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Transferable Skills? Founders as Venture Capitalists

Paul Gompers () and Vladimir Mukharlyamov

No 29907, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In this paper we explore whether or not the experience as a founder of a venture capital-backed startup influences the performance of founders who become venture capitalists (VCs). We find that nearly 7% of VCs were previously founders of a venture-backed startup. Having a successful exit and being male and white increase the probability that a founder transitions into a venture capital career. Successful founder-VCs have investment success rates that are 6.5 percentage points higher than professional VCs while unsuccessful founder-VCs have investment success rates that are 4 percentage points lower than professional VCs. While successful founder-VCs do get higher quality deal flow than professional or unsuccessful founder-VCs, observably higher deal quality does not explain the entire difference in performance. Using an instrumental variables approach to separate unobservable deal quality from value-add, we find that the outperformance of successful founder-VCs is consistent with them adding more value post-investment.

JEL-codes: G02 G24 G30 L14 L20 (search for similar items in EconPapers)
Date: 2022-04
New Economics Papers: this item is included in nep-cfn and nep-ent
Note: CF
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