Studying "1-in-1,000 fastest growing new ventures" is completely misunderstanding tech. Startup returns are about power-laws and extraordinary outliers. If we instead study the age of founders of tech companies which actually generated almost all of the ecosystem gains over the past few decades:
1. Apple: $2.65T
- Jobs: 21
- Woz: 26
2. Alphabet: $1.73T
- Larry/Sergey: 25ish
3. Microsoft: $2.22T
- Gates: 19
- Allen: 22
4. Amazon: $1.45T
- Bezos: 29
5. Facebook: $0.84T
- Zuckerberg: 19
Looking at just the age of founders instead of other substance is stupid. But if we're just looking at age and nothing else, then younger founders make for better outliers, and generating outliers is the whole point of this endeavor.
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EDIT: With its high market cap, Tesla belongs on this list, and actually had some older founders. Problem: the older founders left the company/were forcibly removed, didn't retain much equity, and aren't credited with much early success when they were actually in charge. Still, some interesting data points.
Tesla: $0.94T
- Elon Musk: 32
- J.B. Straubel: 28
- Martin Eberhard: 43 (forcibly removed due to late/over budget Roadsters)
- Marc Tappening: 39 (left Tesla in 2008)
No - it's statistically unsound to focus on extreme outliers, even if they account for most of the economy. Suppose a single company accounted for 99% of the economy and was founded by an 18-year-old. Would that mean that we should expect 18-year-olds to be the best entrepreneurs in general? Of course not. You can't base broad conclusions on a sample size of one, even if that one is disproportionately influential.
Look at the top 20, 50, and 100 to get a better idea of whether the top 5 observation is robust.
It's not statistically unsound to focus on extreme outliers. In fact, if your data set contains lots of outliers that your statistics can't explain, it's more of the case that your statistics are wrong (I'm not saying the math is wrong, I'm saying you're applying the wrong model to your dataset). This is basically the whole lesson behind books like Black Swan.
I agree with the comment you are replying to. You're commenting on a website of the most successful tech incubator of all time where, at least from a quick glance, all of the top companies were founded by people in their 20s. Given the researches intro sentence of "Many observers, and many investors, believe that young people are especially likely to produce the most successful new firms" I think their conclusion is really just using an invalid viewpoint of what "the most successful new firms" means.
This is more of a problem with statistics than with focusing on outliers.
Per your example, if something has 0 explanation for whatever has 99% of influence, it is just not a useful explanatory mechanism. That doesn't mean there isn't a good explanation.
Statistics exists because people who think they have the explanation for a single important data point are very often wrong.
If you could recognize the causal networks behind a complex system the way a toddler can recognize a cat, after being shown very few examples, there would be no need for statistics.
Unfortunately, you can't. (But it doesn't stop lucky guessers thinking they can.)
Statistics is just one way to get a correct answer, no? Or it may not even be a way to get a correct answer at all. It seems more of a checking mechanism to filter out answers which are not correct.
A scientific hypothesis is correct or not independently of statistical analysis. It's true before it is verified. Statistics is just a social mechanism for demonstrating its correctness to other people (or yourself.)
It's entirely possible for someone to know they're right,
actually be right, and it be uncheckable with statistics. The only difference between an outlier and a lucky guesser is knowledge. Blah blah blah anything that's measured ceases to be a good measure blah blah blah.
Additionally inorganic growth or 'buying other companies' has consolidated many other startups into these giants and it makes any kind of analysis on successful founders ages considerably harder.
Too much analysis of software giants. It's all industry specific.
2/3 Intel founders were about 40. Sam Walton did not own a store until at least age 35. Bell founded AT&T, maybe in historically relative terms the most successful tech company ever, at 37. Jensen founded Nvidia about 30. Warren Buffet bought up Berkshire in his late twenties.
True. I'm just countering the tendency to think that pure youth is best. That seemed to peak with the Elizabeth Holmes mess. Had she gained five years of experience and a more grounded plan of attack with the same level of charisma and ambition it may have turned out more favorably.
This is a very optimistic view considering every part of her methodology was and always will be physically impossible without completely changing how we understand biology.
The implausibility was obvious even at the level of basic sciences. When I heard about Theranos, I checked the units on my last test from an established lab. Glucose and cholesterol -- which can be done with finger pricks -- measure in mg/dl. A standard blood test like a total thyroid test measures in ng/dl so that's one million times higher resolution. Free thyroid is in picograms/dl !!
Right, a lot of Apple fans regularly forget that Apple was nearly bankrupt[1] in the late 1990's until the $150M deal with Microsoft and the return of Steve Jobs. It's almost Apple 1.0 and Apple 2.0. They are the same company pretty much in name only.
For what it’s worth, Elon Musk is not Tesla’s co-founder. He came in as a late investor and I believe one of the terms was that he’ll get the co-founder tag.
Founded in July 2003 by Martin Eberhard and Marc Tarpenning as Tesla Motors, the company's name is a tribute to inventor and electrical engineer Nikola Tesla. In February 2004, via a US$6.5 million investment, X.com co-founder Elon Musk became the largest shareholder of the company and its chairman. He has served as CEO since 2008. [0]
It would be as stupid to base an investment strategy purely on a young age (as your text is implying). Good luck or good bye to your retirement funds this way..
I'd say identifying an underlying trend early (all examples you gave) and then picking the most promising candidate from companies building on that trend, is the key.
But still, there's also management quality, founders that grow as management personalities together with the business, and sheer luck.. point being, uber-successful investing is more an art than science. And surely, not just a young age..
The math on Apple, AWS, Microsoft, and Facebook are not that easy. They are now multi-LOB of companies, with significant revenue coming in from BU's created and run by people who aren't the original founders.
Ex: AWS appears to be Andy Jassy, who was probably 30 or 40. Similar and probably even "older" stories for GCP (Google) & Azure (MS). Their supporting "co-founders" may be even older, like Werner Vogels (63).
But there's plenty of other companies that are great investments that aren't FAANG. Your change of investing in one of these is almost zero and there's so few samples we can't tell the difference between noise and signal.
- Normally distributed endeavors: look at averages, ignore outliers.
- Power law distributed endeavors: ignore averages, focus only on outliers.
In tech, a few companies generate all of the returns. And it's fractal all the way down. E.g. there have recently been 900 U.S. unicorns minted in the past few years (IIRC), accounting for roughly $1T in total market cap. Yet 4 out of the 5 companies on this list are worth more than all of these new unicorns combined.
If you take the attitude "I don't have any chance of investing in one of these outliers", you'll only invest in "safe" things and go broke over time.
> If you take the attitude "I don't have any chance of investing in one of these outliers", you'll only invest in "safe" things and go broke over time.
This is an absurd conclusion from my comment. We still have unicorns and companies that grow 100x and 1000x without being FAANG. Those are great investments. I'd argue that they aren't safe either. I think you're finding a conclusion by looking at the answer. There's also only 4 companies there out of hundreds of thousands. You can't find the signal in the noise. As many others have pointed out here, companies you list also have another common factor: the internet was new. This offsets the industry experience factor that the paper discussed because there was no industry to speak of. This gives younger people an advantage. But there's not really something like that right now.
Ask Warren Buffet - he’s never invested in safe things. /s
Though seriously, looking at Buffet - he invested in incredibly safe companies (ones generally valued at below their book value, at least for the first few decades) and used a bunch of leverage on them to make top-10 global wealth.
It bugs me (seems like it does for you, too) to hear the “you need risk for reward”.
Safe !== broke, and risky!== rich. But too many people equate ”safe” and bonds or index funds (which also won’t make you broke, they just won’t generate generational wealth for the most part).
Is your advice to buy stock in all companies founded by young people from 1976 (Apple) to 2004 (Facebook)? I guess not, you need many other factors that may make impossible to recognize these companies.
Is not possible that it gives you better return of investment if you choose less risky companies? It may be better to make good profit in 90% of your investment that incredible gains on 0.00000001 of it.
I think the point is that you still basically don't have a chance of investing in one of these outliers, so instead of going broke over time because you're playing the wrong game, you go broke over time because you just lose.
Isn't it all about experience - most of those companies were starting from scratch in newish industries where no one had experience. But most companies are doing something where there are other companies doing similar things. For example most successful bio/chem/fin tech companies were formed by people with experience in other companies who understand the tech and market - some younger and many older.
Nowadays if you were looking to fund someones idea for a social media company you might prefer someone who had worked in a senior position in another - perhaps 29 or older rather than 19.
A) As far as I see all these companies were created in a different market, the most recent one from your list created 17 years ago:
1. Apple founded in 1976
2. Google founded in 1998
3. Microsoft founded in 1975
4. Amazon founded in 1994
5. Facebook founded in 2004
6. Tesla founded in 2003
I think it matters to take into consideration when we focus our analysis. The times were then and now. So analysis companies from 70' or early 2000's is different than analysing founded companies in 2020's.
I did not verified yet the dataset attached to the study, but I see that they say
> "Across the 2.7 million founders in the United States between 2007–2014"
so it appears they are studying 2007-2014.
So I have the same skepticism against the article. 2020 is a lot different than 2014. There are some similarities but also a lot of differences in the market, capital, know-how, competition, users expectations and more. What worked back then will not work now.
B) On one side Outliers can be fascinating to study. But for 99% of the population also unuseful in a way. Cannot replicate their pattern individually.
They are in a way a probabilistic "side-effect": they appear when there are enough interactions or data points, but nobody can pin point exactly from which initial data point they will appear. If this would be possible then with time everybody will invest early only companies that will become trillion dollars companies.
>Looking at just the age of founders instead of other substance is stupid.
I think looking at how much money (or) connections they got from their family (or) simply the privilege of having a safety-net as more accurate factor than the age for a successful($) startup.
> Looking at just the age of founders instead of other substance is stupid. But if we're just looking at age and nothing else, then younger founders make for better outliers, and generating outliers is the whole point of this endeavor.
they're not really outliers at all anymore if you're forming distributions and considering the mean.
Makes sense that the high profile founders that started companies when young were largely inventing new industries from scratch. I'm actually struggling to think of a case where that's not true. Stripe kind of fits, but that's arguable.
In the early years, Google was a breath of fresh air; their product (search engine) was miles better than the competition, it looked better, and it wasn't encumbered with ads. That was no gimmick. It's sad, what things have come to.
The public only knows consumer tech startups, which imo is like catching lightning in a bottle & selling it. The key idea/insight probably matters more in consumer, which can benefit from being young or around young people. You also don't get as much of a benefit from experience & professional network as you do in other verticals; B2B SAAS, Deep Tech etc. Without making the distinction between types of companies, pieces like this are silly pop-sci.
Young consumers are also more open to new consumer tech than older customers. Being young and starting a consumer tech company is a lot like having unique industrial knowledge of your target customer.
If you look at how many early stage consumer tech companies were implemented - many of them also throw economics out the window when they are first starting e.g free video hosting and serving without a plan to charge money. I suspect that younger founders are more believable to VCs and investors when they pitch these kinds of ideas then more experienced founders. It's easier to think that inexperienced founders will wise up while thinking that experienced founders never did.
I think family can be an indication of stability. Existing obligations can be factored in ahead of time. The alternative (and this was my case), you can start something in your mid to late 20s, and if wanting a family becomes a factor while the company is neither taking off nor dying, that introduces a new variable. I decided to leave (there were many more reasons), but if I was in a stable situation at 45 maybe I would have decided differently.
I guess it heavily depends on the person. I got a huge boost of motivation and energy to launch something when I got my first kid. I guess it's the opposite for others.
More pressure to ship, but I went 3 days a week when my kids arrived and I don't regret it at all. Now my kids well established in school and have their own interests, I'm ready to focus on work again.
What do you mean? Like having a wife and kids? Or having rich parents and uncles who can pay your expenses while you take risks? Cuz the latter seems like the one most successful founders share.
Regarding the latter, its not the subsidize chance to take a risk, its the subsidized chances, plural. There is a selective evolution towards already wealthy people because everyone else gets one chance and is shut out for the next decade or so working for wages, and god forbid they pursue or get involved in any relationship rite of passage over that next decade, greatly reducing the probability of being able to take a risk without consequences to the relationship.
Except that 80 percent of millionaires in the USA are first generation affluent. Google it, primary source is research conducted for the book the millionaire next door.
The impression I got from that book is that the average millionaire is someone in their late 50s just about to retire, and they need that million+ for retirement. Statistically true, but not really relevant to entrepreneurship IMHO.
Millionaires is probably not the right measure. Look at entrepreneurs. From my observation a lot of them come from families where the parents can help if the business doesn’t work out. This help may come in the form of having a place to move back, help with rent, buy a car, have relatives that have some money to invest. You don’t need millionaire parents for that but it makes a big difference.
1. Apple: $2.65T
2. Alphabet: $1.73T 3. Microsoft: $2.22T 4. Amazon: $1.45T 5. Facebook: $0.84T Looking at just the age of founders instead of other substance is stupid. But if we're just looking at age and nothing else, then younger founders make for better outliers, and generating outliers is the whole point of this endeavor.-----
EDIT: With its high market cap, Tesla belongs on this list, and actually had some older founders. Problem: the older founders left the company/were forcibly removed, didn't retain much equity, and aren't credited with much early success when they were actually in charge. Still, some interesting data points.
Tesla: $0.94T