A new study focusing on the founders of so-called “unicorns” (companies valued at $1 billion or more) finds that most company founders are “underdogs” and are often chosen from top 10 universities. We found that the composition of female founders is increasing, but there is no clear monopoly at the seed stage of VC funding.
Defiance Capital's study of 845 unicorn companies and 2,018 unicorn founders (the Unicorn Founder DNA Report) covers the US and UK (excluding EU/Europe) from 2013 to 2023. The purpose is to focus on investigating the “DNA” of unicorn founders. Define the characteristics common to these types of founders.
The research found the following:
• 70% of unicorns have “underdog founders” (immigrants, women, people of color).
• Previously, unicorns were only founded by men, but by 2023, 17% will be female founders, and that is changing.
• 53% have a degree from a top 10 university in the world.
• 49% of unicorn CEOs have a STEM degree (64% of female founding CEOs have a STEM degree) and 70% of founding teams have a STEM degree.
• Apart from SV Angel (6.4%) and YC (10%), no other VC fund has invested in more than 2.8% of unicorns (Sequoia). This suggests that at Seed, the market for investing in potential unicorns is completely fragmented, with outlier VC funds investing as much in unicorns in the early stages as well-known funds. It means there is a chance.
The study also found that while the majority of unicorn founders are white, one in three unicorns has an Asian founder. In fact, 38% of his unicorn companies had at least one non-white founder. 82% have at least one white founder, and 62% have a first or second generation immigrant founder. Only 3% of unicorns had black founders.
And only 21% of immigrant and female founders raised money from top 10 VCs. Teams with female founders were two years younger (32 vs. 34) than teams with all men at the time of Unicorn's founding.
Serial founders (50%) were more likely to succeed in building a unicorn, but only one in five unicorn companies had a solo founder.
Over the past decade, all of the top seed funds have been generalist funds, making the seed fund market highly fragmented. Only 28% raised money from top VC seed funds (market share greater than 1%).
Only 34% of unicorn founders worked for an elite employer before starting their unicorn, suggesting that a background at McKinsey or similar is not a prerequisite for success.
The study also found that unicorn founders have three key elements in their “DNA.”
1. There is no “Plan B”
2. “Chipped shoulder”
3. Unlimited self-belief
The study found that many unicorn founders were forced to develop a growth mindset, establishing their values, work ethic, and ambitions all during childhood.
Most had personal experiences of being treated unfairly or feeling limited in their upbringings.
The study observed these characteristics in generations of marginalized communities, including female founders, people of color, neurodiverse people, and founders from atypical backgrounds. .
Many also tend to be “ambitious rebels”, often motivated by a greater cause they care deeply about, have strong family role models, and have high-quality I have a network of colleagues and am not afraid of failure.
Far more first- and second-generation immigrant CEOs have STEM degrees than local CEOs, suggesting a brain drain from emerging and small economies to developed countries. . Importantly, more second-generation immigrants attended elite universities than the rest of the sample.
Other interesting data points emerged from the study. Solo founders tended to start their unicorn three years later than their founding team, and while all types of founding teams took an average of seven years to reach unicorn status, second generation The immigration took him only six years.
And in fact, the typical all-white, male, local Ivy League founder is actually rare at 11%, and only 3 of founders from the country where they founded their company graduated from a top 10 university. It was only 1 minute.
Additionally, the top 20 U.S. VC funds tended to favor immigrant male founders with STEM degrees from elite seed universities, but not female founders, a growing population in the unicorn field. It seems like you're missing the trick of mostly ignoring it.
Christian Dorfer, founder of Defiance Capital, commented: We cover all new unicorns from 2013 to 2023, with over 2,000 founders and 800 unicorns. ”
“VCs famously say, 'It's all about people,' but only 10% of unicorn founders fit Mark Zuckerberg's profile, and most of the thousands of seed funds are backing the wrong type of founders. One of the interesting findings of our research is that even the best funds, like Sequoia, invest in less than 3% of unicorn companies, compared to more than 1% share of the unicorn market. “Only 30 funds have acquired it,” he said.
“The hunger, confidence, ingenuity, and resilience we find in unicorn founders reflects the fact that 62% of founders are immigrants (from countries where it is typically impossible to build a unicorn company). This makes a lot of sense considering that 17% of new unicorns persist, with a female founder in 2017.”
He continued: “It’s clear that immigrants and other underrepresented founders can produce these amazing results, but I wanted to prove it to LPs. Many immigrant founders They come from developing countries like India, Africa, and even Eastern Europe. They don't have as many options at home. They have to leave and pursue opportunities elsewhere. ”
“Of all these unicorns, there are only 30 funds with more than a 1% share, so it's completely fragmented,” he added.
“When you combine this fragmentation with the fact that it's harder for immigrants and women to raise money, there's a huge opportunity for an influx of new capital to start looking for these founders in particular.”
I asked him how VCs and family offices might change their strategies as a result of seeing this research.
“The fact that Sequoia is the top fund with only 2.8% of unicorns means that unicorns are missing out on a lot. Yes, the top funds are relatively safe investments for LPs. But… Family offices are now looking to emerging managers, especially early-stage funds, as potential alpha. So if you want to maximize your returns as a family office, it's time to grab those outlier companies that turn into unicorns. “We need to get on board with some new funds and emerging managers,” he said.
Dorfer is currently planning to produce a podcast with many of the unicorn founders surveyed. As a female founder, you have to work twice as hard and attend twice as many meetings to raise money. The founder of Andela and her three African founders who built unicorns have a very inspiring story. ”