💪 Issue #10: Is Bigger Always Better in Startups and VC?
An empirical case for why you should hire more Claremont alumni! 🧐
💬 Welcome to issue #10 of Between the Lines
Issue #10, already? And it’s time to go back to school?? Oh wait, I graduated a long time ago, I wish…wow. Well, it’s hard to believe that this is already our 10th issue, but we couldn’t be more excited. As a celebration of our 10th issue, we have another 6th Street Stats article for ya’ll that illustrates some exciting findings that Claremont-founded companies that disproportionately hire from Claremont alumni outperform. 🤔
P.S. Next week we have a particularly exciting development for you all that we have been working on for MONTHS! Stay tuned! 💯
My Best, Miles
📊 6th Street Stats: Is Bigger Always Better?
Author: Josh Tatum
"Go big or go home! On to bigger and better things!" We've all heard these words before – it's been codified as truth in our subconscious. Bigger houses, bigger paychecks, bigger cars, a bigger lawn than your neighbors, a bigger company – bigger is always better, right? If you are looking to raise venture capital and have a successful startup, bigger may not always be better. For Claremont startups to succeed, the quality and network affinity of hired employees, and particularly Claremont alumni employees, appears to matter much more than the company size.
As part of my recent senior thesis at Claremont McKenna College, I used our Between the Lines ’ dataset of ~800 different Claremont-founded companies to peek under the hood of these startups to see if employee count or estimated revenue could be used to statistically predict a startup's success. To this end, I ran multiple Ordinary Least Squares (OLS) regressions1 with all kinds of variables from our dataset. These control variables included company geographic locations, year founded, industry and sector, financing information, revenue data, employee counts, founder information, the amount of 7C alumni employees, and many other data points on each Claremont-founded startup.
Additionally, although there are many ways in which you could categorize startup ‘success,’ I used whether or not companies raised venture funding, how much venture funding there raised, and the companies' 5-year & 10-year failure rates as proxies for ‘success.’ I also used company employee count and estimated company revenue as proxies for a startup's size.2
With that primer, it's time for the fun part, and to explore this question -- do more employees and higher revenues lead to higher startup success? My initial hypothesis was that the ‘bigger’ the company was, the more likely it would be to attract and raise more venture capital and have a lower failure rate -- or in other words, be successful. The data, however, suggests an exciting story that makes a compelling case for Claremont startup founders to focus on hiring more Claremont graduates.
First, the regressions showed that a company’s estimated revenue was not statistically correlated with a company's ability to raise venture capital, or decrease its failure rate. For a variable that intuitively would seem highly correlated with generating more venture dollars and a longer company lifespan, company revenue does not seem to positively impact either. This could be for any number of reasons, like growth being more important for early-stage startups than revenue, or because startups tend to use venture dollars to fund their company rather than company-generated revenue. Whatever the reason, higher estimated revenues are not necessarily predictive of higher startup success in our Claremont dataset.
Our second finding was that raw employee count was statistically negatively correlated with the amount of venture dollars startups raise and their success rate. This suggests that the larger a company is, and the more employees it has on its payroll, the harder it is to attain venture dollars and stay alive. These results were also statistically significant at the 1% level - I'll spare you the statistical mumbo-jumbo, but this basically means that it is likely something to write home to mom about. Since we are controlling for company revenue as well, this could be because capital efficiency is more important for start-ups than employee headcount – too many mouths to feed without ample food is never good.
Larger employee numbers could potentially hinder startups as it slows down growth and hinders swift adaptation. This could alternatively be because a larger number of employees are detrimental to the needs of early-stage startup companies to be nimble and agile as they develop. Again, whatever the reason, a higher employee count corresponds with a lower chance of attaining venture dollars and a higher failure rate at the 1% confidence level.
Finally, we’re saving the best for last. The companies’ Claremont alumni employee count appears to work in the opposite way to raw employee counts. In other words, companies that hire more Claremont alumni employees are shown to be significantly positively correlated with more venture funding raised and with a lower company failure rate. And again, this is statistically significant at the 1% level, meaning it is no small observation to ignore (hi mom! 👋). This suggests that the quality of employees you hire and their affinity network and education background could matter significantly, especially in startup companies where the overall employee count is generally smaller. This correlation could be due to any number of factors like alumni connectivity to VCs and venture-backed startups, Claremont alumni striving to hire their friends and luckily outperforming their peers, or any other number of reasons. But the bottom line here is, having a large concentration of employees from the Claremont Colleges appears to lead to greater company success, higher amounts of venture capital funding, and lower failure rates when compared to raw employee count increases. Now, we all know the age-old saying - “correlation doesn’t mean causation” - and this is certainly true for all of these results. Correlations are just correlations at the end of the day…..but, you don’t have to read too much in between the lines to see what’s happening here! 😉
Now, I know what you're thinking. Company success means more than just raising venture dollars and not failing - what about exits? You're right - company success also involves IPOs, acquisitions, company valuations, serving the needs of customers, and positively impacting the world. While there isn’t an easy way to measure all of these, here are a few more stats for you. Of the top 25 companies that have historically hired the most Claremont alumni:
Fifteen remain private with combined publicly available valuations of over $51B
Six have at one point reached a unicorn status
Five have gone public with combined market caps of over $230B
Four have been acquired for combined amounts of over $9B
Just one of these companies has had to close
You just may recognize some of these companies up above, because they’ve been helping build the future of our world. They also have hired a combined surplus of over 170 Claremont alumni as well. 🤷♂️ But, correlation doesn’t mean causation, I know! ;)
To build a company with staying power, bigger doesn't always seem to be better. The quality of the employees you hire matters more, and the data shows it. Claremont employees are a boon to the companies fortunate enough to hire them, and if you’ve got more than a few, well, that's a signal. So, with that in mind, Claremont founders, allow us to re-introduce you to the talent you want to hire. Talent, jump in where the water’s warm - at Claremont-founded companies. We'll let y'all take it from here. 🤝 👇
Looking for what’s next in your career story, or just curious and want to get a sneak peek at Claremont companies hiring in your interest area? Click here to find your next job at a Claremont-founded company! Looking to hire top-tier Claremont talent? Fill out this job posting form to get into our next newsletter!
🤔 Follow-up Questions
What is it exactly about those Claremont alumni that help bring about success to startup companies? Do Claremont alumni help make companies successful or are they simply good at finding future successful companies to go work at? What are other key components that help predict startup success? If you’re interested in these questions and reading more about this, keep tuning in to Between the Lines!
🚨Claremonster Call-Out: Bremner Morris
Bremner Morris (CMC alum) has recently been named the CEO of Rally! Rally is an open network that enables creators to launch vibrant and independent economies with their communities powered by the ethereum blockchain.
Morris has been making the most of his time as CEO, and he and Rally have recently teamed up with the United Talent Agency team to help creators and creative communities launch their own independent economies via social tokens and NFTs powered by Rally. He also recently had a chance to write in TechCrunch about how OnlyFan’s explicit content ban should start sparking conversations about the creator’s ‘bill of rights.’ Both of these articles are definitely worth a read. Even better, Rally and Bremner are also hiring for a new Social Media & Community Manager!
💼 Who’s Hiring?:
Samsara is a leading Industrial IoT company based in SF where Harmony Palmer (CMC grad) works as a Sr. Product Ops Manager. At CMC, she played softball, was the RA of Benson, and still dreams about the croissant turkey panini at Pitzer lunch. Harmony loves working at Samsara and would be over the moon to work with more Claremont grads (she even said that before she read this article)! They’re hiring in every department - especially in Customer Success, Finance, Engineering, Marketing, and Sales:
Passionate about transportation, technology, or simply making a positive impact on our precious world? Check out Swiftly! Jonathan Simkin (HMC grad) co-founded Swiftly almost seven years ago, and they have built the first big data platform specifically designed for transportation and operations for major cities. Currently, they are hiring for a variety of roles:
Maya Horgan Famodu (PO alum) has become a trailblazer in Africa’s venture capital industry, and along with being the Partner and Founder at Ingressive Capital, she is also the co-founder and Board Member at Ingressive For Good. Ingressive For Good is a nonprofit providing micro-scholarships, technical skills development, and talent placement for African youth. They are hiring!
If any of these roles catch your eye 👀 , apply and mention Between the Lines! Or, if you are an employer and are looking to hire tip-top Claremont talent, fill out this form!
🗣️ Conversations on the interwebz:
by Josh Tatum
This week’s top read 🔥
Catch up on your fintech news by reading this thread about international and emerging markets, curtesy of Matthieu Hafemeister - CMC grad and head of Growth at Jeeves
Everything else you need to know….📖
Curious about how to succeed as a startup in the new remote world? Check out this thread and video on how CMC alum, Sam Corcos, and his company Levels are leaning into company culture while also being remote-first 🏡 💻
Consider yourself a bit of an entrepreneur expert? Test out your self-proclaimed knowledge with this entrepreneur test, brought to you by Steve Strauss! Steve is a CGU alum, a leading small business expert, the author of The Small Business Bible, and a Small Business Columnist for USA Today 💼
Can’t get enough Between the Lines? Follow and connect with us on Twitter!
🤤 BTL Snacks:
You may not be able to get your favorites snacks at the Claremont dining halls anymore on the weekdays, but hopefully, these juicy tidbits from BTL will satisfy the hunger for now! 🍽️
🎙️ Kanye’s name change may also change his income…… CMC grad and Forbes columnist, John Hyatt, writes about the latest in the Kanye West Saga
💉 Needle-free Covid vaccine?……. Heather Callender-Potters (CMC) and her company PharmaJet are completely changing the covid vaccine game in India. Congratulations, Heather!
🍵 In 2020, the global homeopathic products market size was $800M+ and it’s expected to grow to $1.3B in 2027….. Miriam Cruz (CMC) and her company Agni are capitalizing!
🧑🌾 Even in the digital age, in order for businesses to grow and improve, they require far more than just an app….. Co-Founder of AgVend, Alexander Reichert (CMC), talks about how apps aren’t the only answer for the technology revolution in agriculture!
🧪 The newest product to modernize and move online…….chemicals! CMC grad and the Head of Finance and Biz Ops at Knowde, Aleks Lyng, talks about how Knowde is enabling chemical producers to market and move online.
Feedback? We love to hear it. Hit us with an email. 👊🏼
For those of us who have had a few years since our last stats course - OLS regressions are just a simple statistical method of analysis that tells you the extent of a relationship between one or more independent variables and a dependent variable. So, in our case, these regressions help us to see what company data points statistically correspond with company success.
Revenue estimates were pulled from Crunchbase and employee counts were pulled from LinkedIn