The Real Reason Entrepreneurs Get Funded by Venture Capitalists

I recently got sent a report in advance by CB Insights on the state of venture capital investments and the people dimension behind the deals and dollars.

It’s the first time they’ve done this report because it’s well understood that `Vulture Capitalists’ as they’re sometimes called are a critical lever in the United States (and the rest of the world!) to spur innovation, entrepreneurship and economic growth.

You often hear and read that what really gets venture capitalists excited about the young, emerging, and often unproven companies in which they invest is “the team” or “the founders”.

Yes it’s likely that YOU are the key ingredient.

Who you are is often more important than what you’re doing. Wow them with your sales pitch, energy and drive and you may receive that million dollars your company needs to grow.

In Part 1 of the Venture Capital Human Capital report, CB Insights looks at three characteristics related to founders of venture-backed companies, specifically: race, age & experience and the number of founders per company. They tracked 185 Seed VC and Series A investments to get these results.

I’m looking forward to Part 2 of the report that will look at the gender and educational background/pedigree of founders.

So what did I glean from this report that you may find beneficial or just plain interesting? Here’s my summary:

It’s never too late to start your own business

To my delight the majority of founders were aged 35-44 years (44%) and not these young wonder kids that always seem to be in the news like Mark Zuckerberg of Facebook.

That gives hope to those of you who say you should have started in your 20s – no more excuses, just do it. That said the 26-34 seem to do better and receiving higher amounts of funding.

White supremacy still reigns in the US

Unsurprisingly (say in a sarcastic tone), the majority of people founding businesses were white.

Interestingly though all Asian founding teams are far more successful at raising money ($4.0 million is the average investment) vs all whites ($2.2 million).

Does that mean they create better business models, sell themselves better or are more skilled negotiators?

Experience counts for something

In this study 39% of founders were formerly CEOs/Founders which supports the idea that VCs back experience. I’ve heard this a lot from investors I’ve spoken to.

Many will only invest in someone who’s tried and failed with a previous business before they’ll fork out their cash, because they want to know that you’ve learned from your failures. So go ahead and fail. It could earn you more in the long run – seriously.

Outside of that common previous roles were either Directors or VPs and usually in Sales/Marketing and Product Management/Development.

Going it alone is an option


I’m personally more in favour of having your own business, but expanding your offering through strategic partnerships and collaborations.

The results of this report showed that majority of companies have two or more founders, although over a third are led by one founder.  Also the more founders you have doesn’t necessarily mean you’ll get more funding.

Location, Location, Location


So even if you’re not a real estate owner, it does pay to choose where you will set up your business if you’re in the US or heading htere. New York and California both favor founding duos, while Massachusetts founders going solo do well.

You can read the entire report here.

http://www.cbinsights.com/blog/venture-capital/venture-capital-human-capital-report

By the way here’s a little info about CB Insights (www.cbinsights.com). Theyre a New York city-based information services firm that tracks venture capital activity, both venture capital firms and the companies they invest in.  In addition to venture capital-backed companies, CB Insights tracks private company investments made by angel investors, federal and state government institutions and private equity firms.  CB Insights’ is used by investors, bankers, entrepreneurs and advisors to enhance their research, sourcing and due diligence efforts.

So were the results surprising or did I fail to tell you anything new?

Comments

  1. Mike Whitehead says

    Very interesting – inparticular as this flies in the face of advice I received only last week, where I was told that I would definitely need a team around me rather than go alone & unless I personally had experience in the tech industry I wouldn’t be taken seriously – this report seems to suggest that all I need is to make sure I’ve surrounded myself, whether in collaborations or not, with people experienced in particular areas within my business and done my research well.

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