Mikhail Ledvich co-founded ClickFacts.com – an online click-fraud protection site – one year ago. Now his company’s annual revenue is projected in the millions and he attends seminars with other millionaire businesspeople. Ledvich said he wants to retire young, but for now the 21-year-old College of Communication senior isn’t worrying about that, saying “this is the first of many opportunities that I hope to explore.”
Ledvich is not the typical entrepreneur, because although college students are seen as the future of the economic world – with fresh ideas and youthful energy – venture capitalist (VC) firms are hesitant to finance students in their business enterprises. While these venture capitalists say a few years of experience in an entrepreneur’s chosen industry goes a long way in the business arena because in the current business world entrepreneurs are retiring later and their enterprises take about 10 years to mature, some firms, such as Y Combinator, aren’t afraid to take risks.
But, according to these same venture capitalists, the average age of entrepreneurs is gradually decreasing because young people are taking advantage of cheaper, easier online vehicles to get a foot in the door.
FROM DOT-COM TO FACEBOOK.COM
Dana Callow, a partner at Boston Millennia Partners, said while young entrepreneurs have spirit, funding an entrepreneur with experience is more attractive and a safer bet. But Callow said he expects that young entrepreneurs would soon be the benefactors of venture capitalist funding because when the economy is strong there is more money available to experiment.
Eight years ago during the dot-com boom, Callow explained, businesspeople in their early 20s were often given money to expand their online businesses because they were knowledgeable about internet technology – although not necessarily about business.
“I would agree that in the dot-com ’99, 2000 period, there were many very young entrepreneurs that came out because there was so much money available,” Callow said.
“This is what draws out the young entrepreneurs,” he continued. “When there’s more money flowing through the market investors will give more, and young people feel safer when there’s more money.”
According to Alex Moot, a partner at Seaflower Ventures – a VC firm that primarily invests in biotechnology companies – after the dot-com bubble burst, VC firms returned to investing in seasoned businesspeople in their mid-30s to early-40s. These older entrepreneurs better understand how an industry operates and have a more stabilized plan than young businesspeople whose only foundation is a good idea.
“In the [biotechnology sector] I don’t think there are many firms that cater or focus on young entrepreneurs,” Moot said, adding that Seaflower Ventures, as well as other large VC firms, invest anywhere from a $200,000 (which is considered a small investment) to $10 million to start up firms. “But we are willing to invest in young entrepreneurs after they have some science background or research experience or spent some time working in academics.”
Yet, the emergence of e-business – which Callow said is both popular and profitable right now – is driving down the age of new business owners. Websites such as Facebook.com and MySpace.com require only a few thousand dollars to get started, compared to a VC firm’s millions-dollar investments. But even with this decrease in necessary funding, Callow said firms are hesitant to finance businesspeople still in school, without substantial experience in the sector.
A NEW MODEL FOR NEW IDEAS
As more and more young people prove themselves worthy of the investments they receive, a new type of firm is emerging that offers college-aged students the funding they need to start their businesses.
Y Combinator, a venture firm that mainly invests in web design and web services, specializes in helping young entrepreneurs start businesses by providing them a small amount of money and helping them network, according to Y Combinator partner Jessica Livingston.
Livingston said she and the three other Y Combinator founders accept funding applications from college-aged entrepreneurs with bright ideas but minimal experience. After a long application, interview and decision process, which includes flying potential investees to San Francisco or Cambridge, about a dozen business teams are chosen to receive funding. These young people receive $6,000 per person to help pay for rent, food and general living expenses while starting their businesses. It may not seem much in comparison to the venture capitalist firms’ $10 million investments, but it is more than enough for these businesspeople to start up their firms, Livingston said.
Although Livingston said she does not know how successful each of the current teams will be because the first batch of businesses launched only nine months ago, she said the results are “looking pretty positive so far.”
Livingston added that the average age of entrepreneurs funded by Y Combinator falls between 23 and 27 years old.
Alexis Ohanian, the 22-year-old founder of Reddit.com – an online catalog of websites that users create as their homepages – received funding from Y Combinator during his senior year at the University of Virginia. Ohanian said he and his partner Steve Huffman have been working on their technology since they started the site nine months ago and are hoping to turn a profit soon.
He added that a firm like Y Combinator was helpful in his quest to start a business because he was not looking to spend hundreds of thousands of dollars on their venture, an amount they would have applied for if they went to another firm. But the $12,000 Ohanian and Huffman received to start, along with the networking guidance Y Combinator provided, helped them maneuver their way through a business world filled with MBAs, when they had not even received undergraduate diplomas.
“Over the past few months there have been so many new websites and it’s so great to see all the new innovations,” Ohanian said. “I think the firms are going to give smaller investment sums in the future because it doesn’t take a lot to start these websites up … I think that if these [venture capitalist] firms don’t start looking for younger minds, they’re going to miss out because Y-Combinator and Google are actively looking for young people and I think that’s where all the innovations are coming from.”
Justin Kiko, a 21-year-old Yale University graduate and founder of the online calendar Kiko.com – which he started nine months ago by using Y Combinator funds – agreed, saying that the practical funding Y Combinator offered gave him a chance other VC firms would not have.
“I think this Y Combinator model is kind of interesting, and I think a lot of people are trying to fund younger people with much smaller amounts of money,” Kiko said. “I mean, I don’t think more VC firms will start doing this, but there are going to be a lot more firms doing what Y Combinator does getting started. I think it’s a good idea and I think Y Combinator is going to make a lot more money on the idea.”
And at BU, Ledvich attributes ClickFacts’s success to the funding and networking help he and his two partners, Mikhail Gurevich, a 21-year-old junior at BU, and Greg Gurevich, Mikhail’s 22-year-old cousin at Lehigh University, received from Y Combinator.
“We would have been turned away by VC firms because we were young and do not have a track record in this field,” Ledvich said. “Y Combinator was especially attractive to us because they didn’t require a formal business plan and were willing to deal with younger company founders.”
Yet, whether venture capitalist firms are funding entrepreneurs who are approaching middle-age or giving money to those who have not yet graduated college, there is one common theme among them all.
“We’re looking for entrepreneurs with an opportunity to spot what the market is,” Callow said. “We’ll fund whoever knows what the next big thing will be.”
