Should VCs bet on PhD founders?

Sophia Yu
Sophia Yu
Oct 13, 2020 · 8 min read
Photo by Alfons Morales on Unsplash

We were recently reviewing the fine work that DCVC’s Ali Tameseb did in his blog post: Land of the Super Founders: a Data Driven Approach to Uncover the Secrets of Billion Dollar Start-ups. Ali did a great job of parsing the 195 unicorns (at that time) across many, many dimensions (educational and work background of founders, previous start-up experience, intensity of competition, etc).

One question he didn’t really address is whether PhDs are a good bet or not.

On the one hand, many of the characteristics of a PhD (intense focus, high academic achievement, mastery of an area) seem useful to start-up success; on the other hand, PhDs sometimes have a reputation of being overly methodical, and have the mixed blessing of many good, comfortable career choices.

The reality for us is that our portfolio is heavily skewed towards PhD-founders. We have written about this approach in an earlier post (“The wave we’re riding: Chinese PhDs in the US”). However, we have never attempted to empirically answer the question - how good are PhD founders? Are they more successful than non-PhDs? And if so, in what verticals?

To answer this question, we take a look at the 347 unicorns headquartered in the US that have ever reached a $1 billion valuation in the past 10 years and their founding team. Most of the data comes from Pitchbook, and some are manually gathered by going through founders’ LinkedIn profiles.

It is important to keep in mind that there are a lot of limitations of this analysis due to data availability, accuracy, and misjudgment. Some data may not be up-to-date. More importantly, we don’t have the data of the whole universe, i.e. how many startups are founded by PhDs in total, and hence we could be wrong about our conclusions. Also, there are hundreds of factors that would affect a company’s development, and having PhDs in the founding team is only one factor.

Key takeaway: PhDs appear to have very similar performance (slightly on the positive side, but not significant) to non-PhDs in overall unicorn formation; however, in certain fields, PhDs are strongly over-represented

  1. Overall, PhDs have slightly better performance than non-PhDs, but that is far from significant.

Among the 347 unicorns that we looked at, 62 of them have at least one PhD co-founder, which is about 18% of the group. Some key metrics don’t suggest a strong advantage to PhD founders (although again, the numbers are slightly in favor of PhD founded companies). For example, the average valuation vs. capital raised multiple (one way of looking at business-building efficiency) is 4.87 for PhD founders and 4.06 for non-PhD founders. And it takes on average 6.34 years for a PhD-founded unicorn to reach a $1 billion valuation while non-PhDs on average need 6.94 years.

PhD founded companies vs. Non-PhD founded companies

2. PhD founders are more common in certain industries

The 347 unicorns sit in different industries. Information Technology accounts for more than half of the unicorns (52.4%), followed by Consumer Products and Services (19.0%), which is followed by Business Products and Services (10.1%), and Healthcare (9.8%).

Information Technology is a broad category for most tech companies, with a wide range of verticals including artificial intelligence, machine learning, big data, mobility tech, cloud tech & devops, cybersecurity, AR/VR, B2B payment, hr tech, internet of things, etc. Hence, we will do a breakdown of verticals in the following section.

The percentage of PhD founders also varies with industries. Nearly half of the unicorns in Healthcare have at least one PhD founder (44.1%). Business Products and Services has the second-highest percentage of PhD founders (20.0%). As for Information Technology, even though they have the largest number of unicorns, they actually have a lower-than-average percentage of PhD founders (16.5%).

Number of unicorns in different industries in the last 10 years
Percentage of PhD-founded unicorns in different industries

3. PhD founders are more successful than non-PhDs in certain fields

However, there are some fields where we see a much higher percentage of PhD founders and significantly better performance of the startups. Some notable fields are as follows. The same caveat from above applies: we do not know the universe of start-ups in these sub-areas (ie., we have no idea how many AI/ ML start-ups there have been in total during the years that these unicorns were born). The below analysis is on relative representation of PhDs in certain categories.

We are interested in several items:

  • In what areas are PhDs heavily represented

Artificial intelligence/ Machine learning: 51 unicorns with 16 having PhD co-founders (31.4%).

Examples in this sector include

Big data: 49 unicorns with 13 having PhD co-founders (26.5%).

Examples in this sector include

*It is worth noting that Palantir’s “PhD co-founder”, Dr. Alex Karp, has his PhD in German Philosophy; it is also worth noting that Databricks has no fewer than 5 PhDs among their co-founders, and one of their founders, Patrick Wendell, dropped out of a PhD from UC Berkeley to co-found Databricks.

Mobility tech: 38 unicorns with 12 having PhD co-founders (31.6%). This sector features very deep benches of PhD co-founders (multiple companies having more than 1 PhD founder).

Examples in this sector include

Manufacturing*: 23 unicorns with 8 having PhD co-founders (34.8%).

Examples in this sector include

*It is worth noting that there may be some mistag of “manufacturing” on the Pitchbook data. Some of the companies tagged “manufacturing” are not direct manufacturers. Rather, their products, including both hardware and software, can be widely used and applied in manufacturing to improve efficiency.

Internet of things: 8 unicorns with 4 having PhD co-founders (50.0%).

Examples in this sector include

  • Samsara: internet of things-based sensors and cameras designed to increase the efficiency, safety, and sustainability of the operations that power the economy. PhD co-founder includes Dr. Sanjit Biswas
Table: PhD founders vs. Non-PhD founders in different verticals

Some thoughts and conclusions

Tsingyuan almost always bets on early-stage, highly-technical companies, and technical founders and teams. About 75% of our portfolio companies have PhDs in the founding team. And we believe that this is a great source of super talented entrepreneurs. Among these unicorns led by PhDs, we are very glad to be the early investors to Ginkgo Bioworks, Quanergy, and Plus.AI.

We believe that it’s possible that “deep tech” will go through cycles that will sometimes favor PhD-founded companies, and will sometimes disfavor. In earlier days of the internet, there were many companies building basic infrastructure (chips, routers, etc) that were chock-a-block with PhDs. Then, there has been a long period of application, e-commerce, etc., development that favored business-focused founders. It’s possible that we are now entering an explosion of favorable trends (AI everywhere, genetic engineering, shift to electronic vehicles, and self-driving) that are all giant sectors that have characteristics that may favor PhD visionaries.

In this category, we have a host of companies in those categories that we think are well on their way:

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Tsingyuan Ventures is a $100M seed-stage technology firm. We back technical founders across software, life sciences, and frontier technologies. Learn more about our origin story and our approach here.

Questions, thoughts, reflections? Let us know in the comments below. We’re always looking for great entrepreneurs and early stage ideas, and we’re always interested in having a discussion about venture, technology, and anything related. To see more about Tsingyuan Ventures, please visit our website: tsingyuan.ventures.

Foothill Ventures

Early-Stage Technology VC Fund Based in Los Altos, CA