Investor finds fertile territory in over-35 entrepreneurs
SAN FRANCISCO Dec 7 (Reuters) - When he started looking around for start-ups in which to invest, Dan Scheinman noticed something: twenty-something entrepreneurs building Internet companies usually had a much easier time lining up early financing from venture capitalists compared to their forty- and fifty- something counterparts.
Age bias, increasingly acknowledged as a widespread phenomenon in Silicon Valley, has created opportunity too.
"I was so excited you would not believe when I saw the pattern," Scheinman, the former head of mergers and acquisitions at Cisco Systems, recalls.
Many start-up investors claim they look for offbeat ideas put forth by gifted entrepreneurs, but in reality they often gravitate toward businesses that resemble past successes. In an era dominated by erstwhile start-ups -- including Apple , Microsoft, Google, and Facebook -- that were founded by twenty-somethings and teenagers, a veritable cult of youth has many investors looking for the same.
But Scheinman, 49, claims good outcomes are possible -- with less competition -- by doing the opposite.
Scheinman has invested directly in eight companies since 2010, all with chief executive officers age 35 or older. On several occasions, he says he has heard the comment, "He doesn't look like the traditional Internet CEO."
The companies range from Think Big Analytics to free mobile video-calling service Tango to cloud-computing services company Arista Networks. Scheinman generally invests $50,000-$250,000 as part of a $1-$2 million funding round. He takes an active role, helping to line up other investors, generally taking a board seat, and providing strategy advice.
Of course, the true merits of Scheinman's strategy will be clear only after a few years, when the companies in which he has invested have either failed, been acquired or gone through initial public offerings.
Little data exists on the average age of entrepreneurs that succeed in raising money.
But in a 2008 paper, "Education and Tech Entrepreneurship," academics from Stanford, the National Bureau of Economic Research, and the Massachusetts Institute of Technology showed that the mean and median age of successful entrepreneurs was 39 at the time of company founding. The authors looked at companies with more than $1 million in sales and at least 20 employees.
Scheinman says he is pro-entrepreneur, no matter the age, but finds it easier to invest off the beaten track.
Another bonus: he manages to avoid the brazen ageism that he has often encountered among younger entrepreneurs. "I'd hear 'Cisco is irrelevant, you're old, you're stupid,'" he says. "The level of hubris among the 25-year-olds, the ones who are getting funding, is very high."
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