Skill vs. Luck in Entrepreneurship: Failed entrepreneurs most likely to be successful in the second venture?

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What makes an entrepreneur successful? Is it skill or luck?

Here are a few key findings by economists from Harvard university.

  • Serial entrepreneurs are more likely to succeed than the first timers.
  • Failed serial entrepreneurs are more likely than successful serial entrepreneurs to get funding from the same venture capital firm that financed their first ventures.
  • 45% of first-time ventures receive first-round funding at an early stage and close to 60% of entrepreneurs receive first-round funding at an early stage when it is their second or later 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.
    This finding indicates that it is not experience per se that improves the odds of success for serial entrepreneurs. Instead, it suggests the importance of entrepreneurial skill in determining performance.
  • Financing from experienced venture capital firms has a large effect on the probability that an entrepreneur succeeds for one of several reasons: because these firms are better able to screen for high quality entrepreneurs, because they are better monitors of entrepreneurs, or because they simply have access to the best deals.
  • While they are more likely to be successful, serial entrepreneurs are not able to extract all of the value from their superior ability. Successful serial entrepreneurs do not achieve higher valuations than do other entrepreneurs

Download the pdf, if you want to read the entire study.

Essentially, the take away is that

  • Entrepreneurs should really be careful about selecting the VC [discussed earlier]
  • Failure doesn’t really matter much – it’s a level playground out there.

What’s your opinion?

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