This post is a continuation of our data story series on tech startup founders in India. Our first article covered founders and work experience as it related to funding, choice of business models, networks and exits. If you missed it, you can read it here.
In this post, we dwell on the much debated topic of founder academic background and gender. Does gender impact the ability to raise capital and also success in subsequent rounds?
How much does founder schooling impact the ability to raise initial capital? Do certain schools have better networks than others? Do some schools produce founders who fare better with specific business models? Which schools have produced more founders with exits to their credit?
You may recall that our study covers a ten-year period starting in 2005, and includes tech start ups that have raised a minimum of $2M in funding. This set encompasses 448 companies and 987 founders. We included both undergraduate and graduate academic credentials of founding teams.
Top schools provide an edge in funding
Of the 448 companies, a total of 158 companies (35%) have one or more founders from an IIT. If IIMs, BITS, and ISB are added to the mix, this percentage increases to 46%. Adding top global schools such as Harvard and Stanford hikes this to 51%. So, one of every two tech start-ups to have raised more than $2M over the past decade has a founder from one of these institutions. The other way to look at it is to say that 50% of all funding is going to founders without an elite school background. It is also illustrative to look at the other 50% that received funding. This group spans a broad range of institutions, including NITs, colleges such as DCE, NSIT, St Stephens, Sri Ram College of Commerce, Loyola College Chennai, College of Engineering, Guindy etc.
There are likely a few different factors at work here. It is possible that tech founders from top schools have a greater appetite for risk and try their hand at entrepreneurship due to better fallback options. All other things being equal (market, idea, approach), investors appear to view academic smarts as a proxy for the ability to solve tough problems. Globally, we see similar stats (Pitchbook global universities), with the top ten undergraduate programs alone spawning 3000 start-ups and attracting $34B in funding since 2010.
Founders from top schools do start with some key advantages. They have strong alumni networks that help with mentorship, seed funding and access to investors. This also helps when it comes to recruiting and building teams. The funding advantage seems to extend beyond initial rounds. Of the companies that raised more than $100M+, nearly 68% have a founding team member from a top school. We also looked at whether the fundraising ability of this group translated into exits. Of the top 15 exits (greater than $50M) in India over the past decade, 60% of them involved start-ups with founders from elite schools.
Correlation should not be confused with causality. One could argue that these outcomes are good but not great given the amount of funding that has gone into start-ups run by such founders. It remains an open question whether founders from elite institutions have a definitive edge in terms of tech ideas, innovation or value creation. Logic would dictate that this is unlikely to be the case.
Entrepreneurial ventures often start as a reaction to a specific problem faced by the founder, a strong passion, or a desire to change the status quo. As the India venture ecosystem enters its second decade, there is some risk that tech founders with similar backgrounds and experiences are susceptible to group think. Similarly, it’s not too far fetched to argue that investors are also more persuaded by a certain profile of tech entrepreneurs – strong academic credentials, good presentation skills, and pursuit of spaces and business models that have traction globally. This is continually changing as the ecosystem matures to recognise and reward India centric entrepreneurs and solutions as well as greater diversity in founder backgrounds.
Bragging rights for those who care
We classified schools by number of companies founded by alumni, total funding raised, and exits. In terms of number of companies founded, IIT Bombay leads the pack followed by IIT Delhi, IIT Kanpur and BITS Pilani. When it comes to fundraising, IIT Delhi replaces IIT Bombay, primarily due to massive rounds raised by Flipkart and Snapdeal.
We further segregated rankings by undergraduate programs, MBA programs and other post graduate programs such as MS, PHD etc. While Indian Schools – IITs, BITS, IIMs and ISB dominate the undergraduate and MBA rankings, global schools figure more prominently in post-graduate founder qualification rankings.
Founder alma mater and choice of business model
It was interesting to explore if schools and alumni networks influence choice of business model – B2C, B2B, and B2B2C. IITs and IIMs occupied the top spots for B2C rankings with companies such as Flipkart and Ola. BITS Pilani and IIT Madras alumni appear more adept at starting and growing B2B/B2B2C companies. IIM alumni don’t have the same level of involvement in the B2B space as compared to B2C. IIM Ahmedabad did not even make it to the top 15 B2B list despite occupying the fourth spot in the B2C list. All of this is relevant as networks available to founders from various schools do influence the pace at which they are able to assemble a team, attract co-founders, hire access investors and learn from those who have tread the path before.
Academic institutions and exits
Out of 448 venture funded companies that have raised $2M+ in our data set, there have been only 38 exits. If we apply a filter of $50M (to make these exits meaningful) we end up with 15 companies as seen in the table. We also included three exits – Directi, Makemytrip, and Jabong – outside of our dataset in this list to make it comprehensive.
It is interesting to note that IIT Delhi and IIT Bombay do not make this cut despite topping the funding lists in terms of number of companies and dollars raised. We would also like to call out that exit numbers balloon if you were to include companies that raised less than $2M in venture funding. Inc42 estimates that there were 140 exits in 2016 alone. That list can be viewed here. However, from our perspective, the vast majority of these exits were not consequential in terms of value and many were acqui-hires.
MBA and tech entrepreneurship in India
One in every two startups in India has one or more founder with an MBA degree while one in every five has a founding team made up entirely of MBA degree holders. Also, 40% of all 448 startups have founding teams with MBA founders in a majority (51% of the founding team). These data points remain almost consistent across funding brackets. The question to debate then is whether an MBA degree contributes to soft skills such as leadership, networking, general business management and team building.
The top three sectors with the highest share of companies led by MBA founders are e-commerce, EdTech, and Travel & Transport at 68%, 63% and 60%, respectively. Enterprise Software and Tools rank second last at 29% on this list.
Women entrepreneurs: High batting average despite fewer opportunities
Only six percent (63 out of 987) of the founders who raised $2M+ in funding since 2005 are women. The number of female founders is growing but nowhere near the volumes everyone would like to see. The lower numbers of 2014, 2015 and 2016 do not paint a complete picture as there are many companies founded in these years that are yet to cross the $2M+ funding qualifier of our dataset.
In terms of companies, female founders are present in 13% of the 448 companies that have raised $2M+.
We checked if female founders were effective in fundraising across brackets. Of 58 companies that had female founders, 59% (34) have raised $5M+, 41% (24) have raised $10M+, 28% (16) have raised $20M+, 16% (9) have raised $50M+, and 10% (6) have raised $100M+. The respective numbers for 390 companies with founding teams without a female founder (orange bar in chart below) is only slightly better. Data seems to validate that female founders are as capable as male founders in raising multiple rounds of capital to fund business growth.
As we noted when we began this series, the objective of this study was to get a data driven view on India’s tech founders and their background – work experience, schooling, gender, networks and choice of business models. The next ten years will likely be very different. Lessons – good and bad, from the first decade will shape a new generation of founders, investors, and companies pursing the massive opportunity for tech led innovation in India.