How Gen Z is rewriting the rules of entrepreneurship

[Imrul Hasan Tusher]

How Gen Z is rewriting the rules of entrepreneurship: ‘They come in with a much greater advantage than previous generations’

Investment partners at the student-led VC firm Dorm Room Fund speak to a group of aspiring young founders and investors

When a then-high school-aged Siddharth Thakur began ideating on what would become Paradigm Robotics, the company he founded to assist firefighters on the job, he didn’t know what a startup was. He lacked knowledge about venture capital and pitch decks, and he certainly wasn’t thinking about scale.

Now a 19-year-old junior at the University of Texas at Austin, Thakur reflects on the growth of his company. “At the outset, it was just a passion project,” he says. “I was just building an engineering project to help solve this local fire department’s problem.”

While a freshman in high school, he stumbled upon a local news segment about a fireman who died in a building fire. Digging deeper, he learned that there are roughly 350,000 structural fires in the U.S. each year that result in nearly 3,000 deaths and close to $9 billion in property lost. After discussions with his local fire chief and roughly 100 similar conversations with departments nationwide, he saw an opportunity to build a remote-controlled robot that fire departments could deploy into structural fires to assess damage, search for survivors, and minimize the risks to firefighters.

Thakur’s company, with a socially conscious, human-centered mission, is in many ways emblematic of Gen Z entrepreneurship. If the millennial generation of founders is defined by the likes of Mark Zuckerberg, Evan Spiegel, and Kevin Systrom, founders who ushered in the age of social media, Gen Z is defined by the trope of doing well by doing good: creating companies that solve today’s societal ills through innovation.

Gen Zers—who range in age from 11 to 26—have been characterized as more politically aware and social justice-driven than previous generations. The first generation to be born having never known a time before the internet, Gen Z has come of age amid unprecedented levels of globalization, flow of information, and human diversity.

According to research from the Center for Advanced Study in the Behavioral Sciences at Stanford University, the typical Gen Zer is a self-starter who “deeply cares about others, strives for a diverse community, is highly collaborative and social, values flexibility, relevance, authenticity and non-hierarchical leadership, and, while dismayed about inherited issues like climate change, has a pragmatic attitude about the work that has to be done to address those issues,” writes senior research scholar Roberta Katz. 

By some metrics, Gen Z is also more entrepreneurial-minded. According to a survey from Morning Consult and Samsung, roughly 50% of Gen Zers are interested in starting their own business.

“Gen Z founders often thrive because of the pace at which they move. They grew up in the mobile internet age and are comfortable with breakneck speeds of innovation,” Molly Alter, a principal investor at venture capital fund Northzone, tells Fortune via email. “This orientation around speed of execution allows them to iterate quickly and build dynamic products that capitalize on the most recent technological capabilities.”

Generation of problem solvers

Jonathan Greechan works with roughly 350 Gen Z-run startups at the Founders Institute, a 14-year-old incubator that helps pre-seed entrepreneurs gain traction and funding. Gen Z founders represent only 5% of companies in the institute’s portfolio, Greechan says, but he’s bullish on what they can accomplish.
“They come in with a much greater advantage than previous generations of being able to connect with the customer and tell a great story about their brand,” he says.

Unlike previous generations, Gen Z founders in its portfolio inherently understand the importance of their company having a purpose.

“I don’t know if it’s a social responsibility that they have, but they just value sustainability and equity,” he says. “[They’re] challenging things that are accepted in the world that they just don’t think is right.”

The Gen Z-founded audio-wellness platform SoundMind, for example, offers users music therapy to address stress, anxiety, and trauma. Brian Femminella, 23, founded the company alongside Travis Chen, 24, after serving time in the military and seeing the impact service had on fellow soldiers’ mental health. Earlier this year, SoundMind raised more than $2 million in seed money and has onboarded some 100,000 users across roughly 50 organizations, including schools and nonprofits.

Then there’s U.K.-based Tash Grossman, 26, who cofounded digital receipts software company Slip with the goal of minimizing waste. The idea came to her in 2020 when she was unable to return a pair of pants to a major retailer because she didn’t have the paper receipt.

“Why, in 2020, are we still using paper receipts?” she recalls thinking at the time.

Through her research, she learned that the U.K. produces roughly 11.2 billion receipts a year, and the paper they’re printed on isn’t recyclable. Gossman left her job in management consulting in 2020 and launched Slip earlier this year. The platform hosts roughly 30,000 receipts per month and is integrated into retailers’ point-of-sales systems, Grossman says.

With seven retail customers so far, Slip has raised $1 million in pre-seed funding and plans to close a seed round soon, Grossman says.

Gen Z has also shown more concern about climate change than its generational counterparts and has pursued careers that are dedicated to preserving the environment. According to Deloitte, 64% of Gen Zers would pay more for sustainable products, and they increasingly expect companies to invest in sustainability.

“There is a rising class of climate entrepreneurs because the climate crisis is so pressing and is the No. 1 cause of anxiety for our generation,” according to 26-year-old Meagan Loyst, the founder of Gen Z VC, a 36,000-member community for young investors and creators. Her internal surveys of young investors show that AI, climate, and fintech are among the industries Gen Z flocks to most.

Perhaps the most prominent Gen Z founder is Alexandr Wang (not to be mistaken with the millennial fashion designer Alexander Wang), who became the youngest self-made billionaire at the age of 24 in 2021. Five years prior, just a year into his time as a student at MIT, Wang cofounded Scale AI, a software company that tags text, images, and video to help companies improve the data used to train AI algorithms.

Although he’s been a vocal advocate of AI use, he’s also expressed caution over its geopolitical implications, testifying before Congress in July on its need to develop AI policies and development regulations.

Gen Z in the VC world

It’s still early days for Gen Z founders. While they’re expected to make up 27% of the global workforce by 2025, according to the World Economic Forum, the youngest Gen Zers are still in elementary school—too young to apply for an LLC.

And despite the outlier success of founders like Wang and his millennial, Gen X, and Boomer forebears—Zuckerberg, Elon Musk, Bill Gates—research from Harvard University suggests the average age of successful startup founders is 45.

For those on the mature end of the Gen Z age spectrum, colleges and universities are increasingly creating environments for young founders to experiment. Thakur has run Paradigm Robotics as a completely bootstrapped operation, relying on the incubators and resources on the University of Texas at Austin campus rather than outside investments. The company plans to raise its first funding round in the first quarter of 2024.

Over the last six months, he’s sought advice from investors in preparation for the pre-seed round and to better understand the VC landscape, but he says it’s been challenging given his status as a college student.

“For every 10 investors, you’re going to find three that say you need to drop out, but the other seven are going to say, ‘Look how successful you’ve been so far. It doesn’t make sense for you to drop out,’” he says.

That was the formula twenty years ago, says McKinsey senior partner Ari Libarikian, who serves as the global leader for the firm’s Leap practice, helping companies identify the value in startups. Previously, young founders would develop an idea—almost always in the digital space—attract VC attention, then drop out of college and scale their company. That’s no longer the model, though that’s not to say there are no Gen Z founders who drop out of college.

But the incentives to leave college and go the VC route are no longer as high, says Jeffrey Sohl, director of the Center for Venture Research at the University of New Hampshire. Campuses offer founders free space, the opportunity to network with alumni, professors, and peers, and access cheap labor from other students eager to participate in startup life.

Still, Molly Fowler, CEO of student-led VC Dorm Room Fund, says students are more willing to drop out if their company takes off, adding that universities offer the most return during the business conception through the VC investment phase. In 2021, university R&D spending hit $90 billion, the highest number to date, according to the National Center for Science and Engineering Statistics.

“It’s a uniquely good time to be investing in students. Whereas my peers who don’t specialize in students have complained to me over the last year about a dip in deal flow and are asking, ‘Are good founders building?’ I’m completely immune from that,” Fowler says.

It’s places like Blackstone’s LaunchPad at the University of Texas at Austin, one of 64 across the country, where students like Thakur are finding support. Nina Ho, LaunchPad’s Austin campus director, sees roughly 4,500 students come through the hub each year in search of mentorship, speakers and events, community, grants, and other funding.

While the most notable millennial founders saw financial success in their early- to mid-20s, that trend appears to be dissipating, and Gen Z founders are finding it more challenging to be taken seriously by investors, especially if there isn’t a clear business proposition, Grossman says. In other words, solely focusing on purpose won’t cut it. Slip began as a consumer problem that soon surfaced as a sustainability nightmare. However, she struggled early on to identify its core consumer and profit scheme before settling on a business-to-business-to-consumer model that eventually attracted some investors.

“It’s great to have the sustainability play within the company,” Grossman says, “but if you don’t have someone who’s willing to pay for it, then who cares?”
Grossman admits there’s plenty she doesn’t know, and finding smart, passionate people to help scale the company will come with its own pains. But considering her age, Grossman says she’s shocked by her business acumen.

“There are plenty of disadvantages to being a founder at this age: You sort of give up your 20s,” she says. “While your friends are working to live, you’re living for work…[But] I’ve never found my age to be a hindrance in my business.”

Source: https://fortune.com/2023/12/17/genz-millennials-founders-entrepreneurship-sustainability-wealth/