How Important is the Founder's Educational Pedigree?
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I often get asked, how important is the founder's educational pedigree when judging the overall appeal of a start-up's team? It's an important question and while individual opinions vary, I've seen a general convergence amongst the VC community on this issue.
I believe that education matters more when the founding team is young (let's say average age 25 or less) for the simple reason that a lot of what they have achieved in life is at academic institutions. Success in academia is by no means a guarantee of future success, but it is a good proxy of the ability of the team to produce great products, especially in knowledge-driven industries like high tech. I believe academic success is also a good proxy of the ability to put in long, disciplined hours towards achieving ambitious goals.
An interesting spin on this revolves around the advent of acqui-hiring -- a trend which is beginning to shape (albeit a very smart part) of M&A in India. The philosophy is simple - all other things equal - a young team of engineers from reputable institutions is more likely to get acqui-hired than a similar team from less prominent institutions. A good example of where academic success actually translates into success in the business world. Again, with the caveat, that this is a very small part of M&A activity - so just don't start a company if you are from IIT/MIT/Stanford/CMU in hopes of a payout from the start-up world. Nonetheless, the theory stands - acqu-hiring happens when the knowledge and know-how is extremely valuable to the acquirer -- and this raw technical horsepower is better honed at reputable technological institutions.
As the median age of the starting team gets higher, say closer to the 30's then academic qualifications get eclipsed, to a great extent, by success in the business world and other 'real-world' experiences. So, if one is comparing two founders - one from IIT (just an example of a good University) and the other from University B, and the latter has had a better career path, post-graduation, worked in an entrepreneurially minded company, then the scales are balanced or even tilted slightly in favor of the person from University B.
Other 'Perks' of Good Educational Pedigree
Good educational pedigree often results in numerous downstream benefits in the start-up ecosystem. Most of these revolve around the kinds of people that one can attract to the ecosystem - investors, employees, interns, business development partners, and more.
The central theme, obviously, being the fact that the strong alumni relationships that exist at these institutions. Both in terms of sheer size but also (and this is something I notice), is a sense of school pride that arises from graduating from august colleges. Founders from these colleges, especially the more outgoing ones, are often able to build a good aura around the companies they build - and this tremendously helps in attracting the right team, investors, partners, media attention, and more. This acts as a source of comfort for early-stage investors like us - to know that the founding team has the wherewithal and the resourcefulness to bring together the right set of actors at appropriate phases in the start-up's evolutions. An ability that most will agree is the very difference between success and failure in the early stage industry.
So, Why Not Invest Just in Ivy League Graduates?
Lest you be numbed by what seems to be a continuous endorsement of top-rated academic institutions, I want to remind you - founding team pedigree is just one aspect of Team appeal - and Team is just one aspect of the overall appeal of a start-up. Many staggeringly successful companies have been founded and built by entrepreneurs that have actually dropped out of college. In many other cases, entrepreneurs from less-than-stellar colleges have outperformed peers by building better products, superior marketing strategies, sheer execution finesse and resourcefulness in attracting and charming stakeholders in the ecosystem.
There is also a dark side in investing in 'Ivy leaguers' - a sense of entitlement that comes from the academic pedigree - and something which translates directly into demands for higher valuations and other start-up-friendly terms. I've seen situations where investors, mesmerized by educational pedigree, sign off on significantly unfavorable terms than what the situation normally mandates. Clearly a case of misplaced enthusiasm and irrational understanding of a dynamic that should be used to differentiate between teams in marginal situations (all other things being equal). And not, to be the sole deciding factor in deciding which start-up to invest in.
What does all this mean for aspiring founders? If you've made it to a reputed institution, make the best of it! Build strong networks within the student community - these will be of tremendous value to you throughout your entrepreneurial journey. And if you did not make it to a top-rated school , there are plentiful opportunities to realize your entrepreneurial goals - go ahead and hone your skills and serendipitous moments will come by!