What factors might indicate that a startup will become a good investment?
One of Silicon Valley’s most successful investment firms, First Round Capital, analyzed 10 years of its data to release a study on what exactly makes a good entrepreneur. And some of the findings might surprise you.
First Round, which has invested in companies like Uber, Birchbox and Fab, wrote in the introduction to its “10 Year Project”:
“We believe that seed investing is much more an art than a science — and there’s no such thing as a formula for success — but analyzing this unique data set of 300 companies and nearly 600 founders turned out to be a fascinating exercise. We looked at the founder characteristics that accompanied successes and not quite successes. Of course there were counterexamples and outliers (we actually removed the biggest outlier of all, Uber, from the study), but some definite themes emerged.”
Sure, there are findings like if you go to an Ivy League school you are geared to succeed, and that “teams with at least one founder coming out of Amazon, Apple, Facebook, Google, Microsoft or Twitter, performed 160 percent better than other companies.”
But First Round also found some nice surprises, such as “companies with a female founder performed 63 percent better than our investments with all-male founding teams.”
The investment firm also found that its startups with founding teams under the age of 25 performed 30 percent above average, with the average age of its top 10 investments being around 32.
Pando’s founder and editor in chief Sarah Lacy posted a Q&A with First Round partner Josh Kopelman on the results that surprised him the most.
Kopelman likened the findings to Moneyball, and said that some of the data showed that they are looking at some wrong stats to predict performance.
“We had thought it was really important to have the certain body type and stance and all of those old truisms about what made a great baseball player,” Kopelman told Pando. “As all those venture truisms started to melt away, it made us more open to seeing things a different way.”
Below, the three top findings that surprised Kopelman the most, but the entire Pando piece is worth reading:
“The one that surprised me the most was about referrals…companies that we discovered through other channels — Twitter, Demo Day, etc. — outperformed referred companies by 58.4 percent. And founders that came directly to us with their ideas did about 23 percent better.”
“The second most surprising one was the one about female founders. I knew we were lucky enough to back Birchbox and Modcloth and One Kings Lane, but I had never seen the quantitative numbers.”
“The fact that having a technical cofounder for an enterprise company helped but a technical cofounder for a consumer company hurt. If you are a technical cofounder for a consumer company you statistically underperformed the average…You can’t underestimate the importance of design when building for consumers.”
Watch the First Round slideshow below on the entire study’s findings:
