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Do Venture Capitalists Still Invest In "Old Folks?"

Q:  I and a couple of other 40-somethings have a great idea for a new Web 2.0 start-up.  Our problem is that none of us can afford to give up our day jobs to bootstrap a start-up. In fact, our Web 2.0 idea would be a direct competitor to our current employers so we cannot, in good conscience, launch the service without first leaving our respective companies.

Are VC firms, given an outstanding business plan, willing to fund firms that are (a) run by middle-aged men and women and (b) have founders (three of them) that will require high salaries (150k – 170k) because they all have families to support and mortgages to pay?

I’ve been told that VCs are only interested in people who are willing to make large personal capital investments and/or will work for free for at least a year. Is that true? Is there any hope for us middle-aged folks?

A:  (Jason).  Despite much press about how only 20-somethings can be successful entrepreneurs in a start up environment, our experience shows us that age is irrelevant.  We’ve had successes with most every age group and each can have their strengths and weaknesses, but a strong management team is a strong management team. We don’t know any good VCs that make investment decisions based on ages of the management teams. 

What’s more intriguing about your question is your salary situation and your current employer.

VCs are normally reluctant to fund ventures where the management team is looking to replace their salaries that they had at larger companies.  Cash is a scare resource in a startup.  You might want to refer to our Compensation Series on what we think about early stage compensation.  I don’t think that most VCs demand that you personally invest material amounts of cash into the business – your investment is the sweat equity and risk that you’ve taken leaving your more stable job.  Furthermore, it’s also not reasonable to ask entrepreneurs to work for free.  In any situation, you can expect to make some salary, albeit usually lower than what you are currently used to.  Again, we’d refer you to our previous postings on the subject to see what ranges we think make sense.

Lastly, the fact that you’ve developed something competitive to your current employer potentially is an issue.  Depending on your position at the current company, you may owe a duty to the employee to not develop or act in any way competitive to your employer.  Furthermore, depending upon your contract, inventions that you create might be property of the company.  This is really a fact-based situation and state law has a lot to do with the outcome as well.  You should definitely consult an attorney before leaving to pursue this new opportunity.

June 30th, 2007 by     Categories: Fundraising    
  • friendly_advice

    Some friendly and respectful advice: that salary requirement (and the reasons given for it) would be enough to put me off right there (even at the angel level). I’d strongly suggest you stop pitching it.

    By “your age”, working in tech even at the IC level, you should have enough saved up to fund yourself completely for a few years, to say nothing of being able to survive on a much lower salary. If you can’t/don’t want to, this speaks volumes about your own belief in yourself, your suitability, and whatever idea you (think you) have.

    Younger people are more delusion-free when it comes to salary :)

  • http://www.ryze.com/go/ChadBrownstein Chad Brownstein

    I have to agree with personal_advice and the above post, you have to check your contract before doing anything drastic, you may end up with a good idea that went kaput because you were hasty.
    I also think that with your age, you may have some savings, no matter how small that may that will be able to tide you over for a couple of months. If it is not enough, you think, then it’s time that you rethink your plan.

  • http://www.libraryhouse.net/blog ScottE

    Here are some statistics that demonstrate VCs are willing to invest in older entrepreneurs. In analyzing over 600 European venture backed companies, the average age of company founders is almost 40 years old.
    http://www.libraryhouse.net/blog/2007/05/08/too-old-to-start-a-business/

  • lee

    How does it help increase the success of the company if the founders are worried about their mortgage payments and families? Shouldn’t founders be paid what they’re worth, especially if it’s a business they built up on their own?

  • Jason

    This isn’t about paying someone what they are “worth” rather it’s about cash being a scarce resource in a start up company.
    I agree it doesn’t do the company any good to have founders worry about mortgage payments, but the realities of working for a start up is less cash compensation, but in exchange the potential to make much larger sums of cash with equity.

  • mehnaz

    There is a series of research and interviews conducted on VCs and entrepreneurs by Silicon Valley entrepreneur and strategy consultant Sramana Mitra on her website. It is worth reading. Links: http://sramanamitra.com/articles/investment-thesis-interviews-with-vcs-angels/http://sramanamitra.com/articles/serial-entrepreneur-interviewshttp://sramanamitra.com/articles/venture-capital-in-indiahttp://sramanamitra.com/articles/entrepreneurship-in-india