In the face of uncertainty, seeking refuge in the tried and true is the wisest course of action. After enduring a VC winter with funding freezes and down rounds, we entered spring in chaotic circumstances. Silicon Valley Bank became the first major bank failure in 15 years and kick-started a rout that saw UBS buy its Swiss rival, Credit Suisse.
All the while, the money that was seeking outsized returns flocked to a safe haven of sorts: the serial founder.
European fundraising is glacial. VCs poured just €14.3 billion into European startups in Q1 2023. That’s nearly 60% less than the same period last year. And only a single new unicorn emerged out of 2,300 funding rounds that took place – the lowest number in nearly seven years. Yet when VCs did bet on startups, they overwhelmingly backed those with a track record. Serial founders attract 2.5 times more participation from the top 100 investors compared with first-time founders, according to Pitchbook data.
They also get more cash. Serial founders raised around 2.5 times more in angel and seed rounds than first-time founders, according to Pitchbook. That increases to 3.4 times for early and late-stage rounds. If you’re a startup founder on your second, third or even fourth company, you are hot property right now. There’s good sense in backing serial founders but all that glitters isn’t gold.
Skillful or Just Lucky?
The National Bureau of Economic Research (NBER) looked at thousands of startups over a 25-year period to understand whether their success was skill or luck. They found that skills were the defining characteristic of success. So founders with prior success have a higher chance of replicating that success in their new business than those who have failed before.
In a 12-year-long Danish study, Kathyrn Shaw and Anders Sørsensen found that serial entrepreneurs have higher sales with greater productivity than first-time founders. Their sales are 98% higher and they are 49% more productive than novice business owners.
The Harvard Business Review notes that it’s extremely difficult to measure entrepreneurship. How do you compare a person who starts a business because they like building versus someone who’s in hardship and has no other option but to succeed?
For example, some entrepreneurs encounter a pain point and create products to solve their own problem but don’t know the scale of the problem. Whereas builders are perhaps more creative and will make new things as a matter of practice or passion, which typically has a methodological approach.
In fact, it’s quite easy to describe yourself as a serial entrepreneur. There were nearly 860,000 “serial entrepreneurs” on Linkedin in February 2020. Today, there are at least 1.92 million.
More and more startups are created each year but around 86% of startups will fail before they reach five years old. At least 10% die in their first year.
Recipe for Success
Founders succeed because while their idea is novel and serves a large market, their personality and spirit are built on enthusiasm and purpose. They build, iterate and finish by pivoting continually to ensure the startup’s success.
Our serial founders tend to share four qualities: determination, flexibility, imagination and friendship. Jinal Jhaveri is a good example of the last characteristic. In May, he sold Enable Us to Mindtickle. This exit came six years after he sold SchoolMint. We invested in both deals and count him as a friend. He’s also one of our Venture Partners.
We were one of the first VCs to deploy a special approach to serial founders in Europe. Our first was French mobile analytics startup Capptain, which was sold to Microsoft in 2014. The founder, Laurent Lathieyre, started a few companies before and after his successful exit, we wondered if we should treat serial founders differently. So we started writing €100,000 seed checks to serial founders we liked, including Laurent, who recently sold his second Runa-backed company, Zendocs, to SirionLabs. This cemented our faith in a certain profile of serial founders but the recent cohort of VCs drawn to entrepreneurs would be wise to remember that one swallow does not make a summer.
Cautionary Tales
People often suggest serial founders are stubborn because of their refusal to fail. We prefer the term persistent because good founders know when to keep pushing but also stop. The frontier between stubbornness and persistence is very thin. Take Justin Kan for example. After selling Twitch to Amazon for almost a billion, he had no shortage of funders for his next venture Atrium and raised $75M. It didn’t work as Justin overhired before defining the product.
This is a good example of failure because pulling the plug meant less capital and time was deployed. Justin wasn’t stubborn. However, there are others who take this to the extreme and should act as a cautionary tale for the VCs flooding into serial founders.
Adam Neumann, the founder of WeWork, raised $350 million from Andreessen Horowitz for his next company Flow, even before it was launched. We’re still to see if it’s going to be successful.
A survey by Havard Business Review found that of 576 British entrepreneurs, half were serial founders, and around a third of those had experienced failure. The sheer volumes of capital put into their startups in late 2022 suggests that many founders are getting money on their past success and not necessarily their skills. It’s not dissimilar to the crypto world. Investing in deep and not yet well-known infrastructure projects in 2016 was risky, but aligned with the essence of venture capital. They developed an investment thesis and set the trends. Those pouring billions in 2021 weren’t pioneers and just to get to the party was just piggybacking on other’s success.
There’s no doubt that a proven track record is attractive. But with less capital reaching first-time founders, VCs are favouring historical success with, perhaps, the expectation of outsized returns.
VC has a 7-10 year investment cycle, so who knows for sure?
But what is certain is the 77% growth in the number of serial founders on LinkedIn in three years. One quality good founders have is the ability to hack existing systems. Maybe the new hack is being slightly naughty, or creative, with your LinkedIn profile. At the end of the day, many startup successes are tied to founders. Good serial founders are harder to find, but from our experience are worth it.
