Skill vs. Luck in Entrepreneurship and Venture Capital: Evidence from Serial Entrepreneurs
Paul A. Gompers
Harvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)
Federal Reserve Banks - Federal Reserve Bank of New York
Harvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER)
David S. Scharfstein
Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)
This paper argues that a large component of success in entrepreneurship and venture capital can be attributed to skill. We show that entrepreneurs with a track record of success are more likely to succeed than first time entrepreneurs and those who have previously failed. Funding by more experienced venture capital firms enhances the chance of success, but only for entrepreneurs without a successful track record. Similarly, more experienced venture capitalists are able to identify and invest in first time entrepreneurs who are more likely to become serial entrepreneurs. Investments by venture capitalists in successful serial entrepreneurs generate higher returns for their venture capital investors. This finding provides further support for the role of skill in both entrepreneurship and venture capital.
Number of Pages in PDF File: 41
Keywords: new ventures, entrepreneurs
JEL Classification: G24, L16working papers series
Date posted: October 2, 2006
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