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Innovation Economy

In CEO race, experience often trumps youth

By Scott Kirsner
Globe Columnist / June 20, 2010

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Seth Priebatsch bikes to work. On a recent Wednesday, he was padding around the office in bare feet, ripped jeans, and a bright green Izod shirt, with a pair of red wraparound sunglasses perched atop his head.

The employees of his Cambridge start-up, SCVNGR Inc., get free lunch every day because companies like Google have discovered it makes employees more productive. Priebatsch, who dropped out of Princeton University to start the mobile gaming company, talks about “building the game layer on top of the world,’’ and a globe sitting in the middle of a conference table seems to symbolize SCVNGR’s far-reaching ambitions.

Priebatsch’s 43-person company has banked nearly $5 million from investors like Highland Capital Partners of Lexington and Google Ventures, the Silicon Valley search giant’s venture capital arm. But at 21, Priebatsch is a rare duck in Boston: a twentysomething founder who has raised significant money from venture firms.

With hundreds of thousands of students coursing through Boston each year, we ought to do better.

“Beyond Facebook, look at companies like Microsoft and Lotus and Dell, huge companies that were started and grown by young founders,’’ says Deborah Besemer, who was part of a recent meeting of the Massachusetts Technology Leadership Council trustees that touched on that issue. “I think our Boston investment community needs to take a little more risk on our young entrepreneurs.’’

Besemer’s most recent chief executive gig is much more typical of the standard operating procedure: In January 2009, she got a call from Bob Davis, a partner at Highland. At a breakfast meeting, Davis invited Besemer to run Paragon Lake Inc., an e-commerce start-up in which he had invested. It had been founded by two Babson College students interested in selling customized jewelry online. Besemer had retired at 54 after selling a software company, BrassRing, for $115 million, and she had previously been a senior executive at Lotus Development Corp.

“Bob talked about the $60 billion jewelry market, and this being an opportunity to build a huge company in Boston,’’ says Besemer, who decided to accept the job. Founder Matt Lauzon, 24, shifted to the chief operating officer’s role.

The value of having an experienced manager in the corner office versus a founder is debatable: Jack Welch increased General Electric’s annual revenues by more than $100 billion during his two decades as chief executive, but “professional’’ CEOs did some serious damage to Apple Inc. over the years that founder Steve Jobs has spent his second go-round as CEO repairing. Would Google have been such a runaway success if its board hadn’t insisted on bringing in an experienced CEO, Eric Schmidt, to help two twentysomething founders run the company?

And venture capitalists are, at their core, professional oddsmakers. Do you like the chances of the first-time CEO in his 20s (few will be the next Mark Zuckerberg, and build something like Facebook), or would you rather put your money on someone who has grown, sold, and taken a few companies public already?

In Boston, and most other places, the bets tend to get placed on the battle-tested CEO. Just last week, former Sonus Networks Inc. chief executive Hassan Ahmed raised $11 million from two local venture capital firms for his new start-up, Affirmed Networks Inc. Earlier in the month, Stan Lapidus raised $9 million from a trio of local investors for SynapDx Corp., which aims to develop a new blood test for the early diagnosis of autism. Both chief executives have taken companies public before.

But Bijan Sabet of Spark Capital argues: “One of the best things about young founders is the combination of lack of fear — and audacity and talent. They also grew up on the Web, so they understand it in ways that are hard to explain. It’s just who they are completely.’’

Boston-based Spark has funded several companies started by young entrepreneurs, most notably Tumblr Inc., a super-simple blogging platform. Sabet says Spark invested in Tumblr, headquartered in New York, when founder David Karp was just 19. But Sabet says via e-mail that the firm is also “fond of backing serial founders as well,’’ such as Evan Williams, who has launched and served as CEO of three San Francisco start-ups, most recently Twitter Inc.

The excellent news in Boston is the sudden surplus of competitions, incubators, co-working spaces, and seed funding opportunities that tend to attract younger entrepreneurs. Polaris Venture Partners in Waltham recently expanded its DogPatch Labs space in Cambridge, for instance, which offers free accommodations to selected start-ups. And we’ve got lots of two- and three-person companies, run by whippersnappers, that have raised some money from angel investors.

Many argue that these lean and nimble start-ups represent the future. But I believe there are still plenty of markets where product development, marketing, or building a sales force can require millions of dollars of capital.

But in Boston, once you have mentioned SCVNGR, Paragon Lake (now known as Gemvara), and Viximo Inc., a company that supports the creation of virtual goods and currencies, there aren’t many other companies of recent vintage that were started by twentysomethings and have raised substantial venture capital. (The 1990s were a different story.)

At SCVNGR, there’s a hyper-competitive, swing-for-the-fences attitude. Joking about how the company wound up in a research-and-development office occupied until last year by France Telecom S.A., Priebatsch jokes: “We acquired them.’’

The company provides tools so that paying customers like the National Zoo or the Museum of Fine Arts can create mobile phone challenges tied to specific places, like snapping a picture, solving a puzzle, or making a sculpture out of a tin-foil burrito wrapper. Priebatsch, who gave himself the title “Chief Ninja,’’ says that everything at SCVNGR is treated like a game: On “Super Call Wednesdays,’’ the sales staff tries to make as many calls to close deals as they can, and the winner gets a prize. (This week, it was a pair of noise-canceling headphones.)

“If it’s not fun, we don’t do it,’’ Priebatsch says. “Everything we do is motivated by fun. Yes, we do have a real business model and we do make a lot of money. But it’s a side effect of making everything fun.’’ He says the company brought in more than $1 million in revenue last year.

At Gemvara, the company changed its name when it decided to sell customizable bling directly to consumers, instead of through jewelry retailers. (Turns out that jewelry stores would rather sell the merchandise in those glass cases, which is already on their books.)

Besemer, who had been brought in only about six months earlier as chief executive, decided that the company needed a leader with consumer e-commerce experience, so she vacated the corner office. Cofounder Lauzon is running the company again, though it’s also possible Gemvara could hire another CEO. Last April, Gemvara raised $5 million, bringing its total funding to about $11 million.

“I loved the company,’’ says Besemer, who continues to chair Gemvara’s board. “I worked all kinds of hours. But you never have the same kind of passion that the founder has. I wish that in Boston we took more opportunities to harness that passion.’’

Scott Kirsner can be reached at kirsner@pobox.com. Follow him on Twitter @ScottKirsner.