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

“I don’t really think that a kid coming out of Harvard or MIT is actually well connected,” Horowitz said by e-mail, citing examples such as Facebook founder Mark Zuckerberg.

Though he attended Harvard, Zuckerberg was unconnected until entrepreneur Sean Parker sought him out and made Silicon Valley introductions for him, Horowitz said.

Attending a top school, or performing well at a hyper-competitive company such as Google, can serve as a marker that the person can compete globally, but it is not necessary to succeed, Horowitz said. Venture investors are backing people as much as ideas, he added, and thus have no choice but to insist that the entrepreneur have a certain level of qualification or reputation.

“When Andreessen came out of the University of Illinois, he didn’t know anybody, but people knew his work,” Horowitz said, referring to partner Marc Andreessen, who cofounded Internet pioneer Netscape Communications.

“Silicon Valley has this way of finding greatness and supporting it,” Greylock’s Joseph Ansanelli said. “It values meritocracy more than any place else.”

Still, unknowns from modest backgrounds, like Andreessen and Jobs, are relatively rare among today’s Valley start-ups. Much more typical are entrepreneurs such as Instagram cofounder Kevin Systrom, who followed a well-trod path from Stanford to Google to start-up glory.

Ross Levine, a professor at the Haas School of Business at the University of California, Berkeley, said people who found startups are more likely than salaried workers to come from high-earning, well-educated families.

As children, entrepreneurs lived in households where the average income in 1979 was US$88,711, compared with US$67,548 for the population as a whole, according to Levine’s study of the National Longitudinal Survey of Youth.

“Who’s going to be an entrepreneur?” he asked. “It’s going to be a rich person, to a much higher degree.”

Venture capitalists often say they look for companies via people they know; Sequoia partner Mike Moritz described that process in July when talking about the firm’s investment in grocery-delivery company Instacart.

“Like a lot of the investments that have come our way, a friend of a friend talked to us about it, and told us about it, and encouraged the founder and the CEO to come and chat with us,” he said. “One thing led to another.”

Those who successfully break into Silicon Valley say networking their way to that one introduction is critical.

Suhail Doshi, cofounder of analytics company Mixpanel, shows how it can be done. While a student at Arizona State University, he engaged an engineer at the start-up company Slide in a series of conversations on Internet Relay Chat, a message service favored by serious techies.

He parlayed that into an internship at Slide, which is run by angel investor and PayPal cofounder Max Levchin. After a stint at Y Combinator, he was able to raise more than US$10 million from top-tier venture capitalists. The relationship with Levchin, who also invested, was crucial.

“He’s a super awesome mentor to me,” Doshi said. “He’s been instrumental in every fundraising round.”

Levchin himself broke into Silicon Valley as a recent graduate of the University of Illinois in large part due to an encounter with entrepreneur and investor Peter Thiel. They went on to found PayPal.

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