You're 31 and Have an Idea. Alas! VCs Won't Touch You
When it comes to funding, investors prefer energy over experience
As investors with sacks of risk capital hunt for the next
Flipkart, Ola and Mu Sigma in India, they are betraying a bias, valuing energy
over experience and tech-savviness over wisdom.It worked for them before
-nearly all of India's startups with billiondollar valuations were founded by
people while still in their 20s, a factor encouraging investors to bet on
20-somethings for their dollops of passion, creativity , risk appetite and
freedom from liabilities.
Take angel investor Rajan Anandan. Eight of his 11 investments
last year were in startups founded by people under 30, including SocialCops,
Culture Alley , TargetingMantra and Ziffi. “My sweet spot over the past 18
months is someone who is right out of school, or worked for about three years
and then started a venture,“ said angel investor Rajan Anandan.
Bharati Jacob, managing partner of Seedfund and known best for
spotting bus-ticketing company redBus, has in the past two years backed Voonik,
DailyObjects, Sportskeeda and CarWale, all founded by entrepreneurs under 30.
“All else being equal, I would probably back a younger
entrepreneur,“ said Jacob, whose fund registered a milestone exit from redBus
in 2013.
“The advantage of funding young ones is that they have no fear.
They look with fresh eyes.“
Marquee venture funds, too, are exhibiting a preference for
precocious founders. About 80% of the 15-20 startup teams SAIF Partners funded
as part of its seed programme in the past 15 months are in the 20-30 age group,
as are 25% of the entrepreneurs in Accel Partners' portfolio at the time of
investment. Likewise, about half of the founders in Nirvana Ventures' portfolio
are under 30. And of the nine new tech companies Matrix Partners India has
backed in the past year, seven have founders aged below 30 years.
Rehan Yar Khan, managing partner of Orios Venture Partners, said a
big advantage young founders have over older ones is that they grew up in an
electronic era.
“Kids today have grown up on a diet of cell phones, video games
-their habits and adoption of technology are formed early. So you are looking
at cutting-edge ideas,“ said Khan, an early angel investor in Ola, India's
largest cab aggregator that Bhavish Aggarwal cofounded five years ago when he
was 25. “70-80% of my portfolio is in this age bracket,“ Khan said.
With age on their side, founders in their 20s are able to commit
prime years of their lives to their companies with laser-sharp focus. This,
besides their ability to stay committed to their ideas or adapt and pivot if
required, X are big factors that make them lu crative bets for investors.Young
entrepreneurs are basking in the attention.
Aditya Rao, who founded services startup LocalOye two years ago
when he was 25, in April signed a $5-million fundraise with Lightspeed Venture
Partners and Tiger Global Management. Rao said he met eight investors and
received four term-sheets before he closed the deal. “This is a
once-in-a-lifetime opportunity for me. I can't do it when I'm 35-40 years old,“
he said.
(With inputs from Madhav Chanchani)
DEVIL'S ADVOCATE
Vivek Wadhwa -a fellow at Rock Center for Corporate Governance at
Stanford University and director of research at Center for Entrepreneurship and
Research Commercialization at Duke University -shares his contrarian view on
young entrepreneurs: Venture capital firms prefer younger entrepreneurs because
they can control them more than the old. Older entrepreneurs, being a lot more
business-savvy , won't accept the terms that (investors) offer and won't listen
to them as much. It's happening in India because it's the same VC firms in the
Valley that are in the market, which are copying the West.
But my research has documented that the average age of a
successful tech entrepreneur is 39, and that there are twice as many successful
entrepreneurs over 50 as under 35. Younger entrepreneurs are more audacious,
and are bigger risktakers, and they don't know what can't be done.
But they don't know how to manage businesses, people and finances;
they don't know the basics of networking. So you have to have the young and the
old working together.
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Shonali Advani & Evelyn Fok
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ET9JUL15
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