July 29, 2015
According to First Round Capital, a top venture capital firm located in Philadelphia, PA, women founders outperform men. In a report published by the firm yesterday, First Round Capital revealed the finding as one of ten major insights it has learned over the past ten years the VC firm has been in operation. Called the First Round 10 Year Project, First Round Capital looks at their data set of 300 invested companies and approximately 600 founders to discover ten lessons it has acquired.
The discovery that women founders outperform their male peers is the number one major observation that First Round Capital has made. Looking at their own portfolio, companies with a female founder outperformed companies with all-male founding teams by 63 percent. And, while First Round admits that their data is only a small subset of the overall market, their findings regarding the overall success of startups with women founders isn’t new.
Looking at stats jointly published by craigconnects and Women Who Tech earlier this year, women-led startups are found to actually have a 35 percent higher ROI when venture-backed and generate 12 percent higher revenues than man-led startups; overall, they bring in 20 percent more revenue. Despite these findings, an overwhelming majority (86 percent) of venture-funded startups have no women founders or management.
The nine other industry insights gained from First Round Capital include:
1. Startup Fortune Favors the Young
Companies with teams with an average age under 25 (at the time of First Round’s investment) perform nearly 30 percent above average. Their data also showed that while the average age of all the founders in their portfolio is 34.5 years, the age was younger for their top ten investments – 31.9 years. This isn’t all too different from recent findings that reported the average startup founder to be 31 years old.
2. Where You Went to School Matters
As much as it’s hard to face, First Round Capital found that teams with at least one founder who attended a “top school” (in this case, any one of the Ivy League institutions plus Stanford, MIT, and Caltech) performed the best. Among their portfolio companies, those kinds of startups performed approximately 220 percent better than other teams.
3. The Halo Effect of Former Employers is Real
Essentially: having at least one founder come from companies like Amazon, Apple, Facebook, Google, Microsoft, or Twitter were often tied to better overall performance. These founding teams found pre-money valuations nearly 50 percent larger than others and performed 160 percent better.
4. Investors Pay More for Repeat Founders
Initial valuations for founders with previous experience founding past companies had initial valuations 50 percent higher than peers.
5. Solo Founders Do Much Worse Than Teams
Startup teams with more than one founder outperformed solo founders by 163 percent. Additionally, First Round Capital found that the optimal number of founders for a startup is two.
6. Technical Cofounders are Critical for Enterprise Startups, But Not so Much for Consumer
Looking at just their data alone, enterprise startups with a technical cofounder outperformed enterprise companies without one by 230 percent. This performance isn’t mimicked for consumer startups, though – consumer startups with a technical cofounder actually underperformed by 31 percent compared to their peers.
7. You Can Win Outside Major Tech Hubs
YOU DON’T NEED TO BE IN NEW YORK OR THE BAY AREA TO SUCCEED.
8. The Next Big Thing Can Come from Anywhere
Companies that First Round Capital discovered through sites like Twitter or through Demo Days actually outperformed companies that were referred to them by 58.4 percent. This discovery falls in line with the VC firm’s beliefs – which, in April, introduced a new Open Application feature for startups, which moves away from the traditional model of referrals.
9. The Action is Moving from Sand Hill to San Francisco
According to First Round Capital, prior to 2009, it had invested pretty equally between San Francisco and the rest of the Bay Area. In the last five years, though, 75 percent of their Northern California investments have been in San Francisco proper.
Read more about each of these ten lessons by checking out First Round Capital’s 10 Year Project, or check out the slideshare below.
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