Are young founders more likely to build successful companies? New research suggests that this is not the case. Instead, the authors of “Age and High-Growth Entrepreneurship” have found that the most successful founders are middle-aged. Researchers Pierre Azoulay, Benjamin F. Jones, Daniel Kim, and Javier Miranda analyzed newly available government data to discover that most successful founders are over forty when they start their companies, and that the likelihood of starting a successful company increases until around 60 years of age. The authors analyzed success in terms of the likelihood of having a successful exit, and in terms of the chance of a company achieving employment growth in the upper 0.1% of all companies. They found that a 50 year-old founder is twice as likely to start a high-growth company as a 30 year-old entrepreneur.
These findings are significant because they contradict the commonly held view that younger founders are more likely to be successful. This belief is grounded in Planck’s principle — the idea that younger individuals are less influenced by existing ways of thinking and doing business. This view is especially pervasive in the venture capital community. For example, the authors quote Paul Graham, the founder of Y-Combinator, who says investors start to become skeptical of founders over the age of 32. Previous studies have indeed confirmed that successful firms in certain sectors tend to have founders in their twenties and thirties. However, this recent study, which uses IRS, Census Bureau, and venture capital data to build a more comprehensive view of founder characteristics, suggests that the trajectory of founders like Mark Zuckerberg is far from typical. Below are four key takeaways from the study.
- The average founder in the United States is 41.9 years old. The authors took into account the age of all entrepreneurs who founded a new venture with at least one employee between 2007 and 2014. They found that the average age is above forty for founders across all sectors.
- High-growth firms and firms in high-tech industries have older founders than average. Analysis shows that the founders in the top 0.1% for employment growth are 45 years old at the time of founding, on average. The typical age is even higher for firms in high-tech sectors at 45.9 years.
- Venture capital-backed firms have younger founders than average. This is the only category in which entrepreneurs were younger than 40 at the time of founding, with an average age of 39.5 years. The youngest founder community is in New York, where VC-backed companies have an average age of 38.7 years.
- The likelihood of starting a successful company increases with age, but this relationship is not linear. Founders below the age of 25 are consistently disadvantaged relative to their older peers, but the likelihood of success increases significantly between 25 and 35, and again between age 46 and 60.
These findings are in line with previous research by Endeavor and others that identifies networks and experience as important factors for entrepreneurial success. As the authors note, “key entrepreneurial resources (such as human capital, financial capital, and social capital) accumulate with age,” and likely play a large role in allowing entrepreneurs to access the resources they need to grow a successful business.
While this does not mean that very young founders won’t succeed, it does imply that even the most successful young founders will be more successful as they age. In fact, the authors confirm this hypothesis through additional analyses, which show that the market valuation of Microsoft, Apple, Amazon and Google accelerated as their very young founders reached middle age.
Decision makers should keep in mind that the social, human, and financial capital that startup founders accumulate over decades in the workforce is just as important as the individual characteristics of startups themselves. This means that investors and policymakers should take into account characteristics such as an entrepreneur’s years of industry experience, prior wages, and track record with previous startups when assessing their potential to lead high-growth ventures. As shown in the study, these attributes provide a much more reliable set of metrics by which to judge the likelihood of entrepreneurial success than the untestested perception that youth breeds innovation.
Contributed by Liliana Harrington.