The Ultimate Startup Success Plan (based on 10 years of data)

First Round Capital, the first and foremost of the “micro” VC funds, recently released a retrospective set of lessons learned based on 10 years of investing data.  It’s an incredible trove of data, some of which I love, some of which makes me feel uneasy.  But since I always believe in working with the world as it is, rather than pretending it’s something it’s not, I’ve decided to synthesize First Round’s lessons into the ultimate startup success plan:

1. Get a female co-founder.
“Companies with a female founder performed 63% better than our investments with all-male founding teams.”

2. Get started young.
“Founding teams with an average age under 25 (when we invested) perform nearly 30% above average.”

I don’t like supporting the ageism of Silicon Valley, but the data is the data.  It may make sense to seek out younger co-founders so you have a mix on your team.

3. Go to an elite college.
“Companies with at least one founder who attended an Ivy League school, Stanford, MIT, or Caltech performed 220% better.”

Again, I don’t necessarily like the data, but this is the single largest effect First Round found.  Find a co-founder who went to the right schools.

4. Work at a brand name company.
“Teams with at least one founder coming out of Amazon, Apple, Facebook, Google, Microsoft or Twitter, performed 160% better than other companies.”

5. Keep starting companies.
“Our investments in repeat founders didn’t perform significantly better than our investments in first-timers — mainly because successful repeat founders’ initial valuations tended to be over 50% higher.”

The investors’ loss is your gain if you’re a serial entrepreneur!

6. Find a co-founder.
Teams with more than one founder outperformed solo founders by a whopping “

Presumably the winning strategy is to recruit a female co-founder who went to an elite college and worked at a brand name company!

7. Whether you need a technical co-founder depends on whether yo163%u’re an enterprise or consumer company.
“Enterprise companies with at least one technical co-founder perform 230% better; consumer companies with at least one technical co-founder perform 31% worse.”

I’m actually quite skeptical here; Apple, Google, and Facebook all had technical co-founders, as did recent successes like WhatsApp.  But again, the data are the data.

8. Move to Silicon Valley.
First Round’s data found that their non-Bay Area/NYC companies slightly outperformed.  But this outperformance is based on investment returns; Bay Area/NYC companies are so much more expensive that their high valuations drag down returns.  As an entrepreneur, you’re better off in Silicon Valley.

9. Referrals aren’t the only way in to a VC firm.
Another example of data not meaning what you think it means.  First Round found that referrals underperformed direct contacts from entrepreneurs and finding investments via press coverage and events.

I would argue that since VCs ignore most direct appeals from unknown entrepreneurs (I know I do!), a company has to be particularly good to punch through the noise.  Similarly, a company that was accepted into an accelerator, or is being written about in the press, is significantly more likely to have traction.  And since hype tends to bring higher valuations, the data suggests that the hype was justified, since despite paying higher valuations, First Round still made more on this type of investment.

10. There’s no reason to move to San Francisco.
First Round’s data showed that over the past 5 years, 75% of their investments were started in San Francisco.  This doesn’t mean it’s a good idea to move there.  Indeed, First Round didn’t report that SF-based investments did any better (which I’m sure they would have reported if it were true).  Furthermore, I strongly suspect that more than 75% of companies are being started in the City these days, which suggests that your odds of being selected by someone like First Round are actually better if you’re outside SF!

When I combine all these lessons together, I can now paint a picture of the perfect startup:

A 25-year-old female co-founder with a technical degree from an elite college, and who worked for Apple or Google is partnering with another young co-founder to start her second company, an enterprise software venture that is accepted into YCombinator and moves to Mountain View.

If you match this description, please contact me right away!

3 thoughts on “The Ultimate Startup Success Plan (based on 10 years of data)

  1. How does this study account for obvious survivorship bias that would be in such a sample?

  2. Chris, this is great! Looking at unicorns however, the teams seem to be predominantly male in their late twenties to late thirties. The data may also suggest that a new wave of female unicorns is in the making.

  3. Inc magazine did their own study recently and it showed larger proportion of successful companies started by men in 40s/50s and up.
    Inc thought it might have to do with a thing called interpersonal experience [a/k/a wisdom] as it relates to having various types of business experience, ability to work as a team,ability to communicate, lack of ego issues [or who is /is not sleeping with who and how that can disrupt the company].

    Guess it all depends on what your data blind spots are…

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