The Freedom to Fail Does Matter For U.S. Entrepreneurs– Let’s Not Miss This Important Point


A Harvard Business School working paper has convincingly proven that first time entrepreneurs who fail are not more likely to succeed when they try again, apparently debunking the notion that entrepreneurs (and others) actually learn from their mistakes.  While I found this interesting, it is far more important to recognize that the key element to this cycle that must be protected is the entrepreneurs willingness to take the risk in the first place.

Below is an excerpt from Leslie Berlin's article on this topic in the March 21st edition of The New York Times.  For the full article click HERE.

"Professor Gompers and his co-authors Anna Kovner, Josh Lerner and David S. Scharfstein found that first-time entrepreneurs who received venture capital funding had a 22 percent chance of success. Success was defined as going public or filing to go public; Professor Gompers says the results were similar when using other measures, like acquisition or merger.Already-successful entrepreneurs were far more likely to succeed again: their success rate for later venture-backed companies was 34 percent. But entrepreneurs whose companies had been liquidated or gone bankrupt had almost the same follow-on success rate as the first-timers: 23 percent.  In other words, trying and failing bought the entrepreneurs nothing — it was as if they never tried. Or, as Professor Gompers puts it, “for the average entrepreneur who failed, no learning happened.”

This finding flies in the face of conventional wisdom in Silicon Valley, where failure is regarded as an important opportunity for learning. …  The basic idea behind the embrace of failure is this: Entrepreneurs who have built and then tried to save a company have seen what does and doesn’t work. This experience is viewed as excellent preparation for tough situations that might arise in a new venture. “Given conventional wisdom, we were expecting to find much lower differences between failed and successful entrepreneurs,” Professor Gompers concedes."

At Levensohn Venture Partners we back both first-time entrepreneurs and seasoned veterans.  We have experienced successes and failures with both.  While we do favor entrepreneurs with whom we have had successful prior investing experiences, we also respect and are willing to engage with entrepreneurs who have experienced failure and are ready to try again.  

Most importantly, our nation's innovation ecosystem is built on the principle that entrepreneurs will be rewarded, both psychically and, if they succeed, monetarily, for taking the risk to make their dream a reality.  Failure, in and of itself, does not make an entrepreneur a pariah in America, and that is the key point.  Having a 22% chance of success for a first-time venture-backed entrepreneur is by no means an easy challenge. But entrepreneurs in the U.S. have the assurance that they will be respected for giving their ventures their best shot because they were ready to take the risk in the first place.  This is what makes the venture capital industry in America so special and still unmatched anywhere else in the world.

Be Sociable, Share!

Leave a Reply

You must be logged in to post a comment.