What Makes A Venture Capital Investment Successful?

StartWise.com - revenue sharing crowdfundingVenture capital is largely an exercise in intuition and pattern matching. This analysis published last year by the venture capital firm First Round Capital provides insights into the firm’s unique data on over 300 companies and nearly 600 founders, including founder characteristics such as age, gender, education, firm location, and prior work and startup experience. The analysis helped discover several factors that correlate with success.

  1. High-performing investments tend to have at least one female founder. This is a great reminder of the importance of female entrepreneurship and of the opportunity that VCs may be missing out on. Female-founded startups outperformed 63% better than investments with all-male teams – but they are still a minority of investments with approximately 18% of new VC-backed ventures in the U.S. being startups with at least one female cofounder.
  2. Younger founders tend to outperform older teams even though the average age of an entrepreneur is approx. 40 and entrepreneurs improve with age. If we look at companies like Facebook, Apple, Google – the average age of the founding teams is approx. 23. Seems like younger entrepreneurs seem to be a key factor for success.
  3. Founders with prestigious educational backgrounds or prior experience in large technology companies tend to be more successful. Even though there are discussions about the value of education in entrepreneurship, teams with an elite school degree performed 220% better than other teams. Maybe such schools provide a unique experience in surviving under pressure and convincing people to believe in you. Also, founding teams with experience at any of big tech companies (like Apple, Facebook & Amazon) also tend to get higher pre-money valuations – nearly 50% larger than other companies.
  4. Startup success is geographically diverse and is not limited to Silicon Valley. Time to do some research on the upcoming startup centers like Colorado and Texas. Companies from new startup hubs perform as well as those in established ones.

Finding good investment opportunities is becoming easier for angels and VCs who have historically been referred to potential investments through their own networks. Today, there is a wide variety of sources, including Twitter and in-person pitch nights and Demo Days. These non-traditionally sourced companies outperformed referred companies by 58.4%.