Saturday, August 27, 2011

Increasing Startup Success

Money Helps

Albert Einstein writing 'Duh!' on a chalkboard
~ Newsflash: research shows that startup companies that receive funding are more likely to succeed!

No, really. People actually spent time to study this. Researchers from Harvard and MIT, no less, found that startups that raised money from angel investors were
  • 20-25% more likely to still be around four years later
  • 9-11% more likely to be acquired or have an IPO
  • larger, with 16-20 more employees
  • 16-18% more likely to have been granted a patent
Putting numbers on these things is interesting, I suppose, but the fact that funded companies do better than ones that don't get funded can easily be placed in the "Duh!" file. Companies that don't get funding can't as easily hire employees, pay for patent filings or do any number of things necessary to execute on the business plan. Thus, fewer succeed to be around years later, much less have a successful exit.

Next time, can researchers study something less obvious? For example, as measured by outcomes:

  • Which angel groups produce higher startup success with their funding?
  • How valuable is it to have angels with domain expertise that matches the startup's business?
  • Which angel groups are more likely to provide follow-on funding?
  • Which financing terms correlate with higher success rates?
Such studies would not be easy to do, but at least they might yield results that are actionable, rather than shrugged off, and which could guide entrepreneurs in making decisions to enhance their chances of succeeding.

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