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Success is good but failure is not so bad either: Serial entrepreneurs and venture capital contracting

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  • Nahata, Rajarishi

Abstract

I analyze prior entrepreneurship as a determinant of financial contracting with venture capitalists and find more company-favorable contracts in startups founded by serial entrepreneurs. Repeat founders and other insiders retain greater board control and also suffer less equity dilution in their dealings with VCs. Second, serial founders retain their CEO positions more often. Third, startups founded by serial entrepreneurs obtain higher valuations at VC funding although this finding is confined to previously successful founders who also obtain the best contracts. Interestingly these results obtain despite poorer performance of such startups and VCs funding them sooner. Overall, even previously unsuccessful serial entrepreneurs receive better deal terms than novice founders, consistent with entrepreneurial learning being an important factor in fostering future entrepreneurship.

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  • Nahata, Rajarishi, 2019. "Success is good but failure is not so bad either: Serial entrepreneurs and venture capital contracting," Journal of Corporate Finance, Elsevier, vol. 58(C), pages 624-649.
    • Handle: RePEc:eee:corfin:v:58:y:2019:i:c:p:624-649
    DOI: 10.1016/j.jcorpfin.2019.07.006
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    2. Michael A. Abebe & Pingshu Li & Keshab Acharya & Joshua J. Daspit, 2020. "The founder chief executive officer: A review of current insights and directions for future research," Corporate Governance: An International Review, Wiley Blackwell, vol. 28(6), pages 406-436, November.
    3. Massimo G. Colombo & Benedetta Montanaro & Silvio Vismara, 2023. "What drives the valuation of entrepreneurial ventures? A map to navigate the literature and research directions," Small Business Economics, Springer, vol. 61(1), pages 59-84, June.
    4. Jose L. Salmeron & Taha Mansouri & Mohammad Reza Sadeghi Moghaddam & Narjes Yousefi & Alireza Tayebi, 2023. "Startup’s critical failure factors dynamic modeling using FCM," Journal of Global Entrepreneurship Research, Springer;UNESCO Chair in Entrepreneurship, vol. 13(1), pages 1-18, December.
    5. Khanindra Ch. Das, 2023. "What Affects Startup Acquisition in Emerging Economy? Evidence from India," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 22(2), pages 111-134, June.
    6. Ryan Federo & Yuliya Ponomareva & Ruth V. Aguilera & Angel Saz‐Carranza & Carlos Losada, 2020. "Bringing owners back on board: A review of the role of ownership type in board governance," Corporate Governance: An International Review, Wiley Blackwell, vol. 28(6), pages 348-371, November.
    7. Niculaescu, Corina-Elena & Sangiorgi, Ivan & Bell, Adrian R., 2023. "Venture capital financing in the eSports industry," Research in International Business and Finance, Elsevier, vol. 65(C).
    8. Wang, Qing (Sophie) & Lai, Shaojie & Anderson, Hamish D., 2021. "VC fund preferences and exits of individual investors," Pacific-Basin Finance Journal, Elsevier, vol. 67(C).
    9. Norbäck, Pehr-Johan & Persson, Lars & Tåg, Joacim, 2022. "Risky Business: Venture Capital, Pivoting and Scaling," Working Paper Series 1444, Research Institute of Industrial Economics, revised 17 Feb 2023.
    10. Wu, Shuai, 2023. "Impact of serial entrepreneurs on IPO valuation: Evidence from U.S. IPOs," The North American Journal of Economics and Finance, Elsevier, vol. 64(C).
    11. Sewaid, Ahmed & Parker, Simon C. & Kaakeh, Abdulkader, 2021. "Explaining serial crowdfunders' dynamic fundraising performance," Journal of Business Venturing, Elsevier, vol. 36(4).
    12. André Habisch & Pierre Kletz & Eva Wack, 2022. "Unpleasant Memories on the Web in Employment Relations: A Ricoeurian Approach," Humanistic Management Journal, Springer, vol. 7(2), pages 347-368, October.

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    Keywords

    Venture capital; Financial contracting; Serial entrepreneurship;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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