarily mutually exclusive—serial entrepreneurs could be strong founders initially and become even stronger as they gain experience. To take an extreme example, Medium’s favorable start is likely attributable to both what founder Ev Williams learned after starting Blogger and Twitter and some natural characteristics in Williams that helped drive the success at all three companies.
We are not, however, all Ev Williams. As the chart below shows, the more companies a founder has started, the worse his or her initial companies perform, as measured by fundraising success. Moreover, despite these early failures, serial entrepreneurs' later companies are more successful than companies started by one-time founders.
This indicates several things. First, serial entrepreneurs don’t all start as successful founders. Notably, people who found successful companies are unlikely to be as willing to start over as people looking to move on from failure, so this conclusion may not be as strong as it first appears. Nevertheless, while early successes likely weed out a number of founders who may have otherwise gone on to be serial entrepreneurs, this result still indicates that a large number of people who are willing to start multiple companies initially fail.
Second, serial entrepreneurs appear to benefit from their experience because founders' second, third, or fourth companies were more successful than one-time founders' first companies. This is important: If the odds of success didn’t change with each successive company, a founder’s fourth company would be expected to perform roughly as well as a one-time founder’s first company. (It would, however, be expected to be higher than a four-time founder’s first company, since those who don’t fail initially would be less likely to start more companies.)
These two results both suggest that learned experience, and not innate ability, drives the success of serial entrepreneurs. In other words, many serial entrepreneurs have to learn how to succeed.
The Effect of Age
There’s another potential explanation for experience’s apparent positive effect: founder age. Some, like Lee, have noted that older founders tend to be more successful. If that’s the case, experience—which is almost certainly strongly correlated with age—may be a red herring. If we control for age, does founding experience still matter?
Within age groups, experience still matters, though the results are a bit mixed. For founders under 30, experience actually has a slight negative impact. For founders between 30 and 49, experience appears to have very little effect on fundraising, but a significant effect on exit rates. Experience has the greatest impact on founders over 50: Those with prior experience are roughly twice as successful as those without.
As the charts above show, the relationship between age and company success is somewhat surprising. Older founders tend to be more successful at raising money—as expected—but companies started by younger founders exit more frequently. Though a detailed study of founder age is well beyond the scope of this post, it’s possible that younger founders would both be more willing to sell quickly and be seen as more enticing acquisition targets. It’s also possible that younger founders pursue riskier ideas that produce more extreme outcomes (receiving no funding on one end and getting acquired on the other).
Overall, these results probably aren’t strong enough to draw any concrete conclusions about founder age. It seems plausible that the success of experienced founders could partially be explained by their age, but it almost certainly can’t explain the entire relationship.
Similarly, the debate over learned skills and innate ability is more complex than is typically presented. Based on the data available, however, the evidence generally seems to tilt in favor of those arguing for experience over youth, and learned skills over innate ones. If nothing else, this should cast doubt on any claims that the entrepreneurial spirit—demonstrated by a willingness to start multiple companies—is by itself valuable in startup founders.
The data above was extracted from the CrunchBase API in December. (Data on individual founders, which was necessary for this analysis, is not available through the bulk export.) Data was analyzed using PostgreSQL and presented with Excel. The scripts, SQL queries, and Excel charts are available in this GitHub folder. The entire dataset is too large to share in GitHub, but I would be happy to provide it to anyone interested.
The data presented above is limited to companies that list founding dates and founders who list their founding relationship with each company. When considering company outcomes, the analysis is also limited to companies that were founded between 2005 and the middle of 2013. Importantly, founders who started companies before 2005 are still considered experienced founders, but those companies were ignored in any analysis about funding and exits.
This creates a number of potential biases. First, CrunchBase data is user-curated, so companies with founding dates are likely to be more successful than those without them (just as very famous people are likely to have more complete Wikipedia pages than less-known celebrities). Moreover, the analysis of founder age depends on birthdays being available and creates the same bias among founders.
There may more subtle problems as well. For instance, founders looking to start another company may delete failures or exaggerate successes on their CrunchBase profile. Similarly, successful founders could have their biographical information backfilled, while unsuccessful founders' information goes unchanged. Because of these and other issues, when interpreting the conclusions above, it’s important to note that CrunchBase data, though as broad as any source available, is not without errors and biases.