HBS Study Finds VCs Need Successful Serial Entrepreneurs Way More than Vice Versa

Entrepreneurs with one success in the rear view mirror are more likely to succeed in subsequent ventures than either first-time entrepreneurs, or those who failed in a past endeavor.

So finds new research from the Harvard Business school that, unsurprisingly, also finds that success often begets success because of the support that gets thrown behind a perceived winner.

Much more surprising about the working paper is the stats it holds. According to its authors, including renowned HBS professor Josh Lerner, successful entrepreneurs have a 34 percent chance of succeeding in the next venture-backed firm, compared with 23 percent who failed previously, and 22 percent chance for new venture-backed entrepreneurs. (Honestly, I had no idea new entrepreneurs, or even second-time entrepreneurs with one failed company, had a one in five chance of succeeding. If I were a new venture-backed entrepreneur, I’d be pretty heartened by that data. Those are way better odds than you’ll find in, say, the restaurant business.)

The study also draws some interesting conclusions about market timing, suggesting that starting a company at the “right time” is a skill, and not just dumb luck. For example, entrepreneurs who’ve succeeded by investing in a burgeoning industry in a good year (at that soon-to-be-hot industry’s outset) are substantially more likely to succeed in their subsequent businesses than those who succeed by doing better than their peers once that industry becomes crowded with competitors several years later. More, those first-mover entrepreneurs are apparently more likely to again form a new company in a hot industry at its outset.

Yet what may be the most provocative piece of the Harvard study is its conclusion that high-quality entrepreneurs don’t need funding by “top tier” VC firms.

Though receiving the imprimatur of Kleiner Perkins or Sequoia Capital can go a long way in helping a startup —  because of either the board member and/or the firm’s ability to attract critical resources — the study finds a “performance differential” only when the VC firms invest in startups formed by first-time entrepreneurs, or entrepreneurs who’ve previously failed. If a company is started by someone with a track record of success, then that startup’s future isn’t going to be impacted one way or the other if it takes company from a top fund, or a firm in a lower tier.

If true, that’s saying a lot about the real value that VCs add to the companies that they most like — and vice versa.

The 35-page working paper is here.

In the meantime, here’s a list of firms that have backed the most serial entrepreneurs. (This data was as of last summer.)

Firm    /      Serial Entrepreneurs / Total Entrepreneurs / Serial Entrepeneurs as a % of Total

KPCB                  100                             666                                             15.0

NEA                     80                             702                                             11.4
Sequoia Capital   69                             432                                             16.0

USVP                   68                             454                                              15.0
Mayfield              63                             459                                              13.7

Accel                   61                             418                                              14.6
Crosspoint          60                             407                                               14.7

IVP                      56                             385                                               14.5
Bessemer             49                            340                                               14.4
Matrix                 44                             275                                               16.0

Source: Paul A. Gompers, Anna Kovner, Josh Lerner, and David S. Scharfstein, using VentureSource data

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7 Comments

  • What’s also interesting is that this study rather disses the notion that it’s OK to fail because you’ll learn from the experience and do better next time. But that’s clearly not the case. I had always suspected the mantra “It’s OK to fail” was just a way to excuse poor decision making by entrepreneurs and the VCs who backed them.

  • Nice study about the importance of the knowledge gained from experience, especially successful experience. I’d like to see this study replicated outside the VC world since they represent such a small # of the total ventures started in the US each year. It would be interesting to see if a similar result holds on the 600,000 or more ventures started that, per the US SBA data, 60% or fail in the first five years.

  • Would love to see details on how many of these came from successful entrepreneurs who used same firms/partners again. My guess is that the best GP’s maintain strong working relationships with their best CEO’s for 20-30 years. Amazing how often the same top venture investor will work with same founding team over time, making money together on 3-4 companies.

  • [...] HBS professor Josh Lerner backs up these later results.  According to his paper, as reported on PE Hub: successful entrepreneurs have a 34 percent chance of succeeding in the next venture-backed firm, [...]

  • In one important way the United States is very much like the Soviet Union of old. The number of hours that entrepreneurship in taught to youth at K-16 schools: “zero” – for both countries. How dumb.

  • [...] Study on Serial Entrepreneurs: An article on peHUB on an HBS study. “Successful entrepreneurs have a 34 percent chance of succeeding in the next venture-backed firm, compared with 23 percent who failed previously, and 22 percent chance for new venture-backed entrepreneurs.” [...]

  • [...] peHUB » HBS Study Finds VCs Need Successful Serial Entrepreneurs Way More than Vice Versa [S]uccessful entrepreneurs have a 34 percent chance of succeeding in the next venture-backed firm, compared with 23 percent who failed previously, and 22 percent chance for new venture-backed entrepreneurs. [...]

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