Skill vs. Luck in Entrepreneurship and Venture Capital: Evidence from Serial Entrepreneurs

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. Harvard University. Gompers, Lerner, and Scharfstein are also affiliates of the National Bureau of Economic Research. Helpful comments were provided by Yael Hochberg, Steve Kaplan, Roni Michaely, and Avri Ravid. We thank for Tim Dore for exceptional research assistance on this project. Harvard Business School’s Division of Research and the National Science Foundation provided financial assistance. All errors and omissions are our own.