“There are four things* an investor is looking for in your presentation,” Ben McKean is saying as he clicks through his PowerPoint. McKean is mid-20s and looks younger, a former Wall Streeter turned entrepreneur and co-founder of a restaurant deals site called Savored.com. At the moment, he is holding stage in the basement of a Greenwich Village restaurant called Le Poisson Rouge, lecturing an audience of would-be Mark Zuckerbergs on how to raise money for their startups.
It’s a scene repeated every weeknight around the country. Everyone, it seems, wants to be an entrepreneur. In the Poisson Rouge, for example, the hopefuls include a suburban Boston stockbroker hoping to launch a site connecting small investors to shares in startups; a programmer with a new tool for analyzing Web traffic; and a former Conde Nast magazine guy who wants to bring his European deals guide to New York. “Yes, there’s a lot of competition in New York,” he says, with the optimism of his ilk, “but you can’t be a global brand and not be here.”
entering the workplace,
startups inspire something
close to irrational exuberance.
Free-floating optimism is, in fact, the signature characteristic of what is becoming a national fetish for startups. The phenomenon isn’t confined to places in New York and San Francisco. Policy makers on both sides of the aisle in Washington agree on startups as the cure-all for the economy. Encouraging entrepreneurship was a centerpiece of President Obama’s jobs plan, as well as Congressional follow-ups like the AGREE Act, introduced this month by Florida Republican Marco Rubio and Delaware Democrat Chris Coons.
For the generation just entering the workplace, startups inspire something close to irrational exuberance. The lionization of Mark Zuckerberg, Andrew Mason, Blake Ross and other 20-something millionaires make entrepreneurship glamorous—not to mention an attractive answer to the unemployment rate among recent college graduates, the highest on record. (A New York Times survey found that, stunningly, only 56% of the class of 2010 had held at least one job by the spring of 2011.) “When I ask my MBA class whether they hope to found a company or work in a startup, about 80% raise their hands,” says Ralph Maurer, a professor of strategy and entrepreneurship at Tulane University. At Wharton, the number of graduates going to work for startups doubled in the past year.
Unfortunately, all this optimism is likely to end up as most startups themselves -- in disappointment.
For starters, while new companies may be the economy’s powerhouse, they aren’t creating enough jobs right now to sop up the 1.5 million newly minted baccalaureates who enter the job market every year—not to mention the roughly 4.3 million of all grades who turn 21 in a given year. Robert Litan, economist with the entrepreneurship research group Kauffman Foundation, projects that of the companies founded in 2011—there are about 400,000 of them, he guesses—those still around in five years will employ some 2.3 million people. “That’s a lot of jobs,” he says, “but it includes people of all ages,” not just young college grads.
hits it on his or her third
try, not before, and the median
age of a successful entrepreneur
at the time of launch is 39.
So how about fresh college grads (or college dropouts) starting companies themselves? The problem is 20-somethings don’t make particularly good entrepreneurs, Mark Zuckerberg notwithstanding. “Starting a company is a multi-disciplinary thing,” says Maurer. “It takes time to learn all the skills you need. Most people who start companies fresh out of college do very poorly.” In fact, the typical entrepreneur hits it on his or her third try, not before, and according to Litan, the median age of a successful entrepreneur at the time of launch is 39.
for the phenomenon:
ENIFA, or “Everybody
now is a f—ing angel.”
For all that, there is more money available for youthful startups now than ever. Venture Capitalist Mark Suster explains that the cost of starting a company has fallen by 90% in the past decade, thanks to the widespread adoption first of open source programming and, more recently, cloud computing. Since there is less at risk, investors are more willing to fund more companies, with younger founders, ever earlier in their life cycle. Suster has an acronym for the phenomenon: ENIFA, or “Everybody now is a f—ing angel.”
Suster forecasts that this won’t end well, for either investors or the startups’ founders and their employees. When angel-supported companies need to move on to their next round of funding, they’ll find far less money available, and many would-be job creators will find themselves out of a job.
Still, it’s not hard to see why politicians and millennials have latched on to entrepreneurship: It’s sexy, and founders make much more palatable economic heroes than the corporate titans who triggered the financial crisis. But let’s not let expectations run wild. “I don’t think entrepreneurship is a panacea for the economy or unemployment,” says Maurer. “We absolutely need people willing to do it. But we need to be frank about the failure rate.”
*The four things, in case you’re wondering: Your bio (VCs fund people as well as businesses), momentum (you must show growth), money (you should have cash in the bank), and market (you need to have a Big Idea).