Young venture capitalists are changing the game.
How venture capital is changing
“It’s almost a slap in the face to people like me who actually run startups and build things. I feel like I’m talking to my little brother and I’m like, ‘Are you going to give me the money or what?’” Kori Handy, tech entrepreneur
AT first glance, Clancey Stahr looks like any other 23-year-old eager to make his mark on Silicon Valley.
But this baby-faced Stanford graduate is already managing $55 million of other people’s money.
Stahr and his partner, 24-year-old Phil Brady, launched GoAhead Ventures in their senior year at Stanford, and closed their first investment fund last fall. Even in Silicon Valley, where money flows like Yosemite Falls after a drenching winter, $55 million is a significant sum for a venture capital team just two years out of college.
But GoAhead Ventures isn’t a oneoff. In a trend that turns the established venture capital dynamic on its head, the investors backing the Bay Area’s early-stage tech startups increasingly are 20-somethings with little more than college credits, internships or a few years of work experience under their belts — a far cry from the seasoned tech veterans who traditionally have offered sage advice and guidance to the startups in their portfolios.
“Founders are getting younger and investors are getting younger,” said Duncan Davidson, a general partner at San Francisco-based Bullpen Capital. “It’s easy to invest now. $25,000 — you can be an ‘angel.’”
While the trend is largely anecdotal — and many 20-somethings still would rather follow in the footsteps of entrepreneurs like Mark Zuckerberg or Larry Page — the chance to cash in as an investor in the next Facebook or Google is increasingly alluring.
Young VCs say they can spot great investments because they’re more plugged into the hottest tech trends and university talent pools than their older counterparts. Some have managed to rake in sizable chunks of cash to invest. Stahr and Brady raised money from investors in Japan, using Stahr and a third partner’s connections in the country. UC Berkeley graduate Jeremy Fiance, 25, raised $6 million to launch The House Fund in 2015 from tech executives, established venture capitalists, successful Berkeley alumni and even the University of California’s endowment.
But not everyone thinks fresh college graduates — who often are younger than the founders they invest in — can do the job.
Tech entrepreneur Kori Handy, who is 36, sees no value in accepting money from 20-something investors who haven’t launched companies of their own.
“It’s almost a slap in the face to people like me who actually run startups and build things,” he said. “I feel like I’m talking to my little brother and I’m like, ‘Are you going to give me the money or what?’”
Davidson says the shift is part of a larger “democratizing” of the startup process. Improved technology and the advent of open source software has made it cheaper to launch a startup, which also means it’s cheaper to fund one. But traditional VCs have focused on bigger and bigger deals, leaving startups in their earliest stages to look elsewhere for small amounts of funding. That’s led to an explosion of new seed-stage funds, some of which close with just a few million dollars — making them attractive to young or first-time investors who don’t have the capital or connections to raise huge sums, Davidson said.
“That is extraordinary,” he said. “It’s the biggest disruption that’s occurred to venture capital since 1979” — when Congress allowed pension funds to invest in VC, transforming the industry.
Investors in the U.S. poured more than seven times as much cash into these “seed” deals last year as they did in 2010, according to PitchBook Data. The jump in early-stage spending far outpaced the growth of the overall market, which saw deal value roughly double during that time.
Helping to fuel the trend are TV shows like Shark Tank and celebrity investors such as Peter Thiel, Mark Cuban and Marc Andreessen, who have glamorized the venture capitalist lifestyle.
“Everybody’s getting a little glimpse into how the venture world works, and suddenly it’s this exciting thing," said Adam Draper, founder of San Mateo-based venture capital firm Boost VC. “There’s a cachet to it. It sounds
glorious.”
Fresh college graduates with an itch to invest could join an established VC firm and work their way up the ranks, but that’s a circuitous path that could easily take 10 years. Instead, Brady and Stahr founded GoAhead Ventures after meeting in a venture capital class at Stanford. They don’t see themselves as any different from peers who spent nights in their dorm rooms designing products and drafting startup business plans.
“This fund is our startup,” Stahr said. “It’s what we’re staking our lives on.”
They spent their senior year meeting hundreds of investors and ended up closing deals with about 50. Many of their backers are in Japan — Stahr is Japanese-American and their third partner, 53-year-old VC veteran TK Mori, grew up in Japan.
Through investing, young people interested in tech and entrepreneurship get to feel as if they’re part of the startup scene even if they don’t have their own idea for a company. Investing lets them dabble in multiple startups with many different founders, instead of tying themselves to one.
“This is a way to continue leaving options open,” said 24-year-old Edward Lando, of San Francisco, who has backed more than 50 startups as an angel investor. “You see a lot of people in their 20s who don’t really want to commit to a particular field and see this as a continuation of their education.”
Lando’s investments include San Francisco-based financial tech startup Truebill, where the company’s oldest co-founder is almost 10 years his senior. But the age gap doesn’t bother the founders — at least six of Truebill’s roughly 20 investors are in their 20s.
Young investors have a different style than their older counterparts, said Truebill co-founder Yahya Mokhtarzada. They make decisions more quickly — Lando signed the deal papers after one meeting with Mokhtarzada and his co-founder. Also, while more experienced VCs analyze a product’s traction, the market, and the success or failure of similar companies before committing, Mokhtarzada said younger investors focus mostly on whether or not they like the product.
“There’s definite value to both,” he said. Lando is always using the Truebill app and giving feedback on new features, but Mokhtarzada said he wouldn’t go to the young investor for help with tough strategic questions, such as how future growth will affect the company’s valuation.
“That’s not the type of thing I’d lean on Edward for,” Mokhtarzada said. “I’d lean on a more seasoned, traditional firm for that.”
“Everybody’s getting a little glimpse into how the venture world works, and suddenly it’s this exciting thing. There’s a cachet to it. It sounds glorious.” Adam Draper, founder of venture capital firm Boost VC