Older entrepreneurs pass ‘pint of beer’ test with investors

The number of middle-aged people founding start-ups around the world is rising

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Technology entrepreneur Steve Young launched his most recent appeal for venture funds at the age of 63. The part-time professor of information engineering at Cambridge university wanted backing for VocalIQ, a speech-related artificial intelligence company he founded with a then 31-year-old member of his Cambridge research group. The pair raised £750,000 in June 2014 and delivered a rapid return on their backers’ investment in October 2015, when the company was sold to Apple.

At a time when people are expected to work longer and it is harder for many to find jobs, entrepreneurship among older people is rising. This is particularly so in less developed economies where there are fewer jobs, says Donna Kelley, professor of entrepreneurship at Babson College, Massachusetts.

The 2015 Global Entrepreneurship Monitor survey, which she co-authored, found that in less-developed countries, 17 per cent of founders were aged 55-64, the same ratio as among 18-24-year-olds. A further 21 per cent were 45-54.

Start-up founders are often older, says Prof Young, because it takes time to gain knowledge in areas such as computer science, mechanical engineering and robotics. However, older digital entrepreneurs need fairly young and energetic partners to help bring projects to completion.

“I don’t think the equivalent of a Rolling Stones pitch [where the founders are all over 60] to investors would work. The package we were selling was my several decades of experience combined with my very bright, energetic young colleague, Blaise Thomson.”

Prof Kelley says entrepreneurship lets older people “be their own boss, do something they enjoy . . . It gives people not ready to retire a source of income when their job options are slim and achieving former earning levels is hard.”

Despite this, age can be an obstacle to raising cash, says Peter Cowley, a business angel in the UK. Entrepreneurs need to be there long enough for an exit to occur and must have energy, agility and drive. He adds: “Potential investors might wonder why they are unable to fund the early stages themselves.”

But Mr Cowley agrees they do have experience on their side. Even those who have not run a business have been in the workplace a long time and better understand resources implications such as recruitment, Mr Cowley says. “Lots of young people hire fast and fire slowly, whereas they should do the opposite.”

Older people can also build on past mistakes, Mr Cowley says: “In the UK, that used to be a problem. But now we’ve adopted the US view that you can’t be trusted to run a new business if you haven’t had a failure.”

California-based investor Ronjon Nag, who has backed many digital companies in the US and Europe, agrees: “Older entrepreneurs are likely to have made more mistakes and are less likely to repeat them.” The average age of founders he has backed is over 38, and several are well into their 50s. The older ones tend to have more connections, he says. “A lot of success in business is knowing the right people and targeting your product in the right place.”

Industry contacts have been central to Prof Young’s success. Thanks to his long teaching career, he knows people in many large companies that have an interest in speech technology.

He also has a good record. Raising funds for VocalIQ was relatively easy, given the success of his previous ventures: Entropic was sold to Microsoft in 1999 and Google bought Phonetic Arts in 2010. He also invests in his start-ups.

One problem for older entrepreneurs is how long they might want to keep working after the business is sold. “The acquiring company is buying your expertise and will want to lock you in,” Prof Young says. He worked for two years at Microsoft after it bought Entropic, and will spend 60 per cent of his time with Apple until he is 67.

Older entrepreneurs have the advantage of being closer in age to most investors. This helps them pass the “pint of beer” test, says Mr Cowley, where the investor takes the entrepreneur for a drink to find out whether the relationship will work at a personal level.

Given demographic trends towards longevity, Mr Nag says older digital entrepreneurs may have more insights into future trends. “They will be better placed to create products for the fast expanding ageing population,” he says.

Prof Kelley agrees: “With the population ageing in developed economies, the market for entrepreneurial opportunities targeting older age groups will grow, and entrepreneurial individuals in these age groups will be better placed to notice and understand these opportunities.”

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