Where Did Venture Capital Go in Early 2010?
I’m a strong believer that investors invest in people, before they invest in a business plan, or an idea. But until now, I’ve never seen a study of exactly how that plays out for startup founders for current venture-backed companies, specifically: race, age, experience and the number of founders per company.
A new study, just published by CB Insights, titled Venture Capital Human Capital Report, summarizes these three characteristics for private early-stage Internet ventures funded in the US during the first six months of 2010. The significant findings include the following:
- Founders need to live in the right place. No surprises here. California (Silicon Valley), New York (NYC), and Massachusetts (Boston) are the places to be in the US for venture capital attention. Almost 80% of the funding handed out in the US consistently comes from these three locations.
- Whites and Asians lead the race. 87% of funded founders are white, which is not too far above the US population of 77% white. More notably, the second largest group receiving funding was Asians, at 12%, despite comprising only 4% of the population.
- All-Asian founding teams raise the largest rounds. Asian teams in California raised median funding rounds of $4.4M, significantly higher than the $3M raised by mixed or all-white founding teams. In other locations, the trend was more equal, even somewhat reversed in New York and Boston.
- Wunderkinds don’t have the magic touch. The average age of founding teams getting funded is in the Gen-X 35-44 year age range. However, the highest median funding did go to those in age range 26-34 years old. Amazingly, no founding teams in the Gen-Y 18-25 year range received any funding in California.
- Experience does count. Fully 39% of founders funded were formerly CEOs or had founded prior companies. Other common previous roles were executives in Sales, Marketing, and Product Management, all suggesting that VCs back experience.
- More founders generally means more money. Overall the majority of companies have two or more founders, but over a third are led by one founder. More founders does not necessarily result in larger funding rounds, but the highest median funding generally goes to companies which have two or more founders.
- Going solo works better on the East Coast. Co-founder companies are the norm in California, but 40-50% of the startups in New York and Massachusetts have only one founder. In New York, these solo efforts even raised more money, with a median of $4M.
If you don’t live in these corridors, don’t assume that you can simply incorporate in the state, or email your proposals there and be considered like a local. At minimum, you need to get an introduction from a local player, or better yet, set up a local office and network there. Investing is all about people-to-people relationships.
If you are from outside the US, especially Asia, experts tell me that the focus is even more on relationships. George Wang, founder and chairman of the Beijing-based Chinese Professional Network (CPN), recommends that anyone from the West wanting to get involved in Chinese start-ups slow the pace down and “Spend six months and get to know the place and the people.”
If you need funding, focus first on the human side of venture capital, before you rush to pitch your plan. The evidence confirms that from a funding perspective, a successful startup is more about the right people being in the right place at the right time, versus the technology or solution.
|Author(s)||Marty Zwilling (other articles by Marty Zwilling)|
|Original Publication Date||September 3, 2010|
|Related categories||Funding Trends|
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