Middle age may be the best time to get into business, and here’s why

Venture capital firms are tightening their belts. The most recent data has it that cheque sizes are halving from an average of $15 million to $7 million, and fewer ideas are finding backers. A funding winter has set in. So, this is a good time to examine a popular narrative: Firms founded by young people are more likely to get funded.

Truth be told, this is a lie the technology start-up ecosystem has spread over the years. Much of the blame for creating this narrative lies at the door of firms at Silicon Valley that propped up poster boys such as Mark Zuckerberg, Bill Gates and Steve Jobs. “I want to stress the importance of being young and technical. Young people are just smarter,” Zuckerberg famously said when addressing an audience at Stanford University. How could you argue with him then?

He was 19, had founded Facebook, and was a billionaire by 30. The more thoughtful computer scientist and founder of start-up accelerator Y-Combinator Paul Graham fanned the fires some more when he famously said, “The cut-off in investors’ heads is 32 ... after 32, they start to be a little sceptical.” To be fair to Gates and Jobs, they never deployed the “younger-is-smarter” card.

But between Zuckerberg and Graham’s assertions, the media frenzy and a systematically mounted effort by the venture capital ecosystem that followed, found many takers. The narrative traveled to all parts of the world, India included. So much so that a founder’s age is one among the metrics investors consider when examining which firms to fund.

“But when the data is sliced, the truth looks very different,” points out the New Delhi-based private equity investor Amit Ranjan, who co-founded SlideShare. The company he founded got acquired by LinkedIn for $119 million in in May 2012. Post that, he had put in a stint with the Government of India as well where he was chief architect of Digilocker that most of us use to download and store official documents. “People who understand frontier technologies are inevitably domain experts. It takes years to become one. Young people don’t have that kind of expertise,” he says and which is why Ranjan is among those who choose to ignore the ‘young billionaire techie’ narrative.

Between the presentations he is a witness to in his day job and the data in the public domain, what we know about the technology ecosystem is that older entrepreneurs have an advantage. One among the most authoritative studies on this theme appears in a 2020 paper published in the American Economic Review where the authors investigate the relationship between age and high growth entrepreneurship.

Upon studying 5,000 people and on the basis of conversations with those who managed to breach the $1 million barrier, the authors wrote, “We find no evidence to suggest that founders in their 20s are especially likely to succeed. Rather, all evidence points to founders being especially successful when starting businesses in middle age or beyond, while young founders appear disadvantaged.”

The is true across the world. Those who succeed earlier in the software business begin to make their first forays as entrepreneurs in the early 40s. As opposed to that, when it comes to biotech the average age is closer to 47. But in a very small case of technology power that leverage social media and target young people, the average age drops dramatically. And this is where the Zuckerberg-narrative fits in so well.

What stays conveniently untold is that Jobs’ biggest success, the iPhone, happened when he was 52. And while Gates hit the billionaire list soon after Microsoft went public in 1986, it would take the company a decade longer under him to create Windows 95 and fundamentally alter how people interact with computers. He was 40 then.

It is inevitable then that we ask, why do venture capital firms place a premium on the young when evidence exists that older founders are more capable? The Harvard Business Review (HBR) did a deep dive on the theme and figured most older entrepreneurs have the mental muscle, maturity, and some cash in the bank to hang in there for longer until they can negotiate a good deal. So, it makes sense for most investors to look for “younger entrepreneurs than the more experienced founders. Otherwise, the research insists, on average, 45 is a sweet spot to get into business.

The times we live in, funds will chase those who present the highest potential to offer returns. It may be a matter of time before a new narratives dominate the headlines—of older entrepreneurs taking charge.