👋 Hi, I’m Andre and welcome to my weekly newsletter, Data-driven VC. Every Tuesday, I publish “Insights” to digest the most relevant startup research & reports, and every Thursday, I publish “Essays” that cover hands-on insights about data-driven innovation & AI in VC. Follow along to understand how startup investing becomes more data-driven, why it matters, and what it means for you.
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Welcome to the last of three “founder origins” Insights episodes where we've been unpacking the backgrounds of those brave souls launching startups. In our previous episodes, we explored how a founder's academic credentials and previous work experience play into their startup's success. Today, we close our series with a look at repeat founders—those who've been in the startup trenches more than once.
While we've seen value in understanding a founder's work and academic history, stepping back into the startup arena brings its own set of advantages. It's not just about having experience; it's about the kind of experience that hones decision-making, risk assessment, and resilience. Repeat founders likely have a network of contacts, insights into effective strategies, and, importantly, lessons from past failures.
It’s clear that the journey of a founder is as diverse as it is challenging. Repeat founders, with their unique blend of experience and resilience, offer compelling insights into what it might take to succeed in the startup world.
Let's explore why they might just have the edge in turning visionary ideas into reality.
Serial Entrepreneurs: Their Wins and Challenges
This study sheds light on the significant advantages repeat founders hold in attracting venture capital funding. It emphasizes that the experience and lessons learned from previous ventures, successful or unsuccessful, enhance a founder's appeal to investors.
This unique perspective grants them greater credibility, a more substantial negotiating stance, and a richer network of potential investors and partners. Crucially, it positions them as more seasoned and committed entrepreneurs with a realistic vision, aligning closely with what investors seek.
It turns out that repeat founders not only attract capital more easily, they also negotiate more favorable VC contracts than novice founders, with this trend holding true for those with both successful and unsuccessful past ventures.
Studies suggest that these advantages include retaining CEO positions, greater board control, and experiencing less equity dilution. Interestingly, startups led by serial entrepreneurs, particularly those with past successes, are valued higher at VC funding stages. This indicates that venture capitalists probably overindex on the judgment and experience of serial entrepreneurs.
Interesstingly, while repeat founders seem to have it easier to start e new venture, they fare much worse than average in the job market. A study reveals a hiring bias against former founders, who receive 43% fewer callbacks than non-founders.
Notably, successful founders face even greater hurdles, with a 33% lower callback rate compared to those whose ventures failed. This founder penalty, particularly acute in older firms, suggests that concerns over fit and commitment overshadow the value of entrepreneurial experience.
✈️ KEY TAKEAWAY
Serial entrepreneurs stand out in the startup world, attracting venture capital more easily and negotiating better terms thanks to their experience and resilience, yet face unexpected challenges in the traditional job market due to perceived overqualification or commitment concerns.
How Does This Translate Into Venture Outcomes?
Unsurprisingly then, 65% of European unicorn founders are repeat founders, according to an analysis by Mosaic Ventures that tries to “sketch out” the typical European unicorn founder profile. On the flip side, it’s interesting to note that most founders who had a successful exit don’t go on to found a second company, as shown by statistics from Pitchbook.
When we try to assess a founder’s ability to produce a liquidity event, we have to keep in mind that these events are exceedingly rare to begin with. Only the best (and arguably luckiest) founders go on to achieve more than one such exit. This means that successful serial entrepreneurs need a strong ability to learn and generalise from very rare events.
This paper explores the impact of founders' previous experiences on their subsequent entrepreneurial ventures, particularly focusing on how past successes, including exits (such as acquisitions or IPOs), influence future firm performance and the likelihood of achieving another exit.
Specifically, founders who have successfully navigated a company to an exit in the past demonstrate a higher propensity to achieve exits with their new ventures. This quantitative analysis reveals that entrepreneurs with a past successful venture have a 30% chance of success in their next endeavour, compared to an 18% chance for newcomers and a 20% chance for those with prior failures.
✈️ KEY TAKEAWAY
Most unicorn founders have had previous entrepreneurial successes and there is a statistically significant correlation between previous exits and the probability of a future successful exit. This explains (at least in part) why VCs are more trigger-happy with serial entrepreneurs: A 30% chance of a successful exit is the best deal you will get in venture capital.
Conclusion: The Serial Entrepreneur’s Advantage
Serial entrepreneurs carry a unique appeal in the venture capital world, showing resilience and experience that distinctly sets them apart. With a success rate of 30% for those who've previously led a venture to exit, they present a more compelling bet for VCs compared to the average batting average of 5-7%.
This edge isn't just about the numbers; it reflects a deeper understanding of the startup ecosystem, an ability to navigate its challenges, and an innate knack for seizing opportunities that come their way.
Fun Fact: Did you know being popular on LinkedIn can actually boost your startup's funding prospects? Yep, those with a hefty follower count are likely to find it easier to attract investment. Who knew your social media game could be such a game-changer?
Thanks to Jérôme Jaggi for his help with this post.
Stay driven,
Andre
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thank you for putting this together! I find it most interesting that becoming an angel investor is the most common outcome for founders with successful exits. Is it because they didn't like being founders, and don't want to start another company? Or is it because they want to be the angel investor they never had? Or something else?
Regardless, I think it's awesome that they're investing capital and knowledge into future founders
I agree that successful exits give you wind on fundraising side, although it doesn’t guarantee any success. At the end it comes down to how well founders know their market, how fast can they build sellable/buyable product.