Saturday, April 9, 2011

Innovators can come from anywhere. VCs, not so much.

It ought to be remembered that there is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success than to take the lead in the introduction of a new order of things. Because the innovator has for enemies all those who have done well under the old conditions.
- Machiavelli, The Prince

I put the kids to bed and started reading Forbes' Midas List, their list of the top 100 tech and life sciences VCs.  As I browsed, looking at where they went to college, I started to notice something:

Number of degrees by school, for the schools who issued more than one degree to a top investor.  Many of the investors got more than one degree, so the numbers sum to more than 100.
See the pattern? That's right, they all went to the same schools*.

I have to admit to being surprised. Not by the ordering of the schools, but by the sheer lack of diversity. The top four schools issued more than half of the degrees. The top ten more than 70% of them.  The top 15 schools include the ten bastions of the establishment: the Ivy League, Stanford and MIT.

It's striking that in a field where us gatekeepers are supposed to be spending our time finding and backing unusual people--those willing to take inordinate risk, come up with world-changing ideas, and generally just think different--we all went to the same few schools, the schools whose graduates would have done well under the old conditions, as Machiavelli had it. I wonder what VC would look like if its top practitioners were more different.

* And, to avoid the appearance of hypocrisy, I should disclose that while I'm not on the list, I also went to one of these schools, Columbia.


Anonymous said...

Great Jerry. Whilst I'm not totally surprised, as usual a simple visualization does indeed really drive the point home...

So maybe whilst not surprising still a little shocking...

Mark Birch said...

You could do the same analysis for Fortune 500 CEO's, principals of leading management consultancies, and MD's of top banks and most likely see the same patterns. The point is that we as people feel most comfortable with people in our same social and economic circles. We self-segregate because it is easier to handle complexity of relationship, faster to establish credibility/trust through shared experience and fits more easily into our innate biases. Therefore, someone from Stanford relates more easily to someone else from Stanford, even if he or she consciously determines not to do so.

Rob Leathern said...

It would be interesting to do a correlation between VCs investing in companies and the background of the founders/executives of those companies at investment time, and plot the "distance" between the backgrounds and makeup of each. Heckuva analysis that would be to do of course. I agree with Mark that as pattern-recognition beings we do often do what is easiest and most familiar but in the process probably miss a lot of great opportunities that contrarians are able to find.

Jerry Neumann said...

I agree that people prefer people like them and even that this is an important risk mitigation strategy when there is scarce information. That LPs decide to fund VCs who are from the top schools isn't surprising... deciding which VCs to begin funding is probably a harder problem than deciding which new entrepreneurs to fund. Using quality of school as a filter makes some sense.

But VCs liking entrepreneurs like them is a problem, as Rob says. In my experience, entrepreneurial ability isn't limited to the top schools. In fact, I think there's a reverse correlation between going to a top school and the desire to take the risk of leaving a job and starting a company.

Rob--I'd be happy to do the study, if you can get one of your friends at LinkedIn to give me access to the data :).