SAN JOSE, Calif. – When Jim Breyer, venture capitalist at Accel Partners, courted chief executive Mark Zuckerberg last year to make an investment in his start-up, he couldn’t buy Zuckerberg a drink because he hadn’t turned 21.
“I had a glass of pinot noir and he had a Sprite,” said Breyer, recalling the dinner they had at the Woodside Pub in Woodside, Calif.
But Breyer still managed to beat out a competing offer from Don Graham, chief executive of the Washington Post. And his firm pumped $12 million into Zuckerberg’s Palo Alto, Calif.-based www.Facebook.com, a social networking site for students.
Zuckerberg’s fund-raising, and the little bidding war he enjoyed, is mirrored by scores of other twentysomething entrepreneurs in Silicon Valley. The youthful founders are thriving in their efforts amid a swing by venture capitalists in favor of young talent. Silicon Valley is hopping with novice CEOs.
That’s because of a recent uptick in the market for tech stocks, particularly for Internet businesses, pushing venture capitalists to make some risky bets again. And it’s also because new Web software tools are making it easy and cheap for novices to launch businesses.
Venture capitalists are prowling everywhere for young talent and brains, who they say are best placed to absorb it all – and to exploit the quick-changing and vast opportunities of the Internet.
“Twenty-somethings have their pulse on the sweet spot of the Internet, much better than others,” said Mark Kvamme, a venture capitalist with Sequoia Capital, which has invested in several companies with young founders. “They are able to put together a product or service that speaks better to that generation – and do it without enormous amounts of capital.”
It’s not nearly as frothy as the dot-com era. But it’s also a distinct comeback from the post-bubble era of 2002 and 2003, when few twenty-something entrepreneurs got venture backing. After the bubble burst, many venture capitalists felt the need to return to maturity and experience, seeking to avoid what they saw as the excesses of youth.
No precise data exists on the number of twenty-something entrepreneurs backed by venture capitalists, but anecdotal evidence suggests it’s rising. They’re “popping up left and right,” said Sean Parker, 26, who had been chief executive of Plaxo, a company that lets users update their contact information online, but who also lost his job during the dark year of 2003.
“Being a young entrepreneur post-bubble quickly became one of the loneliest jobs in America,” he recalled. “The young entrepreneur went from being an exotic to an endangered species.”
So Parker decided to create a support network in Silicon Valley for young entrepreneurs. The group’s members, meeting at each other’s homes, faced similar challenges, such as managing executives older than themselves, and being so busy that having a normal social life is difficult, Parker said. Lately, he’s considering calling the group “Valley Brats.”
“We plan to systematically invade the toniest and crustiest of the old hangouts where VCs meet to talk and do deals. Our first target: the Village Pub in Woodside,” Parker said. It’s a watering hole not far from the VC epicenter on Sand Hill Road.
There’s even a Stanford University group, called Entrepreneur27, launched by Stanford students to help them network while building their own companies. The group did research and found entrepreneurs younger than 27 are the most successful in launching businesses. Microsoft’s Bill Gates, Apple Computer’s Steve Jobs and the co-founders of Google and Yahoo are a few that come to mind.
Betting on young people who are straight out of school, and who have never had a real job before, is a risky endeavor. They face management challenges they’ve never seen before, let alone the added stress that comes from the bewildering pace of hiring often required by a start-up.
Just two years ago, Zuckerberg, now 21, was put on probation for playing pranks at Harvard, one of them being his creation of facemash.com, a site that popped up two student photos and asked people to choose who was more attractive. Now, he is managing a company that has more than 75 employees.
To help bring discipline to management at www.Facebook.com, Accel helped bring in fiftysomething Jeff Rothschild, co-founder of software company Veritas and an “executive in residence” at Accel. Zuckerberg liked his experience, and hired him to lead the engineering team.
“There’s lots of stuff none of us have ever seen before,” said Zuckerberg. “That’s good in some ways, but limiting in other ways.”
Experienced executives can recognize patterns and avoid mistakes they’ve made in the past, he said in an interview last year.
Indeed, even the most successful executives, including Google co-founders Sergey Brin and Larry Page, have had mentors to help them along the way. Google Chief Executive Eric Schmidt was considered “adult supervision” at Google.
Accel’s Breyer said he’s careful to protect the creativity and passion of Facebook’s young founders. In Facebook’s offices, there are weekly poker nights, and a room with a couch and video games, once known as the “Dorm Room.” Meals and high-octane Red Bull drinks are brought in.
Most VC firms shunned young companies after the bubble burst, and some moved to fund companies made up mostly of managers in their 50s or 60s.
Wes Raffel, a venture capitalist with Advanced Technology Ventures, avoided inexperienced entrepreneurs after the bubble burst. But now Raffel, 50, is back in the hunt for younger teams. “You’re drinking from a fire hose of information, and need to able to adapt to that without any preconceived notions – you need someone who hasn’t done it yet,” he said.
Raffel’s firm has hired two associates, both 29, to help it network in younger circles, even encouraging them to frequent parties South of Market in San Francisco. “That’s something I’m not going to be doing,” he said.
One of the associates is Bong Koh, who regularly meets young founders of promising companies at parties. “At bars and clubs, you meet people,” he explained, reeling off examples of how he helped his firm vet companies by knowing the founders.
In one recent example, Advanced Technology Ventures invested in Browster, a start-up that augments the presentation of search results, where Koh knew friends of the founders.
Sequoia Capital, meanwhile, has made a number of bets on young teams. Sequoia partner Michael Moritz has long trumpeted the “magic” of youth as one of the best recipes for a successful fast-growth company. His firm bet on Google co-founders Page and Brin when they were in their mid-20s; Yahoo founders Jerry Yang and David Filo in 1995; and more recently the young founders of instant messaging company Meebo; YouTube, a video-sharing company; and Parker’s former company, Plaxo.
YouTube’s founders, who snared $3.5 million in funding from Sequoia, say the VC firm has been hands off.
At YouTube’s offices in San Mateo, Calif., employees shout across the room to each other when they see a cool new video on the network. Music plays out from employees’ terminals and the air hockey games are loud.
Founders Chad Hurley, 29, and Steve Chen, 27, have been busy hiring even younger people than themselves – including a 23-year-old just out of college.
Hurley and Chen started building their company the same night last year they came up with the idea when they realized how hard it was to share videos they took at a party. Now, YouTube is hosting 10 million videos being viewed each day. “There’s a fervor, a willingness to take a risk, to throw two or three months into something to see if it works,” explained Chen of their fast start.
Over at Meebo of Palo Alto, chief executive officer Seth Sternberg, 27, said he has hired his first thirtysomething employee, as an office assistant. Sternberg said his previous experience at IBM, where he worked in corporate development, sets him apart from the much younger generation of early twentysomethings who are straight out of school.
Greg Tseng, 26, chief executive of Tagged.com, a new social networking site in San Francisco, said he created numerous businesses while in college during the Internet boom. But he and co-founder Johann Schleier-Smith, also 26, weren’t able to raise venture capital initially.
After Internet stocks came back to life in early 2004, venture capitalists started opening their wallets, he said. Now www.Tagged.com has just received its first venture capital: $7 million from Mayfield Fund.
In fact, Tseng said his company raised money in “record time” – 30 days from the first meeting to a signed offer. In part, though, Tseng said the funding came because he is relatively experienced. At 26, he said, “we’re like middle-aged men in Internet time.”