Worst Analysis of Entrepreneurship and VCs EVER!

Wow. It isn’t often that I drop everything after I read an article and feel compelled to respond.
But I was dumbstruck when I read this piece in the Washington Post.

It was titled: Five myths about entrepreneurs. In around 1000 words, the author went on to trash the National Venture Capital Association, Peter Thiel, Jason Calacanis and Fred Wilson, using “scientific research” to try to prove them wrong.

This just goes to show why academics don’t “get” entrepreneurs, don’t understand job creation and don’t make good VCs. It also proves that academics looking to make headlines can do so by using bogus statistics and misleading phrases.

So how did he get this so-called research SO wrong and backwards? I mean, his conclusions are mind-boggling in their naiveté. In a nutshell, the author confuses average with great. He looks at quantity instead of quality. And in doing so he reaches irrelevant and misleading conclusions. I downloaded the study and read it. You too can do so here. Part of the problem is that the author surveyed “549 company founders across a dozen fast-growth industries.” But nowhere could I find a list of the companies or founders surveyed. I am betting that they include no $100B companies, no $10B companies, no $1B companies, and probably few $100M companies. But perhaps he could prove me wrong. Again, his research looked at quantity, but I can’t tell if it included “quality” companies.

Lets be clear. Most jobs over time are created by HIGH-PERFORMING startup companies. These are the companies that all VCs want to back. And these are the companies that the myths he tries to bust are based on.

The article basically claimed the following:

1. More old people (40-60) start companies than do young people (under 30). The writer and “researcher” tries to bust the myth that “America’s typical tech entrepreneurs are in their 20′s.” Hmmmmm. As a VC, I am not looking for a TYPICAL tech entrepreneur. I am looking for the entrepreneur with the vision, the passion, and the drive to change the world. I want the best entrepreneur. Not the typical one. So while the statement may be right, it is quite misleading. I wondered at what age the MOST SUCCESSFUL tech entrepreneurs are when they started their companies. So I looked up the list of the world’s most valuable public companies. On that list there were 6 tech companies started in the USA in the last 50 years. They are, in ranked market value order: Apple (2), Microsoft (4), Google (10), Oracle (20), Intel (32) and Amazon (44). And how old were the founders when they started these companies? Steve Jobs (21), Bill Gates (20), Sergey Brin (22), Larry Ellison (33), Gordon Moore (39), and Jeff Bezos (31) were all under 40. Average age? 28.

2. Entrepreneurs are “made” and not born as entrepreneurs. His claim is that entrepreneurs come from everywhere and every walk of life, and are not just the sons and daughters of entrepreneurs. I agree. No one that I know claims that entrepreneurs are born of entrepreneur-parents. Instead, the claim is that the best entrepreneurs have a drive, a will to win, a need to succeed, that is inbred – and one that cannot be taught in a classroom. The author does NOTHING to disprove this widely held belief. Just as hard work cannot be taught (but perhaps lazy can be learned), you can’t teach an entrepreneurial drive to a non-entrepreneur. I have found that the best entrepreneurs have something to prove, to themselves, a parent, a sibling or the world in general.

3. Well-educated entrepreneurs are the best entrepreneurs. No disagreement here. Personally, I am not a big fan of encouraging kids to stop out of college to start a business. A few will succeed. But most will miss out on a great social/academic experience with their peers.

4. There are few women entrepreneurs because VCs insult them (I kid you not.) This is THE MOST OFFENSIVE tripe I have ever read about VCs, and the author should be ashamed of himself for claiming this. Let me quote directly from the author:
“The problem is a broader one, as I learned through interviews with female entrepreneurs. Few girls get encouragement from their parents to study engineering; they encounter negative stereotypes in the workforce; when they approach venture capitalists, they are asked demeaning questions such as, “How are you going to manage your company when you have children?”
As a VC who has backed several VERY successful women entrepreneurs, I have never asked any question like this, nor would I even consider it. Might he have come across an anecdote and confused it with research? Perhaps. Or perhaps he just made it up. For me, I am offended.

5. The NVCA‘s claim that VC backed technology companies account for 20% of GDP is misleading and complete BS. In attempting to debunk the factual statement by the NVCA, the author claims (1) that only 5% of VC dollars go to early stage companies. DUHHH! Small companies need the least capital. Once they ramp up and need to grow, then they need more capital. Late stage VC will ALWAYS invest more money than early stage VC. Then (2) the author claims that hypothetically a VC could buy stock in a private company right before it goes public, and that this would count in the NVCA statistic. So what? Most companies that go public have late stage rounds. But his hypothetical argument lacks intellectual rigor or anaysis and is just tossed into the mix to debunk a valid statistic. Is there evidence that most large VC backed companies today only received their money days before going public? Of course not and the author knows this – or else he would have shown us the data.

The author, Vivek Wadhwa, has an impressive pedigree and is the director of research at the Center for Entrepreneurship and Research Commercialization at Duke University. Very impressive credentials. And the Kauffman Foundation, a group I like a lot, participated in the research.

But shame on Professor Wadhwa for trying to mix research with anecdotes in order to make headlines. And kudos to the Washington Post for letting us all have an open debate on this issue.

John Backus is a founder and managing partner with New Atlantic Ventures. He blogs here and tweets here. Opinions expressed by Backus are entirely his own.