Mon, Sep 16, 2013 - Page 9 News List

Starting a business requires pedigree in Silicon Valley

Despite the image that is promoted in Silicon Valley, a good idea may not be all a person needs to succeed. Connections and the right diploma are often essential for entrepreneurs

By Sarah McBride  /  Reuters, SAN FRANCISCO

Illustration: Yusha

When asked to name the most notable rags-to-riches entrepreneur that his firm has funded, venture capitalist Ben Horowitz did not hesitate: Christian Gheorghe, a Romanian immigrant who came to the US without speaking English, and rose from limo driver to founder of a business-analytics company, Tidemark.

It is an impressive tale that encapsulates the way Silicon Valley likes to think of itself: a pure meritocracy; a place where talent rises to the top regardless of social class, educational pedigree, race, nationality or anything else.

Indeed, the notion that anyone with smarts, drive and a great idea can raise money and start a company is a central tenet of the Valley’s ethos.

Yet on close inspection, the evidence suggests that the keys to success in the start-up world are not much different than those of many other elite professions. A prestigious degree, a proven track record and personal connections to power-brokers are at least as important as a great idea. Scrappy unknowns with a suitcase and a dream are the exceptions, not the rule.

An analysis of the 88 Silicon Valley companies that received “Series A” funding from one of the five top Valley venture firms in 2011, last year, or the first half of this year shows that 70 were founded by people who hailed from what could be described as the traditional Silicon Valley cohort.

That means the founders had held a senior position at a big technology firm, worked at a well-connected smaller one, started a successful company already or attended one of just three universities — Stanford, Harvard and Massachusetts Institute of Technology (MIT).

The analysis, which looked only at northern California companies funded by Accel Partners, Andreessen Horowitz, Benchmark Capital, Greylock Partners and Sequoia Capital, generally supports academic research showing that tech entrepreneurs are substantially wealthier and better educated than the population at large.

It also echoes the perception of even successful entrepreneurs who come from outside the preferred cohort.

Michal Wroczynski, founder of Fido Labs, believes coming from Poland cost him many extra months when he was fundraising late last year and early this year.

“It would be great value to be from one of the big universities with a big strong network,” he said.

There are, of course, plenty of stories of outsiders who climb to the top in Silicon Valley. Oracle Corp cofounder Larry Ellison grew up in middle-class surroundings in Chicago, and started Oracle with US$2,000, mostly his savings. Apple cofounder Steve Jobs grew up in Silicon Valley, but came from a working-class background.

In recent years, a new wave of start-up incubators — led by Y Combinator — have given entrepreneurs from varied backgrounds a helping hand, including advice, introductions and seed money. The incubators seem to find a broad range of founders.

“We connect a lot of previously unconnected startups,” Y Combinator cofounder Paul Graham said. “But a lot of the startups we fund are from Silicon Valley and are already well connected.”

Of course, well-connected people often merit every penny of their funding — after all, even connected people typically also need smarts and drive to get a prestigious degree or land a good job at a respected company.

However, venture capitalists emphatically reject the notion that connections count in the start-up economy, and dispute the study’s methodology in categorizing their investments.

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