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02/01/2010

Venture Capital and Age/Experience Discrimination

At the risk of being provocative, let me state a general and rather counter intuitive rule of Venture Capital: The more experienced and older and entrepreneur is, the harder it is to raise money for anything that isn’t directly related to their previous work history.

It’s true.  Just ask VCs to describe an entrepreneur and they will invariably start out by saying something like they are “an enterprise guy” or a “consumer guy”  or “networking nerd” or whatever.  Many entrepreneurs find out that once they are typecast in this way it’s almost impossible to raise money for anything other something in the same industry space as their last deal.  Sure a few entrepreneurs manage to break the mold, but it’s not easy to do and those that do generally have the scars on their backs to prove it.

This wouldn’t be so bad except for the fact that that the inverse also seems to apply as well.  That is, the younger and more inexperienced you are, the more willing VCs are to give you the benefit of the doubt.  25 years old, never worked in a big corporation but what to start a company focused on “enterprise sales collaboration”, why knock yourself out; here’s $5M and no questions.  45 years old with a successful internet advertising startup under your belt and trying to start the same business?  Be prepared for a lot of intense questions about how you are going to address your “lack of domain knowledge” and suggestions that you hire an “enterprise marketing star” before looking for funding.

The type-casting is not just industry based, it’s also role based.  If you have a technical background, be prepared for VCs to consider it impossible for you to ever have any general management skills or marketing/sales skills and insist on your hiring some useless marketing/bd person. 

I have witnessed this first hand numerous times where VCs give experienced guys the nth degree about their supposed industry blinds spots and skill deficits, while they give young guys on their first startup a relative free pass.  Heck,  I myself made this mistake with several technical founders who turned out to be far better managers than the professional ones I helped hoist onto them

Now, the obvious retort here is that it is in fact really tough to teach an old dog new tricks, but arguably many of the key skills of making a start-up successful (good management, entrepreneurial drive and instincts, etc.) aren’t domain or role specific.

The lesson of this rant, I suppose, is that if you are trying to raise money and actually have a lot of experience you are much better off trying to raise money for an idea that directly leverages your most recent industry experience and is consistent with how you are most likely to be type-cast by VCs because trying to something outside of that box is guaranteed to make the fundraising process even more painful.

February 1, 2010 in Venture Capital | Permalink

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The thoughts and opinions on this blog are mine and mine alone and not affiliated in any way with Inductive Capital LP, San Andreas Capital LLC, or any other company I am involved with. Nothing written in this blog should be considered investment, tax, legal,financial or any other kind of advice. These writings, misinformed as they may be, are just my personal opinions.