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Skill vs. Luck in Entrepreneurship and Venture Capital: Evidence from Serial Entrepreneurs

  • Paul Gompers
  • Anna Kovner
  • Josh Lerner
  • David Scharfstein

This paper argues that a large component of success in entrepreneurship and venture capital can be attributed to skill. We show that entrepreneurs with a track record of success are more likely to succeed than first time entrepreneurs and those who have previously failed. Funding by more experienced venture capital firms enhances the chance of success, but only for entrepreneurs without a successful track record. Similarly, more experienced venture capitalists are able to identify and invest in first time entrepreneurs who are more likely to become serial entrepreneurs. Investments by venture capitalists in successful serial entrepreneurs generate higher returns for their venture capital investors. This finding provides further support for the role of skill in both entrepreneurship and venture capital.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12592.

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Date of creation: Oct 2006
Date of revision:
Publication status: published as Gompers, Paul, Anna Kovner, Josh Lerner, and David Scharfstein. “Performance Persistence in Entrepreneurship." Journal of Financial Economics 96 (2010): 18-32. Earlier version distributed as National Bureau of Economic Research Working Paper No. 12592 and Harvard Business School Working Paper No. 09-028. (Earlier Name: “Skill vs. Luck in Entrepreneurship and Venture Capital: Evidence from Serial Entrepreneurs.”)
Handle: RePEc:nbr:nberwo:12592
Note: CF
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  1. David H. Hsu, 2004. "What Do Entrepreneurs Pay for Venture Capital Affiliation?," Journal of Finance, American Finance Association, vol. 59(4), pages 1805-1844, 08.
  2. Paul Gompers & Anna Kovner & Josh Lerner, 2009. "Specialization and Success: Evidence from Venture Capital," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(3), pages 817-844, 09.
  3. Steven Kaplan & Antoinette Schoar, 2003. "Private Equity Performance: Returns, Persistence and Capital," NBER Working Papers 9807, National Bureau of Economic Research, Inc.
  4. Kihlstrom, Richard E & Laffont, Jean-Jacques, 1979. "A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 719-48, August.
  5. Carroll, Glenn R. & Mosakowski, Elaine M., 1987. "The Career Dynamics of Self-Employment," Institute for Research on Labor and Employment, Working Paper Series qt13p1n10b, Institute of Industrial Relations, UC Berkeley.
  6. Paul Gompers & Josh Lerner, 2006. "The Venture Capital Cycle, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262572389, June.
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