Your degree may be the reason why your startup is not funded

If you are an entrepreneur, you must have heard the phrase, ‘We don’t necessarily invest in products, we invest in teams’, more often than once. You must have also read countless number of articles describing a perfect team and how you can build one of your own. But these articles are qualitative in nature and never talk about specifics. So we decided to do some quantitative research of our own.

We set out to research what investors mean when they talk about a ‘perfect team’. We have gathered data on companies that got seed/angel/series A investments in the last three years (reports here 2011, 2012, 2013)and looked at the patterns that have emerged regarding the CEOs of the companies that got funded in this decade (till Dec 2013).

Why only CEOs? Startup teams come in all shapes and sizes. That is why we decided to focus only on the CEO of the companies.

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Degree

Contrary to popular notion that an MBA does not teach you anything about starting up, looking at how MBAs have picked up funding, it does tell you a thing or two about starting up. While almost all founders have an engineering or technology background, very few post graduates and PhDs are making their mark in starting up.

Out of 121 deals,

• A total of 63 founders have post graduate or higher degrees
• At least 40 CEOs have an MBA degree
• Only four of them have a PhD

Looks like investors definitely don't hate that MBA degree of yours.

Another interesting trend we unearthed was investors’ affinity to foreign degrees. Total 36 founder CEOs have a degree from a foreign university.

We asked Anand Daniel, Prinicipal, Accel Partners, about this apparent bias.

“A good educational background is probably helpful in getting a meeting with a VC but not sufficient to get an investment. I can think of very successful entrepreneurs in our portfolio who don't have an advanced degree, like Girish of Freshdesk,” Anand weighed in.

Pedigree

Among the top tier of engineering colleges, IITB and BITS Pilani stand tall with a large lead over other institutes.

• About a third of all founders come from these premier institutes
• A fourth of the MBAs come from crème de la crème IIMs

It turns out pedigree matters as well. But what exactly is with this breed of founders which make them such likely candidates to receive funding?

“It might look like the investors favor the founders based on the institutes that they graduated from, but let us look at it from the investor’s perspective. These premier institutes have alumni at top levels in almost all firms. Hence, they have a significant network which can be reached out to by the founders which gives them that extra edge. It might help them get those first five marquee clients,” explains Ketan Kapoor, who is the CEO of Mettl, an online assessment and testing platform, and an alumnus of IIT Roorkee.

Outliers

Sectors like e-commerce and professional local services have opened up the tech startups to those without engineering backgrounds. There have been a few B.Com/BA and CA tech entrepreneurs. But that is about the end of diversity in this group. Not so surprising is the very meek representation from liberal and performing arts in this segment.

The question here is whether the education background of co-founders correlates to the success of startups?

“I don’t have any data to prove or disprove this unfortunately. I have observed anecdotally that founders with strong education background have better ability to recruit strong employees which is the core to a startup’s success,” adds Anand Daniel.

Even for the startups which we included as part of this research, the success or failure remains to be seen.

What do you folks think? Have you felt that there is a VC bias towards degree and pedigree? We’d love to hear your thoughts. Do comment.

This is the first part of our research. Stay tuned for more on founder profiles where we dissect their work experience, and also where does the sweet spot for each of the early stage fund lies?

For access to the full report, you can subscribe here.

About the author:

Manan is Co-Founder at Vozeal, a contextual video targeting technology. He is a graduate of IIT Kharagpur. While he is not hustling at Vozeal, he can be found at coffee shops in Bangalore reading a book.