The Truth About Entrepreneurs: Twice As Many Are Over 50 As Are Under 25 • Hacker News Board

Re: The Truth About Entrepreneurs: Twice As Many Are Over 50 As Are Under 25

#31

Post by jules » Sat, Apr 27, 2013, 9:42 AM UTC

pg wrote: post #29

jpdoctor wrote: post #3

VCs tend to break investments into two classes: "Better, faster, cheaper" and "Brave New World" The "Brave New World" ideas put 25 year olds on equal/better footing than 50 year olds, since they tend to be everything new. The "Better Faster Cheaper" ideas leave the 50 year-olds with the advantage: They have a better sense of what the market wants, and what features are important/not important, since they've been work…

VC's can take much bigger advantage of a 25 year old than a 50 year old This is a persistent myth, but if you examine the math it doesn't work out. A VC firm could improve their returns by at most 2x or 3x by extracting really good terms from an inexperienced founder. But that's rounding error compared to the 100x difference between a big success and a small one. This is a subset of the more general rule that there i…

> This is a persistent myth, but if you examine the math it doesn't work out. A VC firm could improve their returns by at most 2x or 3x by extracting really good terms from an inexperienced founder. But that's rounding error compared to the 100x difference between a big success and a small one.

Can you explain this? If by some method you can get overall 2x the returns, why does it matter that most of the income is in the big hits? 2x is 2x regardless.

Re: The Truth About Entrepreneurs: Twice As Many Are Over 50 As Are Under 25

#32

Post by meric » Sat, Apr 27, 2013, 10:55 AM UTC

jules wrote: post #31

pg wrote: post #29

Earlier quoted context omitted.

VC's can take much bigger advantage of a 25 year old than a 50 year old This is a persistent myth, but if you examine the math it doesn't work out. A VC firm could improve their returns by at most 2x or 3x by extracting really good terms from an inexperienced founder. But that's rounding error compared to the 100x difference between a big success and a small one. This is a subset of the more general rule that there i…

> This is a persistent myth, but if you examine the math it doesn't work out. A VC firm could improve their returns by at most 2x or 3x by extracting really good terms from an inexperienced founder. But that's rounding error compared to the 100x difference between a big success and a small one. Can you explain this? If by some method you can get overall 2x the returns, why does it matter that most of the income is in…

You could've put your money in a company that made 200x instead. (VC's don't have unlimited capital.)

Re: The Truth About Entrepreneurs: Twice As Many Are Over 50 As Are Under 25

#33

Post by HarryHirsch » Sat, Apr 27, 2013, 11:19 AM UTC

jared314 wrote: post #28

If the data was collected in the last 10 years, I would be curious as to what percentage of the over 50 crowd of entrepreneurs had their existing retirement plans affected by the last two economic downturns, thus influencing their decision to go into, and in some cases back into, building businesses.

Oh yes. There was this rash of startups in 2003 when there was the first big round of layoffs from chemical and pharmaceutical companies and venture capital wasn't quite as tight as it is now.

Re: The Truth About Entrepreneurs: Twice As Many Are Over 50 As Are Under 25

#34

Post by InclinedPlane » Sat, Apr 27, 2013, 11:44 AM UTC

jules wrote: post #31

pg wrote: post #29

Earlier quoted context omitted.

VC's can take much bigger advantage of a 25 year old than a 50 year old This is a persistent myth, but if you examine the math it doesn't work out. A VC firm could improve their returns by at most 2x or 3x by extracting really good terms from an inexperienced founder. But that's rounding error compared to the 100x difference between a big success and a small one. This is a subset of the more general rule that there i…

> This is a persistent myth, but if you examine the math it doesn't work out. A VC firm could improve their returns by at most 2x or 3x by extracting really good terms from an inexperienced founder. But that's rounding error compared to the 100x difference between a big success and a small one. Can you explain this? If by some method you can get overall 2x the returns, why does it matter that most of the income is in…

The point pg is making is that it's not an averages game, it's a lottery game.

Say there are two different people playing the lottery. Every day they buy a number of tickets. Person A buys tickets in a pool along with someone else. Person B buys tickets on their own. Thus, if Person A wins the lottery they'll have to split their winnings, whereas Person B gets to keep it all.

OK, so who ends up being better off? The answer to that is entirely decoupled from their share of the lottery winnings, what matters is entirely whether or not they won the lottery. In terms of VC financing, the RoI from "winning the lottery" by hitching your horse to a small company that grows until a multi-billion dollar enterprise in a few years is going to dwarf any other aspect of investing and returns. Thus it's vastly more important to ensure that you are doing everything possible to maximize "winning the lottery" rather than trying to maximize the share of the prize you'll get. 2x or 3x may seem like a lot, but it's nothing compared to the 100x, 1000x, or 10000x that you'll get from being on the ground floor of the next big thing.

For example, Horace Rackham was an early investor in Ford and he received a 1300x RoI, Peter Thiel received a 3000x RoI on his investment in Facebook, while Kleiner and Sequoia capital each turned $12.5 million into $2 billion through their investments in google.

Re: The Truth About Entrepreneurs: Twice As Many Are Over 50 As Are Under 25

#35

Post by james1071 » Sat, Apr 27, 2013, 12:15 PM UTC

jules wrote: post #31

pg wrote: post #29

Earlier quoted context omitted.

VC's can take much bigger advantage of a 25 year old than a 50 year old This is a persistent myth, but if you examine the math it doesn't work out. A VC firm could improve their returns by at most 2x or 3x by extracting really good terms from an inexperienced founder. But that's rounding error compared to the 100x difference between a big success and a small one. This is a subset of the more general rule that there i…

> This is a persistent myth, but if you examine the math it doesn't work out. A VC firm could improve their returns by at most 2x or 3x by extracting really good terms from an inexperienced founder. But that's rounding error compared to the 100x difference between a big success and a small one. Can you explain this? If by some method you can get overall 2x the returns, why does it matter that most of the income is in…

Suppose we select the top 100 start-ups according to whatever criteria we use.

We can now proceed in one of two ways. a) Make the minimum offer that we know all of the start-ups will accept.We now have a portfolio of 100 investments.

b) Make a lower offer that only some of he start-ups will accept. We now have a portfolio of say 90 investments.

The question is which portfolio will portfolio will perform better. If there is no difference in average quality of start-up between the portfolios in a) or b), then portfolio b) will do better (because we have obtained better terms).

There is no guarantee that this will happen. It could be that he or she has lost the only 10 companies that will be successful.

This is the problem that the VC has to face.

Re: The Truth About Entrepreneurs: Twice As Many Are Over 50 As Are Under 25

#36

Post by jules » Sat, Apr 27, 2013, 12:17 PM UTC

InclinedPlane wrote: post #34

jules wrote: post #31

Earlier quoted context omitted.

> This is a persistent myth, but if you examine the math it doesn't work out. A VC firm could improve their returns by at most 2x or 3x by extracting really good terms from an inexperienced founder. But that's rounding error compared to the 100x difference between a big success and a small one. Can you explain this? If by some method you can get overall 2x the returns, why does it matter that most of the income is in…

The point pg is making is that it's not an averages game, it's a lottery game. Say there are two different people playing the lottery. Every day they buy a number of tickets. Person A buys tickets in a pool along with someone else. Person B buys tickets on their own. Thus, if Person A wins the lottery they'll have to split their winnings, whereas Person B gets to keep it all. OK, so who ends up being better off? The…

If strategy A is buying lottery tickets at $5 and strategy B is buying the lottery tickets at $10, A is twice as good off. It doesn't matter that the earnings are dominated by one single winning lottery ticket; strategy A is always twice as good as strategy B. So getting terms that are twice as good for a VC will double their expected earnings.

Sure, if you just consider the winning ticket, it doesn't matter whether you are paying $5 or $10 for it. The thing is that you don't know whats the winning ticket, and it does matter whether you are paying $5 or $10 for each.

Re: The Truth About Entrepreneurs: Twice As Many Are Over 50 As Are Under 25

#37

Post by notacoward » Sat, Apr 27, 2013, 12:17 PM UTC

pg wrote: post #29

jpdoctor wrote: post #3

VCs tend to break investments into two classes: "Better, faster, cheaper" and "Brave New World" The "Brave New World" ideas put 25 year olds on equal/better footing than 50 year olds, since they tend to be everything new. The "Better Faster Cheaper" ideas leave the 50 year-olds with the advantage: They have a better sense of what the market wants, and what features are important/not important, since they've been work…

VC's can take much bigger advantage of a 25 year old than a 50 year old This is a persistent myth, but if you examine the math it doesn't work out. A VC firm could improve their returns by at most 2x or 3x by extracting really good terms from an inexperienced founder. But that's rounding error compared to the 100x difference between a big success and a small one. This is a subset of the more general rule that there i…

OK, so they have a bigger pool of investments to choose from if that pool includes founders who would reject lousy terms. I get that, but it doesn't change the math. VCs can still only invest in so many companies. Perhaps having a 50% larger pool allows them to raise the bar slightly on who they fund, but the difference that makes is still proportional to how well they can pick winners in the first place. That's probably a smaller effect than many other biases to which they're prone, and far smaller than the difference in what they get out of each deal based on the terms. Many small wins or few big ones, "2x is 2x" still seems like the guiding principle for a firm operating alone.

The argument that really seems worth considering, but which wasn't made, is that firms do not operate alone. Offering better terms is a competitive advantage vs. other firms who might vie to fund the same opportunities. Even minor changes such as paying one's own legal bills seem to generate substantial goodwill among entrepreneurs. When there are multiple firms involved, friendlier terms might be good strategy. That still does nothing for founders who struggle to find funding on any terms, though. Cases like those you cite are the exceptions; it's still "race to the bottom" in the common case.

Re: The Truth About Entrepreneurs: Twice As Many Are Over 50 As Are Under 25

#38

Post by usablebytes » Sat, Apr 27, 2013, 1:10 PM UTC

I don't think there is much to these statistics; surely, it was different 20 years back and it will be 20 years from now.

Re: The Truth About Entrepreneurs: Twice As Many Are Over 50 As Are Under 25

#39

Post by InclinedPlane » Sat, Apr 27, 2013, 2:24 PM UTC

jules wrote: post #36

InclinedPlane wrote: post #34

Earlier quoted context omitted.

The point pg is making is that it's not an averages game, it's a lottery game. Say there are two different people playing the lottery. Every day they buy a number of tickets. Person A buys tickets in a pool along with someone else. Person B buys tickets on their own. Thus, if Person A wins the lottery they'll have to split their winnings, whereas Person B gets to keep it all. OK, so who ends up being better off? The…

If strategy A is buying lottery tickets at $5 and strategy B is buying the lottery tickets at $10, A is twice as good off. It doesn't matter that the earnings are dominated by one single winning lottery ticket; strategy A is always twice as good as strategy B. So getting terms that are twice as good for a VC will double their expected earnings. Sure, if you just consider the winning ticket, it doesn't matter whether…

You're still not getting it. It doesn't matter how much of the lottery winnings you get, the only thing that matters is winning the lottery or not.

20% of DuckDuckGo is a rounding error compared to 10%, 5%, or even 1% of google.

Re: The Truth About Entrepreneurs: Twice As Many Are Over 50 As Are Under 25

#40

Post by drone » Sat, Apr 27, 2013, 2:27 PM UTC

jeremyjh wrote: post #19

DavidAdams wrote: post #15

I can't speak to "over 50," but I can speak to "over 40." I founded my first software startup in 1995 while I was still an undergraduate. I had the good fortune of timing it so that after a year and a half of toil and obscurity we hit the wave of the dotcom boom, and I was able to establish myself as a proven serial entrepreneur and have been able to found a series of moderately successful tech companies over the yea…

I think you and analyst74 make some good points here. It doesn't surprise me at all that VCs are happy to invest in a start-up with founders who have experience like yourself. At your age - that is going to be expected. If you were 42 and spent the last 20 years working in Big Corp - even if you did impressive work - I'm sceptical you'd be on an even-footing with a 25 year old who spent 3 years at Zynga.

If you were 42 and spent the last 20 years working in Big Corp - even if you did impressive work - I'm sceptical you'd be on an even-footing with a 25 year old who spent 3 years at Zynga.

I would disagree with this, depending on the focus. That is, if the person who spent 20 years at "Big Corp" was doing a startup in a related domain to "Big Corp," she would have a large network of contacts, and years of domain experience in the problem-space she's tackling. The person who spent 3 years at Zynga likely only has a brief experience of how to poorly run a company, and few contacts outside of the gaming world.