Working Paper: NBER ID: w29907
Authors: Paul A. Gompers; Vladimir Mukharlyamov
Abstract: In this paper we explore whether or not the experience as a founder of a venture capital-backed startup influences the performance of founders who become venture capitalists (VCs). We find that nearly 7% of VCs were previously founders of a venture-backed startup. Having a successful exit and being male and white increase the probability that a founder transitions into a venture capital career. Successful founder-VCs have investment success rates that are 6.5 percentage points higher than professional VCs while unsuccessful founder-VCs have investment success rates that are 4 percentage points lower than professional VCs. While successful founder-VCs do get higher quality deal flow than professional or unsuccessful founder-VCs, observably higher deal quality does not explain the entire difference in performance. Using an instrumental variables approach to separate unobservable deal quality from value-add, we find that the outperformance of successful founder-VCs is consistent with them adding more value post-investment.
Keywords: No keywords provided
JEL Codes: G02; G24; G30; L14; L20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| prior entrepreneurial success (L26) | venture capital performance (G24) |
| successful founder VCs (G24) | investment success rates (G11) |
| unsuccessful founder VCs (G24) | investment success rates (G11) |
| successful founder VCs (G24) | higher quality deal flow (G24) |
| successful founder VCs (G24) | additional value post-investment (G31) |
| prior success as a founder (L26) | VC performance (G24) |
| successful founder VCs (G24) | longer careers (J62) |
| successful founder VCs (G24) | more deals (L14) |