I was taken aback by a former serial entrepreneur when he told me, upon selling his last start-up to a Big Company, that he was finished doing start-ups — the way he put it was, “I’ve graduated.” The intent of the metaphor is clear: start-ups are a great way to get an education in a hurry, learning about various aspects of a business as you wear different hats. His education done, he was ready for big-time business. But that’s not the part that shocked me.
What struck me was the finality of it all, the sense of having permanently moved on. Since then, I’ve noticed a disturbing pattern: a whole slew of start-up people “graduated” immediately post-2009, never returning to small companies. This has happened in such numbers that it has changed the very nature of what the start-up and early-stage VC community is like today.
We are five years removed from that painful season of start-up disaster and, though most of us have found a way to heal from it, the scars are still with us. Here’s what surprises me the most: it’s not just those who are reaching a further phase of life — getting older and having kids — who are settling into the bigger companies. Several of the “graduates” I recently looked up are still young and unattached, footloose and fancy-free. Conversely, several of the hard-core start-up folks who are still out there building an app in their garage, are in their 40s or 50s, carrying their family responsibilities along for the roller-coaster ride. So no, this phenomenon cannot be chalked up to the cycle of life. This is something unique to those who lived through the 2008-2009 horror show.
The bottom line is that it scared the crap out of people. Many were unemployed for several months or more, slipped down a rung or two on the ladder upon their return to work, or had to become independent consultants bouncing from gig to gig and buying their own health insurance. They were shaken up, and now they’ve got battle fatigue.
As a result of so many veterans not returning to start-ups, Alex Farcet of Startupbootcamp says, “The average age of entrepreneurs is getting younger.” And because of that, we have several changes in the start-up and early-stage VC world:
- Grey hair no longer required. Early stage VC’s have stopped asking for “grey hair” because it’s so hard to come by. It used to be a stock question to any twenty-something founder who went alone to a VC meeting: “Who has the grey hair?” The VCs would ask it just like that, in those words. They expected you to have one “veteran” (at least) on your founding team or they would send you walking. But when an early-stage VC sees 100 pitches in a year and 90 of them have nobody over 35 on board, they just can’t insist any more on having that grey hair. They’ve given up on this.
- Memories are shorter than ever. Among the droves of young veteranless start-up teams, there’s a fearlessness or cluelessness (call it what you will) as to what has already been tried, sometimes actually to good effect. When your whole team is so young that none of you is familiar with what happened in the industry more than 5 years ago, you don’t hesitate to do something that’s only barely different from what already happened. Case in point: what 35-or-over entrepreneur would have started Pinterest, given how “game over” photo-sharing seemed to be? Maybe youthful naïveté is a good thing once in a while.
- The big gorillas are keeping all their ripe bananas. Big companies are not losing their class-of-2009 talent to start-ups, as they previously would have expected to, and it’s making them invincible. It used to be that the 800-lb. gorillas couldn’t keep the best people for longer than four years — the time it takes a typical stock option package to fully vest. Start-ups would then come along and poach them. But that’s not happening. The ’09 alumni are saying “no, thanks” and they’re staying put. It’s obvious that the average age of employees today at places such as Google, Microsoft, Apple and yes, even Facebook and Twitter, is much older than what you saw when you walked into Yahoo in ’99 or Google in ’04 (when those companies faced their first post-options-vesting exoduses). Retaining 2009 veterans is making big companies even stronger.
- Pivoting is going out of fashion. It’s often a veteran entrepreneur who leads a team in a pivot. Just as in a pro sports game, the veterans tend to stay calm when something goes terribly wrong, whereas the rookies are ready to throw in the towel when the team is down by 20. More than one VC has told me that in seed-stage start-ups that lack veterans, founders are more likely to just move on to start a new company, rather than hang on and pivot a struggling one. So, proportionally, we have more failed seed-round companies than ever and fewer companies pivoting their way to an A round after struggles in the seed phase. This is an untold dimension of the infamous “A Round crunch” that has been documented over the past year.
There are probably even more effects of the removal of the class of 2009 from the start-up scene. It will be fascinating to watch them over the next five years. Will they continue to stay in big companies, all comfy and cozy? Or will they feel the start-up itch again? How many will return to earn their “start-up PhDs”? Only time will tell.