Synopsis
There is a widespread belief that the most triumphant entrepreneurs are young. Bill Gates, Steve Jobs, and Mark Zuckerberg were all in their early twenties when they kick-started what became game-changing companies. But does this notion hold true across the board? Surprisingly, the average age of entrepreneurs when they establish their companies is 42. However, what about the crème de la crème of start-ups founders? Could it be that companies initiated by younger entrepreneurs tend to be exceptionally successful? Research indicates that among the top 0.1% of start-ups, gauged by growth in their initial five years. The founders commenced their ventures at an average age of 45.
Intro
It is commonly believed that the most triumphant entrepreneurs are youthful. The likes of Bill Gates, Steve Jobs, and Mark Zuckerberg were barely out of their twenties when they launched companies that would revolutionise the world. But do these renowned cases represent a broader trend? Accounts from venture capitalists (VCs) and media often imply so. When we scrutinised founders who garnered TechCrunch awards over the last decade, we found the average age at founding to be a mere 31. Similarly, those recognised by Inc. magazine as founders of the fastest-growing start-ups in 2015 had an average age of 29. Echoing these findings, Paul Graham, a co-founder of Y Combinator, once jestingly remarked, “the cut-off in investors’ heads is 32… After 32, they start to be a little skeptical.” However, is this perspective accurate?
Disproving the Myth of the Young Entrepreneur
Recently, a team of researchers delved into the age of all business founders in the UK in recent years. They leveraged confidential administrative datasets from the Office for National Statistics. We discovered that the average age of entrepreneurs at founding is 42. Nonetheless, most of these new businesses are likely small-scale enterprises with no aspirations for significant expansion (such as local services like dry cleaners and restaurants).
To focus on businesses similar to the archetypal high-tech start-up, we employed various criteria. These included whether the firm obtained patents, secured VC funding, or operated in industries with a high concentration of STEM workers. Additionally, we focused on the firm’s location, particularly whether it resided in entrepreneurial hubs like Silicon Valley. Generally, these more detailed analyses do not alter the primary conclusion: the average age of high-tech founders falls in the early forties.
However, these averages conceal substantial variation across sectors. In software start-ups, the average age is 40, and younger founders are not uncommon. On the other hand, younger individuals are less common in industries such as oil and gas or biotechnology. In these sectors, the average age hovers around 47. The prevailing notion of young founders may stem from disproportionate exposure to a handful of consumer-facing IT sectors, such as social media. This is rather than from equally significant endeavours in heavy industry or business-to-business sectors.
But what about the most successful start-ups? Could it be that companies founded by younger entrepreneurs tend to be exceptionally successful? Among the top 0.1% of start-ups based on growth in their initial five years, they discovered that the founders initiated their ventures, on average, at the age of 45. These top-performing firms were identified based on employment growth. The age finding remains consistent when considering firms with the swiftest sales growth. Founder age also remains similarly high for start-ups that successfully exit through an IPO or acquisition. In essence, when examining the most successful firms, the average founder age tends to rise, not fall. Overall, empirical evidence indicates that successful entrepreneurs are typically middle-aged, not young.
Partially, middle-aged founders initiating high-growth firms mirror the tendency of middle-aged individuals towards entrepreneurial ventures. Middle-aged individuals take many more entrepreneurial endeavours. However, when examining success rates among those who start a company, the evidence against youthful entrepreneurial success becomes more pronounced. Among those who have launched a firm, older entrepreneurs exhibit substantially higher success rates. Our evidence indicates that entrepreneurial performance escalates significantly with age before reaching its peak in the late fifties. If faced with two entrepreneurs and armed with only their age. Betting on the older one, on average, yields better results.
Why might this be? While various factors could account for the age advantage in entrepreneurship, we discovered that work experience plays a pivotal role. Compared to founders with no relevant experience, those with at least three years of prior work experience. They were 85% more likely to establish a highly successful start-up in the same niche industry as their start-up.
But What About Steve Jobs?
Despite scrutinising exceptionally successful firms—the top 0.1% by growth, as well as the rare instances of successful acquisition or IPO. One might still ponder whether even more extraordinary outlier firms are launched by the very young. It is interestingly, however, to examine notable outliers: Bill Gates, Steve Jobs, Jeff Bezos, or Sergey Brin and Larry Page. The peak growth rates of their businesses, in terms of market capitalisation, occurred when these founders were middle-aged.
Steve Jobs and Apple introduced the company’s most lucrative innovation, the iPhone, when Jobs was 52. Jeff Bezos and Amazon have transcended mere online book selling, with Amazon’s future market cap growth rate peaking when Bezos was 45. These prominent founders may not have peaked in their youth. Exceptionally talented entrepreneurs may possess extraordinary acumen—enabling them to succeed at a young age. Yet, they can still achieve greater success as they mature. Hence, there is no inherent contradiction between the existence of exceptional young entrepreneurs. The general trend for founders to reach their entrepreneurial zenith later in life remains intact.
Why Do VC Investors Tend to Back Young Founders?
In light of this evidence, why do some VCs persist in favouring young founders? A definitive answer to this question requires more data. However, the researchers believe that two mechanisms could be at play.
Firstly, many VCs may operate under the misconception that youth is the secret sauce of successful entrepreneurship. In essence, VCs may simply be mistaken.
It is tempting to attribute age bias as the primary explanation for the disparity between our findings and investor behaviour. However, there is a more benign possibility: VCs are not solely seeking to identify firms with the highest growth potential. Instead, they may seek investments that promise the highest returns. And it is plausible that young founders are more financially constrained than their more experienced counterparts, prompting them to offer investors a greater stake at a lower cost. In other words, younger entrepreneurs may present a more favourable “deal” for investors than more seasoned founders.
The next phase for researchers is to delve into what precisely accounts for the advantage of middle-aged founders. For instance, does it stem from greater access to financial resources, broader social networks, or specific forms of experience? Meanwhile, it appears that advancing age is a significant asset, not a drawback, when launching the most successful firms.
Source: Harvard Business Review.
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