Serial Entrepreneurs and Venture Performance: Evidence from U.S. Venture-Capital-Financed Semiconductor Firms

Abstract:     
How does prior firm-founding experience affect subsequent venture performance? I examine the effect of founders’ prior firm-founding experience on the survival rate and the rate of return on investment in subsequent ventures. Estimates of this relationship take into account selection effect of serial entrepreneurs and two roles of venture capitalists (VCs): i) evaluating venture quality by screening deals and ii) adding value to the portfolio company through mentoring. Analysis of U.S. VC-financed semiconductor firms that entered the market during 1995-1999 does not show evidence of selection of highly-capable serial entrepreneurs but shows that prior firm-founding experience helps entrepreneurs acquire skills that are conducive to the survival of early-stage firms, but not necessarily conducive to the financial success of the venture. In addition, the mentoring role of VCs helps the portfolio company both survive through the early stages of a venture and earn a higher return on investment. These findings add to our growing understanding of how founders acquire entrepreneurial skills and in what ways these skills are useful in entrepreneurial activities. These findings also shed light on the potential deadweight loss that might have been imposed on the economy if serial entrepreneurs had not been given a second chance.

Number of Pages in PDF File: 45

Keywords: entrepreneurship, serial entrepreneurs, venture capital, semiconductor industry, startup

working papers series