Bad news, entrepreneurs. There's no such thing as "smart money". In a study by the National Bureau of Economic Research, no evidence was found in the performance of entrepreneurial firms that took experienced venture capital from those who took inexperienced capital.
However, the study found that "Successful serial entrepreneurs are more likely to replicate the
success of their past companies than either single venture
entrepreneurs or serial entrepreneurs who failed in their prior venture."
"The predicted success rate of entrepreneurs with a track record of
success is 30.6%, compared to only 22.1% for serial entrepreneurs who
failed in their prior venture, and 20.9% for first-time entrepreneurs."
(link via Sanjay Parekh)
Good to know but what exactly would "Successful" be defined as? Making a lot of money is the first thing that comes to mind but at what point, profit margin, or dollar figure is this considered successful? I see this statement as somewhat subjective without some sort of solid number or percentage to achieve.
ReplyDeleteI do however like the statement as I consider my design firm successful so this would in theory give me a 8.5% advantage over some to be considered successful again. That is a number I can take to future investors if I can just define my success.
Ben
That was a super useful/interesting data point... thanks for that patrick!
ReplyDeleteOne more thing... I am curious as to how they were able to compensate for the fact that more experienced VC typically attracts better deal flow, and thus have a positive correlation to better entrepreneurs that may be able to derive less value from "smart money" -- as much of the "smart" in "smart money" comes from being able to have access to a broad more influential network that a serial entrepreneur may already have access to.
ReplyDeleteI haven't dived deep enough into the report/research (I read the link from Sanjay) -- but the first thing that I think of is that the less experienced capital tend not to get as much high quality deal flow, so the success and failure rate tends to be skewed and therefore hard to measure.
Another note is, I would love to see a study on success rates of serial entrepreneurs with 1, 2, and 3+ successful exits and if there's much in the way of stats to show "luck vs. skill" between 1, 2, and 3+ positive exits.