Age Bias: Young Startup Founders Get More Investor Cash

Blame Mark Zuckerberg. Since he invented Facebook in the third grade (or so it seems) high-tech investors have been throwing more and more money at younger and younger whiz kids. Older entrepreneurs may not like the trend – but it shows no sign of slowing anytime soon.

This is not to say that angels and venture capitalists are biased against older startup founders. They’re not. This is to say that investors are biased for younger startup founders. It’s a distinction VCs are quick to make when you quiz them on the topic. Although, in practical terms, it comes to the same thing. More investment for young founders means less money left for older founders, because there’s only so much investment cash to go around.

“Historically in IT, the hottest sector always absorbs 30% to 40% of the money,” says Paul Kedrosky, a senior fellow at the Kauffman Foundation who focuses on entrepreneurship, innovation and risk capital. “Mobile, local, social is gaining a good chunk of VC money at this time and that puts older entrepreneurs at a disadvantage. There’s no question.”

Young Entrepreneurs, Young Companies, Young Customers

The balance of investment has tilted toward young entrepreneurs, Kedrosky explains, because the markets that investors are most excited about are those that attract young customers.

“They’re essentially scratching their own itch,” Kedrosky says. “You’re getting 20-year-olds saying, ‘I wish I could do XYZ,’ so they go out and get funding to do XYZ. Which is different from someone in his 40s like me going out and trying to do it, saying, ‘I have friends who tell me their kids are interested in this.’ That doesn’t work.”

Investment patterns follow cycles, and one day it could circle back to older entrepreneurs. But right now the cycle is being pedaled by young people, and it’s gaining speed. The No. 1 choice of career among Stanford MBAs last year was to go into business for themselves. A record 16% of the class of 2011 chose to start their own companies at graduation, more than the previous peak, which was 12% during the dot-com boom.

Youngsters Hit the Accelerators

Another driver of this cycle is the popularity of startup accelerator programs. Investors love them, young entrepreneurs love them – and they’re really not an option for older people.

“Accelerator programs tend to be dominated by 20-somethings, and lots of those companies are getting funding now,” Kedrosky says. “But these programs are like summer camps for entrepreneurs, and that’s a luxury you don’t have at 40 or 50.”

It’s a slippery slope, this rush to fund young startups. If investors decide that only 20-year-olds can build companies that work for other 20-year-olds, will they one day conclude, say, that only women can build companies for women? The short answer to that question is “Yes”. VCs have a notoriously strong herd instinct.

The long answer is “Maybe”.

“Should a 40-year-old not focus on a social media or mobile startup? If you believe you can actually give entrepreneurs rational advice, yes, that would be a rational piece of advice for an older entrepreneur,” Kedrosky says. “But that’s the thing about entrepreneurs – you can never tell them what not to do.”