Startups are the locomotive of the economy, but many of the owners of these companies lack the knowledge and experience in the field of entrepreneurship, in addition to the difference in potential and social value.
In this report published by the Turkish website “istiklal”, author Handa Ortay said that skilled venture capitalists are needed to filter out the best potential new ventures and help them overcome problems and achieve success. But this funding is usually given to experienced entrepreneurs who have established successful projects and managed to win the trust of customers, suppliers and banks.
The author said that beginners create new jobs and their innovations offer new products to consumers and contribute to improving their well-being and providing more choices.
What are the ingredients for a successful start?
Starting and financing a new business is very risky because many new businesses collapse in a short amount of time. What are the characteristics of a successful start-up business worthy of raising capital?
Some entrepreneurs become series founders by launching other projects after completing their first startup, regardless of whether the first venture was successful or not. Researchers are studying whether these series founders are more successful than novice entrepreneurs.
The study includes venture capital-funded start-ups in the United States, founded between 1986 and 2000, and includes data on 3,796 companies and 8,753 entrepreneurs. The company’s success is evaluated on the basis of whether it offered its shares to the public until December 2007, or submitted the necessary documents by that date. The data also shows whether the company was incorporated into a chain of companies, and whether the founders, or at least one of them, had previous experience in establishing a venture capital funded start-up.
The number of entrepreneurs slowly increased between 1980 and 1994, then the pace accelerated to almost double between 1994 and 1995, and this is explained by the spread of the internet. Between 1980 and 1990, the number of founders receiving venture capital increased from 11 to 1661, and the proportion of series founders increased slightly from 7.1% in 1985 to 9.5% in 1999. This means that the number of registered companies exceeds 100 multiplied it. times.
The author explained that the chances of success of new ventures were different, as the percentage of companies that reached the IPO stage did not exceed 25.7%. The success rate of the company in the first attempt at incorporation was 36.7% and 29.1% in the subsequent attempts. The success rate of beginners established by series founders was 4 percentage points higher than that established by novice entrepreneurs.
The chances of success in starting a larger company averaged 30.3% for series entrepreneurs who built successful start-ups, compared to 21.8% for those with previous failed experiences.
It was found that series founders who founded successful companies were 30.3% more able to launch other successful projects.
Empirical evidence shows the consistency that exists in successful startups. According to experts, this is due to two main factors, the first is the fact that a successful project is the outcome of effective skills, such as management skills, and the second is the right choice of time to launch a specific product.
For example, 52% of computer companies established in 1983 were successful, while this percentage dropped to 18% only two years later.
Past successes are also factors that increase the confidence of investors, suppliers and potential customers. In this way, the chances of obtaining financing increase, which increases the chances of success from the start.
The author indicated that only 46% of beginners can obtain venture capital at an early stage, while it reaches 62% for companies belonging to series founders.
While novice founders get seed financing after 37 months, experienced founders only get financing after 20 months, which means novice founders find it difficult to raise venture capital, and they wait almost twice as long.
And when the venture capitalist is an experienced investor, the probability of success of a joint venture starts is about 21.7%, and about 5 percentage points higher than that of junior venture capitalists. The success rate of novice entrepreneurs receiving funding from experienced investors is 20.9%, compared to 14.3% for inexperienced venture capitalists.
The researchers argue that “market timing” also affects a startup’s chances of success, depending on the industry to which it belongs. If an entrepreneur starts their first business in a booming year, their next venture has a 30.5% chance of success. If the opposite happens, the project success rate is only 23.7%.