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.

ELECTRONIC ERA

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, are big factors that make them lucrative 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-alifetime opportunity for me. I can’t do it when I’m 35-40 years old,“ he said.A big influence is the role-modelling effect of Silicon Valley, where legends such as Microsoft’s Bill Gates, Apple’s Steve Jobs, and Facebook’s Mark Zuckerberg started their companies while in their twenties. Data collected by Harvard Business Review last year showed that at least 46% of all billiondollar startups globally have been founded by entrepreneurs under 35.

VALLEY INFLUENCE

“Having investors from Silicon Valley who have seen fairly young entrepreneurs build successful companies globally helps,“ said 21-year-old Ritesh Agarwal, who founded OYO Rooms at 18. He has since raised more than Rs 160 crore ($25 million) from Sequoia Capital, DSG Consumer Partners, Greenoaks Capital and Lightspeed. “(Lightspeed) never questioned my ability,“ said Agarwal.

He was a Thiel Fellow, a scheme founded by PayPal cofounder Peter Thiel that awards $100,000 to promising young entrepreneurs to forgo college and start up.

Entrepreneur-investors such as Snapdeal’s Kunal Bahl, Flipkart founders Sachin Bansal and Binny Bansal, Portea’s Krishnan Ganesh, Amit Patni of Patni Computers, and Dhiraj Rajaram of Mu Sigma, too, are investing in youth.

“Entrepreneurs need time to do stuff and make mis takes. If you start at 30 you won’t have that much time,“ said Rajaram, who founded Mu Sigma at 29.

“One of my dreams is to be able to start something which will fund entrepreneurs less than 25 years old.“

Not that there aren’t potential downsides to backing teams of barely-out-of-teens entrepreneurs. For one, they come under enormous pressure to grow up in a rush, having to learn negotiating term-sheets and softer aspects such as personal conduct during business meetings.

“They don’t know how to manage businesses, people and finances; they don’t know the basics of networking,“ said Vivek Wadhwa, corporate governance fellow at Stanford University.

(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 businesssavvy , 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 risk-takers, 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.

Source: The Economic Times

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Author:

Neeraj; an entrepreneur & a visionary in the field of Railway, Defense & Automobiles, is a graduate in commerce and a Harvard Business School Alumni. He’s an expert in govt. liasoning & contracting and has an exceptional network & connections at both local as well as global level. He’s an expert in Market Strategy & Planning and has served number of overseas companies as an advisor/consultant. He takes a profound interest in upcoming startups & is very receptive towards ground-breaking ideas & innovations. He likes to brainstorm those ideas and if the values & philosophies matches; he is even ready to invest his resources, serve as a mentor or act as an incubator to futuristic businesses.

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