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In entrepreneurship, age is golden

In a culture where youth is prized, Pierre Azoulay is making a case for age and experience. A pretty strong case, as it turns out. In his recent paper “Age and High-Growth Entrepreneurship,” Azoulay, the International Programs Professor of Management at MIT Sloan, says that although investors often believe that young and cool is king, his study points to a different reality. In short, he says, if two entrepreneurs have the same idea and one is 25 and the other 45, investors should bet on the 45-year-old.

Azoulay describes a sort of Mark Zuckerberg effect on the entrepreneurial universe. “We have a skewed view of the power of young entrepreneurs,” he says, “but our research shows that entrepreneurs who are twice Zuckerberg’s age when he took his company public have a better batting average, whether measured in terms of employee growth, sales growth, or a successful exit.”

Turning to the U.S. Census Bureau for answers

Azoulay worked with coauthors Benjamin F. Jones of Northwestern and J. Daniel Kim of MIT as well as Javier Miranda of the U.S. Census Bureau. Azoulay and Jones are also researchers with the National Bureau of Economic Research. The use of census data is one of the factors that sets this research project apart. Azoulay and his team tapped administrative data to systematically investigate the connection between age and high-growth entrepreneurship. By linking newly available IRS K-1 data, which identifies the initial owners of pass-through firms, with U.S. Census Bureau data about businesses, employees, and individuals across the economy, and USPTO patent databases and third-party venture capital databases, the team was able to uncover surprising revelations about entrepreneurs and new enterprises.

The overwhelming data point: the most successful entrepreneurs are well into middle age. The mean founder age for the fastest growing new ventures was 45. Azoulay and his team discovered that their findings stayed true across high-tech sectors, entrepreneurial hubs, and successful exits. They also found that previous experience in the same industry predicted much greater rates of entrepreneurial success.

“Across the 2.7 million founders in the United States who launched companies between 2007 and 2014 and hired at least one employee, the average age was 41.9,” Azoulay notes. “The most successful entrepreneurs in high technology sectors are in the same age range as are the most successful founders in different regions across the country.”

Success rises dramatically with age

Azoulay points out that one reason for the prevalence of middle-aged founders in high-growth companies is simply that middle-aged individuals are more apt to start companies, but it’s clear that the likelihood of success rises dramatically with age. “A 50-year-old founder is 1.8 times more likely to achieve upper-tail growth than a 30-year-old founder. And founders in their early 20s have the lowest probability of achieving a successful exit or creating a top growth firm.”

Azoulay’s findings are important for a number of reasons. First, he says the study sends a signal to mid-career managers in large corporate environments that they may well have what it takes to launch a thriving enterprise. Second, venture capitalists have been laboring under the Zuckerberg misconception for a long time. This is not entirely a function of the youth mystique, although some older founders are rumored to resort to plastic surgery to increase their appeal. But young founders also tend to be more eager to attain funding from VCs and may tend to sell their equity at lower prices. Given that younger founders have substantially lower success rates, however, investors may be unwittingly squandering valuable capital.

Azoulay and his coauthors concede that young people may well have advantages of energy and originality, but those pluses appear to be overwhelmed by other forces—forces that only come with age and experience.

Read Age and High-Growth Entrepreneurship by Pierre Azoulay, Benjamin F. Jones, J. Daniel Kim, and Javier Miranda.

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