VC Bets Big on Teenagers: Why This Top Investor is Allocating 20% of His Fund

The Rise of Teenage Founders: A New Investment Trend

Kevin Hartz has consistently identified emerging trends early on. He was a co-founder of Xoom in 2001, a company that revolutionized international money transfers, bypassing traditional methods like Western Union. Xoom’s success culminated in a public offering in 2013 and a subsequent acquisition by PayPal for $1.1 billion in 2015.

From Eventbrite to SPACs: A History of Foresight

Four years following the launch of Xoom, Hartz co-founded Eventbrite, transforming the process of purchasing event tickets and making it significantly more user-friendly. Eventbrite also went public, in 2018. After a period at Founders Fund, Hartz established his own venture capital firm, A* Capital, named after a computer science algorithm.

Spotting the SPAC Boom

In 2020, Hartz accurately predicted the surge in Special Purpose Acquisition Companies (SPACs). His blank-check company, known as “one,” merged with 3D printing company Markforged in a $2.1 billion deal in 2021, coinciding with widespread interest in SPACs within Silicon Valley.

A New Focus: Investing in Teenage Entrepreneurs

Hartz is now concentrating on a novel area – investing in teenage founders. This isn’t viewed as a social experiment, but rather as a developing investment strategy. His firm recently invested in Aaru, an AI-driven predictive engine founded by an individual who hadn’t yet obtained a driver’s license.

The Growing Trend of Early Entrepreneurship

Hartz isn’t alone in recognizing this shift. The movement of young people leaving traditional education to pursue entrepreneurial ventures, popularized by figures like Steve Jobs, Bill Gates, and Mark Zuckerberg, is becoming increasingly common among ambitious young individuals.

Z Fellows and the Thiel Fellowship: Accelerating Young Talent

Cory Levy, who interned at prominent venture firms while still in high school, founded Z Fellows. This accelerator provides technical founders, including high school students, with $10,000 in grants. Levy’s initiative builds upon the foundation laid by the Thiel Fellowship, which pioneered the concept of supporting young people who choose to forgo traditional education to build companies.

A Community of Dropouts

The Thiel Fellowship, once considered a radical idea, has fostered a growing “community of dropouts.” As Levy noted, it’s now common to find groups of entrepreneurs where few have completed a college degree.

Y Combinator Adapts to the Changing Landscape

Even Y Combinator, a well-known accelerator that has historically encouraged dropout culture, has introduced a new program. This program allows students to apply while still enrolled in school, receive funding, and defer their participation in YC until after graduation. This move aligns with Y Combinator’s countercultural ethos.

Further Coverage and Upcoming Discussions

This trend has been covered extensively by TechCrunch. Kevin Hartz will be discussing this topic at the StrictlyVC event during TechCrunch’s Disrupt conference in San Francisco, beginning on October 27th, with his talk scheduled for October 28th.

Insights from a Conversation with Kevin Hartz

A recent conversation with Hartz explored the reasons behind this growing trend.

Why the Increase in Teenage Founders?

We’ve always seen teenagers starting companies, but it certainly feels like we’re seeing more of it than ever before, and you’re telling me this is the case behind the scenes. Why do you think that is?

Hartz observed that many exceptionally bright students are becoming disengaged with traditional schooling. He noted instances of students opting for homeschooling and excelling outside of conventional academic settings. Even within top universities, students are increasingly choosing to drop out to pursue their entrepreneurial ambitions.

Z Fellows vs. The Thiel Fellowship

How does Z Fellows compare to the Thiel Fellowship, launched years ago by Peter Thiel?

Hartz highlighted the similarities between the two programs, acknowledging Peter Thiel’s foresight in recognizing the value of supporting young entrepreneurs who choose alternative paths. He also noted that Cory Levy’s dedication to building Z Fellows has been instrumental in its success. He pointed to rising university costs and perceived issues with university administration as contributing factors to this trend.

Equity and Funding Models

Does Z Fellows take equity in the companies?

Z Fellows primarily offers a $10,000 grant with no obligation. A separate fund provides follow-on investment opportunities, with some companies receiving pre-seed funding of up to $100,000.

The Changing Job Market

What do you make of the statistics we’re seeing, related to kids not being able to get jobs out of school? I have to think some of this is driven by the realization that even if you graduate, there may not be a job waiting for you.

Hartz pointed to a shift towards freelance and entrepreneurial work, with a projected increase in 1099 contractors compared to traditional W-2 employees by 2026 or 2027. He attributed this to American individualism and a growing entrepreneurial spirit.

AI and the Future of Work

I think it’s because people want to start companies, but I also think that, increasingly, people have to start companies as they get elbowed out of their roles owing to efficiencies gleaned though AI and otherwise.

The Impact on Young Lives

Paul Graham said something years ago that has always stuck with me, that it’s both good and bad for a young founder when their startup takes off, because it takes over their life. You were a young entrepreneur. How do you feel about funding a 15-year-old, knowing his company might do really well and this person may never have the ability to experience what most 15-, 16-, 17-year-olds get to experience?

Hartz acknowledged the demanding nature of entrepreneurship and the potential impact on a young person’s life. He noted that the implications of this trend are still unfolding and require further consideration.

The Current Tech Landscape

Hartz described the current tech environment as being in the early stages of a “super cycle of expansiveness,” driven by advancements in AI. He highlighted the rapid growth of companies like OpenAI and Anthropic, as well as emerging players in areas like AI-powered coding and CRM.

Personal Perspectives on Education

You’ve got daughters. Would you like to see them go to college? How would you feel if they said, “Dad, I want to start something now and not go to college”?

Hartz shared that his 17-year-old daughter is currently applying to colleges and desires the traditional college experience. He intends to provide his younger daughter with similar opportunities to explore her options.

Investment Trends in Teenage Founders

Of the bets you’ve made over the last year, how many would you say involve teenagers?

Approximately 20% of Hartz’s recent investments have been in companies founded by teenagers.

And two years ago you would have said what?

Two years ago, that figure would have been around 5%.