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

How does prior firm-founding experience affect subsequent venture performance? In this study, I examine the effect of founders’ prior firm-founding experience on the survival rate and the annualized 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 sorting 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 and indicates that the hazard rate of firms founded by serial entrepreneurs is substantially lower than firms founded by novice entrepreneurs. I also find 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 a venture. In addition, I find that the mentoring role of VCs helps the portfolio company survive through the early stages of a venture, but this does not necessarily translate into a higher rate of 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 funded. Given the low success rate of entrepreneurship, this has implications for countries where failed entrepreneurs rarely get a second chance. † Department of Economics, University of California at Berkeley ([email protected]). I thank Clair Brown, Ulrike Malmendier, David Mowery, and the late John Freeman for inspiration and encouragement throughout this project. I am indebted to the late John Freeman for his insightful discussions and his strong support of my project in its early stages. I also thank Richard Gilbert, Gérard Roland, Catherine Wolfram, Waverly Ding, Thomas Hellmann, Josh Lerner, Scott Stern, and all participants at the NBER Entrepreneurship Research Boot Camp for their thoughtful comments and support. I thank Susan Woodward and Sand Hill Econometrics for sharing data and helpful comments. I gratefully acknowledge financial support from the Kauffman Foundation Dissertation Fellowship Award and the Institute of Business and Economic Research (IBER), the Institute of Labor and Employment Research (ILRE), and the Lester Center for Entrepreneurship and Innovation at UC Berkeley. All errors are mine.