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Are “Better” Ideas More Likely to Succeed? An Empirical Analysis of Startup Evaluation

Listed author(s):
  • Erin L. Scott

    ()

    (National University of Singapore Business School)

  • Pian Shu

    ()

    (Harvard Business School, Technology and Operations Management Unit)

  • Roman M. Lubynsky

    ()

    (Massachusetts Institute of Technology)

Registered author(s):

    Entrepreneurs face high uncertainty, and often make costly investments in new business ideas without knowing the expected payoff. This paper empirically examines whether ex-ante assessment of early-stage startup ideas can predict their subsequent commercialization. We leverage an entrepreneurship program at the Massachusetts Institute of Technology in which early-stage venture ideas, presented in the form of succinct standardized summaries, elicit subjective evaluations from a large set of experienced entrepreneurs and executives. Using data on 652 ventures in multiple industry sectors, evaluated over an 8-year period, we find that ideas that elicit more positive evaluations are significantly more likely to ultimately reach commercialization. We further show that these results are driven by venture ideas with documented intellectual capital in research-and-development-intensive sectors, such as life sciences and medical devices. We find no evidence, by contrast, that experts can effectively assess the commercial potential of venture ideas in non-R&D-intensive sectors such as consumer web and enterprise software. Finally, we find that industry-specific and scientific expertise is not critical to experts' collective ability to predict ventures' commercial viability.

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    File URL: http://www.hbs.edu/faculty/pages/download.aspx?name=16-013.pdf
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    Paper provided by Harvard Business School in its series Harvard Business School Working Papers with number 16-013.

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    Length: 49 pages
    Date of creation: Jul 2015
    Handle: RePEc:hbs:wpaper:16-013
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