Performance Persistence in Entrepreneurship

1. Introduction In this paper, we address two basic questions: Is there performance persistence in entrepreneurship? And, if so, why? Our answer to the first question is yes: all else equal, a venture-capital-backed entrepreneur who succeeds in a venture (by our definition, starts a company that goes public) has a 30% chance of succeeding in his next venture. By contrast, first-time entrepreneurs have only an 18% chance of succeeding and entrepreneurs who previously failed have a 20% chance of succeeding. The answer to the second question of why there is performance persistence is more complex. Performance persistence – for example, among mutual fund managers, stock analysts, or football players – is usually taken as evidence of skill. This is certainly the most straightforward explanation of our finding. Indeed, we will provide additional evidence to support this view. However, in the context of entrepreneurship, there may be another force at work. The perception of performance persistence – the belief that successful entrepreneurs are more skilled than unsuccessful ones – can induce real performance persistence. This would be the case if suppliers and customers are more likely to commit resources to firms that they perceive to be more likely to succeed based on the entrepreneur’s track record. This perception of performance persistence mitigates the coordination problem in which suppliers and customers are unwilling to commit resources unless they know that others are doing so. In this way, success breeds success even if successful entrepreneurs were just lucky. And, success breeds even more success if entrepreneurs have some skill. To distinguish between the skill-based and perception-based explanations, it is important to identify the skills that might generate performance persistence. Thus, we

decompose success