Did the paper address how much of point 4 is due to selection and how much is due to ongoing support? I would expect the more experienced VCs to be better at selecting successes.
Thanks for posting this article, I had a chance to the paper too. And if nothing else, point no.1 is definitely very encouraging for a lot of budding entrepreneurs. Not that we would start to fail, but having failed statistically improves your chances of success, which is GOOD news.
I'd be really curious if the same numbers hold for open source projects. What I have observed is that VCs will fund traditional companies without a product, team or even a customer in place. When they fund an open source project they want the product created, a community established, customers, etc.
To me this is a significant difference and I wonder how the numbers change.
On point 1 - "So, it seems that you're better off having started a company and having failed -- then not having started one at all." If this is comparing the 18% vs. 20% is that difference statistically significant? Or am I missing the point?
The 30% is an eye-opener to me because the urban myth seems to be "once a successful entrepreneur always a successful entrepreneur"
My conclusion is a little different but may just be a (non academic) leap: Better to learn from successful entrepreneurs than from those that have failed.
On point 1 it may be that 20% of the second timers succeed. However it does not follow that you have more chance second time around.
Not all failures try again. I suspect the one's who try a second time are those who almost succeeded or have greater motivation. What is clear is that the second timers are not necessarily representative.
I prefer to read the original study before providing substantive comment. In brief at this time:
 My reading of your article makes me wonder... What was the purpose of the original study?
 I have noted articles and blog posts within the past two months that have addressed VC funding for startups wherein it was suggested that VC funding provides economic and expertise value to the founders and their startup organizations. In other words, articles heavily weighted in favor of VC funding. I say... VC funding with what risks and at what costs for the founders and their startup organizations. I question this VC funding bias, and I suggest young aspiring software entrepreneurs ought do a hard think toward alternative means of funding their startups.
#1 definitely is encouraging for those of us who have a failure behind us. Learning from the mistakes made in the first try surely should increase your chances the second time around.
I may not have learned what works, but I have learned a few things that don't...
Thanks for the posting. I Hope to read the whole thing if I can get my hands on it.
This is VERY confusing. Are you referring to startup founders or entrepreneurs? The chances of succeeding if you open a Pizza Hut are greater than a software startup. But will a PH froanchisee be able to get Venture funding?
Cause and Effect are not so clearly defined.
As Paul Graham has pointed out very clearly, the top shelf VC firms get first crack at funding startups. It is not clear to me that top VC firms help drive success or if they simple get to skim the cream off the top
The paper can be downloaded from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=933932
Joe Johnson's point, that "top-tier" VCs may do better simply because they get first pick of the hottest companies, is applicable to your point #2 as well. That point says "Failed serial entrepreneurs are more likely than successful serial entrepreneurs to get funding from the same venture capital firm that financed their first ventures." This may be because an entrepreneur with a positive track record is going to find it easy to get the attention of any investor, whereas an entrepreneur without a hit is just some dude with a business plan -- except to those who've met and worked with him/her personally.
> 6. Serial Entrepreneurs Get Better Terms:
"Repeat entrepreneurs receive more favorable terms for vesting, board structure and liquidation rights, but do not receive greater equity ownership percentages."
This makes sense because the serial entrepreneur has been through the process before and is aware of the terms and conditions they can put on the table.
It is very telling that despite their previous negotiation experience they do not receive a better deal equity wise.
It succinctly demonstrates the 'Golden Rule' - he who has the gold, rules!
I found your article and the paper a very interesting read. I am a little concerned about its data, however.
Granted, the paper limits its scope to founders that recieved at least one round of funding from VC firms. The authors also state their definition of success:" We define “success” as going public or filing to go public by December 2003. The findings are similar if we define success to also include firms that were acquired or merged. "
So, are we to assume from this article, however, that 18-20% of companies that recieve 1st round venture funding will either go public, be acquired or merged? That figure seems a little high, at least a lot higher than the 5-10% that usually gets passed around as a success rate for VC funded companies.
Hi, thank you very much to all of you about these contributions to startup issues, it is always a good breath of fresh air to read your various posts.
Things are quite slow however here in europe although there might be some recent changes in public attitude and in gouvernment support . Also, some funny initiatives are on their way, apparently just started, like facilitating capital funding through pixel ad (link should be something likewww.firstmillioneuros.eu
+1 for Simon's point above. Read it again.
It's not that the numerator (successes) got larger, but rather that the denominator (# of people attempting) went down.
What is the definition of success? Is it an IPO? Is it raising next round of funding? Is it raising $100M in an IPO? Is it reaching a market cap if $1B 3 years after an IPO?
Each of my startups is as different as night and day. I'm more determined when one fails and work harder on the next one. I learned that hardware development takes too long. I learned to write my own code for software and find better programmers to increase software production. Most importantly I learned to study markets and the competition better and listen to the users(future customers) and my confidence level has increased with my past failures. Another big difference is that my current two startups are for the global market.
The book "Founders At Work" is a good read.
There is luck involved and it takes longer then you think it will take and everything goes wrong. But along the way new ideas blossom and that's when it gets interesting.