Venture capitalists place considerable emphasis on founding teams. As VCs, we think a lot about what personality types, backgrounds, and skills to look for in a solid company founder. Some of the most important traits are qualitative. For example, we often talk about how CEOs should be excellent listeners. We look for traits like curiosity, passion, drive, low ego, a sales-orientation, honesty, integrity, and transparency. Less qualitative indicators of potentially investable teams are strong domain expertise and success in a prior startup. Having spoken to other VCs and read numerous blog posts by investors talking about why they backed a team, I suspect that many of these characteristics are important regardless of the sector in which the investors are working (okay, maybe not everyone thinks low ego is important).
In this post, I’ll consider some quantitative data about the academic and career background of startup founders — university spin-outs in particular — who have received VC funding since Osage University Partners (OUP) was founded in 2009. I was particularly interested in uncovering commonalities among the founders of university spinouts (other than recently moving to Silicon Valley), and comparing data from university spinouts and the overall startup environment. One Bloomberg report polled founders from 890 US startups about where they went to college, what their highest degree was, and in what state they set up the company. Some of the statistics were not surprising and matched what we see in academic startups. As my colleague Stephanie Stehman wrote in another post, the clear majority of venture capital goes to companies founded by men. Just 7% of the 2,005 founders in Bloomberg’s data were women. They also listed the US undergraduate schools where most of the founders were alumni, none of which were surprising (Stanford, Harvard, MIT, and Berkeley were on top).
At OUP, we invest almost entirely in university spin-outs: startups that are commercializing advanced research from our university partners. Osage is partnered with 90 universities in the US, Canada, Israel, and Singapore. The charts that follow are exclusively comprised of tech university spinouts in sectors such as enterprise and consumer hardware and software, cybersecurity, sensors, energy, materials, data analytics tools, etc. We’ve excluded life science spinouts as the academic and professional backgrounds of founders shows far less variation when it comes to experience. These founders tend to have advanced degrees from top universities, are usually well known in their respective field, and often have previous related entrepreneurial experience. While almost 63% of founders in biotech hold PhDs, Tech is a different story: the Bloomberg reporters found that there were more college drop-outs than PhDs in the Internet startups from their dataset.
Highest Degrees Earned in University Tech Spinouts
The data I used to produce the charts that follow come from multiple sources: Pitchbook, Datafox, and OUP’s proprietary database of university startups. I chose 263 startups from our database of over 4000 startups based on the following criteria:
1. We had enough data about the founders,
2. We consider them to be high-quality and investible, and
3. They have already raised venture capital.
Given that university spinouts are building companies around intellectual property developed in research laboratories, it isn’t surprising that there will be a higher percentage of advanced degrees compared to what is seen in tech ventures overall. With that in mind, I was still surprised to see that over 40% of the tech startups in our dataset had CEOs with a PhD. This number doesn’t include the scientific founders who serve as CSO or CTO. This group raised about 35% of the total capital in the dataset. MBAs made up less than 20% of the CEOs and raised proportionate amounts of capital. CEOs with MS degrees raised disproportionately to their numbers, mostly due to a few outliers including Magic Leap and FireEye. The 55 CEOs with MBAs attended 38 different business schools; the only school with a significant number of spinouts was Harvard Business School with 16%. Leading the way in terms of percentage of overall capital raised were startups whose CEOs earned MBAs from Wharton (3.4%), MIT (2.3%), and Harvard (2.0%).
Top Schools where the CEOs earned their highest degrees
Figure 2 shows a map of where startup CEOs obtained their highest degree. For clarity, I cut out schools whose startups raised less than $100M in total. Each square represents the number of university tech spinouts and the total amount raised by CEOs who earned their highest degree at the school labeled on the square. Berkeley produced far more CEOs than any other school, but Stanford CEOs raised more capital with about half the startups.
The picture looks more or less the same when we add up all the founding team members of all the startups and the schools they attended (Figure 3). From this perspective, Harvard had more founders than any other institution. Carnegie Mellon, University of Illinois Urbana-Champaign, and Cornell also have a strong showing.
CEO Undergraduate Majors
Another question I had was about the technical background of the CEOs. I would expect to see more university spinout CEOs with STEM degrees than in the larger startup ecosystem. Good CEOs are able to speak with authority about the technical details of a product while emphasizing the problem that is being solved and why it matters. Figure 4 gives a sense of the strong attraction to engineering (particularly EE) and computer science degrees among future entrepreneurs. It is also worth noting the business major is clustered with biology and biomedical engineering, physics, and material science.
The Professor Founder
I have had quite a few conversations with professors who are thinking about commercializing their technology. The question they struggle to answer is: Should I lead the company as CEO, or in some other capacity? I gathered data about the role grad students and professors play in university spinouts and divided the dataset into four groups describing the founders’ connection to the intellectual property. The first group is an alumni founder. This is usually a grad student or post-doc who worked in a research lab on a project or dissertation that he or she saw had a commercial application. Upon graduation, the student will license the IP from the university and launch a startup. In this group, I have lumped together all the different founder roles (CEO, CSO, CTO, etc.). The second group is called the CEO Professor. In this class are startups that were founded by a professor with an appointment at the university where the IP was developed. The third class is the Professor Founder, who is a vital member of the founding team, but is not operating as CEO. Usually an outside CEO with market domain expertise and experience is sought to take a leadership role with respect to market strategy, sales, marketing, and fund-raising. The last class is External Licensees. In this class are startups where the founders were neither alumni (at least not recently) nor professors, but entrepreneurs who track promising research, develop a product and market strategy for the technology, and license IP from the university (and the professor) for royalties.
Each circle represents the number of startups and the total amount raised by the startups in this class. The “External Licensee” group raised the most capital, even if we subtract Magic Leap from the column. The Professor Founder raised about $3.9B compared to $4.5B (that is with Magic Leap excluded) raised in the licensee class. Startups in the dataset with professor CEOs raised a total of about $1.1B. The average amount raised by companies in the External Licensee class was about 3 times the average, and the Professor Founder class had an average that was twice the average, of either Alumni or CEO Professor companies. There are more Professor Founder startups than the other classes, followed closely by the External Licensees.
It is interesting that the number of startups and the capital raised is spread across 25 different IP source universities. The distribution of valuable intellectual property across universities is a contrast to the clustering that we see in CEO alumni universities, undergraduate majors, the location of the startup operations (see Figure 6) and the genders of founders. It emphasizes the idea that as great startups find a problem that needs to be solved and customers who value the solution, there are differentiating technologies residing in universities across the US, Israel, Canada, and elsewhere for the entrepreneur who looks for them.