Performance Persistence in Entrepreneurship and Venture Capital

Paul A. Gompers; Josh   Lerner; David  Scharfstein; Anna  Kovner

Article | Journal of Financial Economics | April 2010

Performance Persistence in Entrepreneurship and Venture Capital

by Paul A. Gompers, Josh Lerner, David Scharfstein and Anna Kovner

Abstract

This paper presents evidence of performance persistence in entrepreneurship. We show that entrepreneurs with a track record of success are much more likely to succeed than first-time entrepreneurs and those who have previously failed. In particular, they exhibit persistence in selecting the right industry and time to start new ventures. Entrepreneurs with demonstrated market-timing skill are also more likely to outperform industry peers in their subsequent ventures. This is consistent with the view that if suppliers and customers perceive the entrepreneur to have market-timing skill, and is therefore more likely to succeed, they will be more willing to commit resources to the firm. In this way, success breeds success and strengthens performance persistence.

Keywords: Performance; Entrepreneurship; Venture Capital; Market Timing; Competency and Skills; Customers; Resource Allocation; Success; Business Startups;

Format: Print

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Citation:

Gompers, Paul A., Josh Lerner, David Scharfstein, and Anna Kovner. "Performance Persistence in Entrepreneurship and Venture Capital." Journal of Financial Economics 96, no. 1 (April 2010): 731–764.

A variety of factors is leading to fresh approaches to the ownership and management of forestland, with an emphasis on the combination of conservation goals and private investments. But the barriers to successfully achieving attractive financial returns and desirable social outcomes can be daunting. This working paper, which features two short case studies that examine the challenges and opportunities associated with forest conservation finance, explores these important issues.

Venture capital is associated with some of the most high-growth and influential firms in the world. Academics and practitioners have effectively articulated the strengths of the venture model. At the same time, venture capital financing also has real limitations in its ability to advance substantial technological change. Three issues are particularly concerning to us: 1) the very narrow band of technological innovations that fit the requirements of institutional venture capital investors; 2) the relatively small number of venture capital investors who hold, and shape the direction of, a substantial fraction of capital that is deployed into financing radical technological change; and 3) the relaxation in recent years of the intense emphasis on corporate governance by venture capital firms. While our ability to assess the social welfare impact of venture capital remains nascent, we hope that this article will stimulate discussion of and research into these questions.

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Performance Persistence in Entrepreneurship and Venture Capital

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