Disagreement Predicts Startup Success: Evidence from Venture Competitions

This paper examines the relationship between disagreement surrounding a startup proposition and its future success. I find that the more venture competition judges disagree on the quality of a startup, the more likely the startup is to succeed, particularly when its proposition is unique. To explain this correlation, I build on the notion that (i) entrepreneurs pursue opportunities based on their subjective beliefs and (ii) common opinion alone cannot be a source of competitive advantage. Therefore, value is disproportionately created and captured by founders with unconventional ideas that spark disagreement, and potential investors should harness disagreement as a predictor of success. I leverage data from 67 venture competitions to show that the empirical implications of this theoretical framework are supported by the data, whereas alternative explanations (e.g., that judges disagree more about risky ventures) are not. Additionally, I provide insights into which evaluators tend to disagree more often (e.g., former entrepreneurs) and which aspects of a startup (e.g., business model) are most polarizing. This work has broad implications for investors and institutions that strive to evaluate the potential of startup ideas.