Serial Entrepreneur Statistics

HBS Working Knowledge has a very interesting post today--Performance Persistence in Entrepreneurship. Don't let the "heavy" title mislead you. The paper is well worth reading and was funded by both the Harvard Business School and the National Science Foundation. The data for the paper came from the Venture Source database for the period 1975-2003. Venture Source contains detailed company information and the various rounds of financing for every company that has publicly acknowledged venture capital funding. The paper defines a "successful" venture-backed company as achieving an IPO.

Findings from the paper include:

1. A venture capital-backed entrepreneur who succeeds with his first company has a 30 percent chance to succeed with his next venture; entrepreneurs who failed with their last company have a 20 percent chance of success in their second venture-backed company and first time entrepreneurs have an 18 percent chance of success.
2. A venture capital-backed entrepreneur who succeeds with his first company demonstrates markedly better skills at picking their market opportunity and their market entry timing for their next venture.
3. A venture capital-backed entrepreneur who succeeds with his first company may find it easier to achieve credibility for the next start up with suppliers and customers.
4. Track record is a better predictor of success than the successful entrepreneur's wealth or luck.
5. Serial entrepreneurs backed by a VC receive funding earlier in the company's development than other entrepreneurs seeking funding.

Unfortunately, the paper does not discuss whether successful serial entrepreneurs stay within an industry, but the point on supplier/customer relationships would suggest they do.

This paper confirms several points of "conventional wisdom" about VCs:

1. VCs prefer serial entrepreneurs, especially successful ones
2. The VC focus on the market opportunity and market entry timing are probably the two most important factors in selecting potential investments
3. VCs fund previously successful serial entrepreneurs earlier than first timers

I suspect that all of the findings in the paper would hold true if "success" had been defined as a 10X return for the VCs instead of an IPO.

A previous post on an academic paper that investigated venture capital decision making is here.

The complete paper is available through the following link Download 09-028 . The authors of the paper are Paul A. Gompers, Anna Kovner, Josh Lerner and David S. Scharfstein.