4 Factors That Predict Startup Success, and One That Doesn%u2019t [Harvard Small Business]

4 Factors That Predict Startup Success, and One
That Doesn’t [Harvard Small Business]
What makes a venture capital investment successful? Some of the most interesting data on this
question comes from an analysis published last year by the venture capital firm First Round
Capital. The firm’s unique data set comprises information on over 300 companies and nearly 600
founders, including founder characteristics such as age, gender, education, firm location, and
prior work and startup experience. The study found several correlates with success — some
reassuring, some surprising.
First, it found that high-performing investments tend to have at least one female founder.
The data also shows that younger founders and founders with prestigious educational
backgrounds or prior experience in large technology companies tend to be more successful.
There’s evidence that startup success is somewhat geographically diverse, not limited to Silicon
Valley.
Younger founding teams outperformed older ones. The research also looked at founder age,
education, and experience. The average age of an entrepreneur is approximately 40, and there is
reason to think that entrepreneurs improve with age.
Teams with at least one founder who went to an elite school (defined by First Round as Ivy
League, Stanford, or MIT) tended to perform better.
In First Round’s portfolio, 38% of the companies had one founder that went to one of those
schools; the study found that those companies performed about 220% better than other teams.
First Round found that teams with at least one founder coming out of Amazon, Apple, Facebook,
Google, Microsoft, or Twitter performed 160% better than other companies. Founding teams
with experience at any of those tech companies also landed pre-money valuations nearly 50%
larger than their peers.
First Round companies started outside New York City and the San Francisco Bay Area
performed just as well as those founded in traditional new-venture hubs. Twenty-five percent of
the investments in the data set were outside these cities and, on average, performed slightly
better than the rest.
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