Posted Wednesday, November 14th, 2007 at 6:06 pm under companies, me.

Is Andrew Parker secretly running Union Square Ventures?

Fred Wilson stirred up the entrepreneurial blogosphere 6 months ago with a series of posts wondering about the influence of founder age on startup success. I wrote one of my typically long comments.

Today I was making myself a coffee, and thinking about how fast/slow I can move, and how that’s changed over the years. When I was 24 I perhaps had more energy, but I often acted in a quite unfocused way. Now I’m 44, and I still have tons of energy. E.g., I was up coding last night until 6:30am, and then got up at 10am this morning and continued, so I’m not exactly loafing around with slippers and a pipe reflecting on my glory days. But I also have 3 kids, and other things going on. I have to act in a much more focused way or I couldn’t do the things I want to do.

But….., I then thought, the life of your average VC probably has some strong similarities. A couple of kids, insanely busy when working, regularly carving out quality time for family, needing to stay very organized and on top of things, needing to keep multiple balls rolling, etc. Those thoughts led me to reconsider Fred’s posting, but in the context of VCs.

Might it be that the best VC general partners would actually be a bunch of 24 years olds? Of course they could have some older guys as analysts. What do 40-50 year old VCs have that 20-30 year olds don’t that makes them more qualified and better as VCs? If you want to argue that experience makes the older better, you probably need to argue that for entrepreneurs too. If you want to argue that the energy of youth makes for a better entrepreneur, you might need to argue that for VCs too. If you want to argue that young founders have unique insight into what products will be successful, you might think the same would be true of young VCs — if there were any.

It takes a massive amount of work to create and build a startup. Unless you’re a superstar, it’s also a huge amount of work to get funded. You have to go begging and scraping, on bended knee, hat in hand, to make mature and otherwise sober people with a lot of money believe in you. And that’s all done against a background of very steep odds. Similarly, it’s a massive amount of work to raise a venture fund. You have to make even more mature and more sober people with even more money believe in you. And you have to do it in a much less forgiving environment, also against steep odds.

Thirty or even twenty years ago, most CEOs would probably have scoffed at the idea that a 20-year-old could start and run a company, and sell it for tens or hundreds of millions, or even a billion, or take it public. We now know that that actually happens, and the idea that the very young can do it, including getting financial backing, is no longer foreign. Might not the same one day be true for fund managers? When will we see the first VC fund run by a couple of twenty-somethings? Will they exhibit a marked preference for funding older founders?

Back when Fred was posting, I pointed Howard Gutowitz to one of the postings. A couple of days later, Howard told me that he’d talked about it to his brother:

Robert made what is actually an interesting suggestion: get a figurehead 26 year old to be the CEO. Turn the old game around.

I think that’s pretty amusing.

Maybe Andrew Parker is actually running Union Square Ventures. Turn the old game around.

This entry was posted on Wednesday, November 14th, 2007 at 6:06 pm and is filed under companies, me. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

  • ana

    There is a general answer to this question

    “What do 40-50 year old VCs have that 20-30 year olds don’t that makes them more qualified and better as VCs? If you want to argue that experience makes the older better, you probably need to argue that for entrepreneurs too. If you want to argue that the energy of youth makes for a better entrepreneur, you might need to argue that for VCs too. If you want to argue that young founders have unique insight into what products will be successful, you might think the same would be true of young VCs — if there were any.”

    The answer lies in the role of reputation in financial intermediation. Think of the following simplified model: the entrepreneurs each hold a project based on a technology of unknown successfulness. The investors cannot assess the quality of the projects, either because they don’t have the skill, or they don’t have the time. This situation opens the market to VCs. The VCs take a payment (fixed, share of profit, however you want to define it). In exchange for this payment the VCs evaluate the technologies and monitor the projects. The investor doesn’t have to worry about assessing the entrepreneur’s skill and diligence because the VC does that as an agent for the investor. In this simple model (and in reality) we don’t have an infinite layer of control in which a meta agent assesses and monitors the performance of the VC and so forth. Instead the investor (a dumb or blind investor without a technology evaluation function or monitoring task) blindly hands the money over to the VC to administer. “Blindly” means without a sophisticated evaluation function, but not at random: based on reputation. This repuational mechanism is what closes the model and prevents the infinite layers. Since the investor is blind the VC’s role is inherently fraught with moral hazard in a way that the entrepreneur’s is not (because the entrepreneur is evaluated and monitored). Each VC who does a bad job loses out on their payment. But the level of payment is a function of the VC’s reputation. A VC with a better reputation has more to lose (the entire stock of reputation besides just the single payment), so their moral hazard is lower. This is the reason the blind investor will choose the VC with a reputation
    to lose.

    There is of course the complication (to the model) of skill or “insight” into the technology, which benefits both the entrepreneur and the VC. But again, while the VC has a function to (imperfectly) assess or reveal the quality of a project’s technology, how could a novice VC reveal their skill or insight? The VC is not inspected by another layer. Only successful employment of their skill will contribute to their reputation. Diligence and skill combine into reputation. Reputation in an entrepreneur is also of value and will probably lead to a higher valuation of their next project, but it’s not make or break as in the case of the VC.

    If VCs tend to be older than entrepreneurs, financial intermediaries (investment firms, banks etc) tend to be older than start-up companies too. It’s for similar reasons. The speed of technological progress with the internet is so high that indeed a decade of age difference gives a technological edge to a cohort. In this new world there are also these companies whose success depends very very strongly on choice of technology, which can blow up starting capital almost instantly dwarfing any incremental mechanisms that would lead to older CEOs of large companies. This has brought young CEOs and numerous VCs. So the skill needed in a CEO is much more technology-weighted than in the past. But the change in required skills is bigger in the entrepreneur than in the financial intermediary. The financial intermediary may have to be more technology savy (or emply experts), but not in a 1-1 proportion with the entrepreneur (you still don’t need to be able to lay an egg in order to judge an egg). The basic principle of reputation in financial intermediation still holds. Someone’s first trick can’t be a VC trick.

  • ana

    There is a general answer to this question

    “What do 40-50 year old VCs have that 20-30 year olds don’t that makes them more qualified and better as VCs? If you want to argue that experience makes the older better, you probably need to argue that for entrepreneurs too. If you want to argue that the energy of youth makes for a better entrepreneur, you might need to argue that for VCs too. If you want to argue that young founders have unique insight into what products will be successful, you might think the same would be true of young VCs — if there were any.”

    The answer lies in the role of reputation in financial intermediation. Think of the following simplified model: the entrepreneurs each hold a project based on a technology of unknown successfulness. The investors cannot assess the quality of the projects, either because they don’t have the skill, or they don’t have the time. This situation opens the market to VCs. The VCs take a payment (fixed, share of profit, however you want to define it). In exchange for this payment the VCs evaluate the technologies and monitor the projects. The investor doesn’t have to worry about assessing the entrepreneur’s skill and diligence because the VC does that as an agent for the investor. In this simple model (and in reality) we don’t have an infinite layer of control in which a meta agent assesses and monitors the performance of the VC and so forth. Instead the investor (a dumb or blind investor without a technology evaluation function or monitoring task) blindly hands the money over to the VC to administer. “Blindly” means without a sophisticated evaluation function, but not at random: based on reputation. This repuational mechanism is what closes the model and prevents the infinite layers. Since the investor is blind the VC’s role is inherently fraught with moral hazard in a way that the entrepreneur’s is not (because the entrepreneur is evaluated and monitored). Each VC who does a bad job loses out on their payment. But the level of payment is a function of the VC’s reputation. A VC with a better reputation has more to lose (the entire stock of reputation besides just the single payment), so their moral hazard is lower. This is the reason the blind investor will choose the VC with a reputation
    to lose.

    There is of course the complication (to the model) of skill or “insight” into the technology, which benefits both the entrepreneur and the VC. But again, while the VC has a function to (imperfectly) assess or reveal the quality of a project’s technology, how could a novice VC reveal their skill or insight? The VC is not inspected by another layer. Only successful employment of their skill will contribute to their reputation. Diligence and skill combine into reputation. Reputation in an entrepreneur is also of value and will probably lead to a higher valuation of their next project, but it’s not make or break as in the case of the VC.

    If VCs tend to be older than entrepreneurs, financial intermediaries (investment firms, banks etc) tend to be older than start-up companies too. It’s for similar reasons. The speed of technological progress with the internet is so high that indeed a decade of age difference gives a technological edge to a cohort. In this new world there are also these companies whose success depends very very strongly on choice of technology, which can blow up starting capital almost instantly dwarfing any incremental mechanisms that would lead to older CEOs of large companies. This has brought young CEOs and numerous VCs. So the skill needed in a CEO is much more technology-weighted than in the past. But the change in required skills is bigger in the entrepreneur than in the financial intermediary. The financial intermediary may have to be more technology savy (or emply experts), but not in a 1-1 proportion with the entrepreneur (you still don’t need to be able to lay an egg in order to judge an egg). The basic principle of reputation in financial intermediation still holds. Someone’s first trick can’t be a VC trick.

  • Mike

    The truly valuable VCs bring not only money, but bring to bear the full extent of their personal network. It takes time to build a network. Take, for example, the addition of Al Gore to Kleiner. If you’re a clean tech startup, and you get funded by KP, the fact that Al Gore can pickup the phone and call the CEO of GM to make an introduction is a unique value that typically can only come with being around long enough. The fact that John Doerr can bring Eric Schmidt to help support Larry and Sergey is yet another example of something that older VCs can bring to the table that a younger VC typically could not. To me, that’s the biggest argument for age in the role of venture capital.

  • Mike

    The truly valuable VCs bring not only money, but bring to bear the full extent of their personal network. It takes time to build a network. Take, for example, the addition of Al Gore to Kleiner. If you’re a clean tech startup, and you get funded by KP, the fact that Al Gore can pickup the phone and call the CEO of GM to make an introduction is a unique value that typically can only come with being around long enough. The fact that John Doerr can bring Eric Schmidt to help support Larry and Sergey is yet another example of something that older VCs can bring to the table that a younger VC typically could not. To me, that’s the biggest argument for age in the role of venture capital.

  • http://blogs.fluidinfo.com/terry terrycojones

    Hi Mike

    I agree, and would argue that the same is true in the entrepreneurial world. Older and more experienced entrepreneurs have a much wider and deeper network of people they can draw upon for (or draw into) a startup. I know hundreds of great people that I can ask for advice, get introductions from, and work with to some extent – and that’s pretty much all due to an extra 20 years of being out of college. When I was done as an undergrad I knew a handful of other 22-year-olds, and most of them I certainly wouldn’t have wanted to work with. OTOH, I was involved very early on (1986) with Micro Forte (http://www.microforte.com/), and they’re still going.

    Anyway, the main point is that I think there are strong parallels between the two worlds, and I think you’ve illustrated another.

  • http://jon.es Terry Jones

    Hi Mike

    I agree, and would argue that the same is true in the entrepreneurial world. Older and more experienced entrepreneurs have a much wider and deeper network of people they can draw upon for (or draw into) a startup. I know hundreds of great people that I can ask for advice, get introductions from, and work with to some extent – and that’s pretty much all due to an extra 20 years of being out of college. When I was done as an undergrad I knew a handful of other 22-year-olds, and most of them I certainly wouldn’t have wanted to work with. OTOH, I was involved very early on (1986) with Micro Forte (http://www.microforte.com/), and they’re still going.

    Anyway, the main point is that I think there are strong parallels between the two worlds, and I think you’ve illustrated another.