On average, successful entrepreneurs are 48% more likely to build a successful company than first-time or failed entrepreneurs.
This means that investors make a return on their investment 48% ‘more often’ by investing in entrepreneurs with a track record of success. This higher likelihood of success has positive implications on investors’ returns and is discussed further below.
Let’s use the data from the study to compare the performance of two different portfolios to illustrate the likelihood of yielding a greater return for investors.
Let’s call these two portfolios, Portfolio A and Portfolio B.
Portfolio A has 100 businesses that are being built by successful entrepreneurs.
Portfolio B has 100 businesses that are being built by first-time or failed entrepreneurs.
What does the study data mean for our two portfolios?
The study found that the success rate for successful entrepreneurs building a new company was 34%, while first-time and failed entrepreneurs was 23%.
This means that Portfolio A will have an estimated 34 successful companies out of 100, while Portfolio B will have only 23. This is shown in the two graphs below.
Portfolio A has 11 more successful companies than Portfolio B (34-23 = 11), which can be seen in the chart below.
As a result, Portfolio A has 48% more successful companies compared to Portfolio B (11/23 = 48%).
Why is this important for investors?
Because, on average, entrepreneurs with a track record of success are 48% more likely to make a return for an investor than first-time or failed entrepreneurs.
This means that investors make a return on their investment 48% ‘more often’ by investing in successful entrepreneurs.
How does having 48% more winners in the portfolio translate into more returns?
Because the total valuation of the portfolio of assets (successful companies) will be larger.
For the purposes of illustrating these larger returns, let’s say that the average valuation of a successful company is $100m.
So, now let’s apply a $100m valuation to the successful companies in each portfolio.
Doing this we can see that Portfolio A and Portfolio B will have a total portfolio valuation of $3.4bn (34 x $100m) and $2.3bn (23 x $100m), respectively. This is shown in the bar chart below.
As a result, Portfolio A’s total portfolio valuation is $1.1bn more than Portfolio B ($3.4bn – $2.3bn).
Having 11 more successful companies translates into more money for investors in Portfolio A because the total value of the portfolio is greater than Portfolio B.
This means that, on average, companies being built by entrepreneurs with a track record of success makes investors money, more often.
To help give you a feel for the types of companies and entrepreneurs in Portfolio A, here are 5 example case studies of successful entrepreneurs:
- Case Study #1 – Robert Friedland, serially successful mining entrepreneur
- Case Study #2 – Rod Drury, successful serial software entrepreneur
- Case Study #3 – Evan Williams, serially successful internet entrepreneur
- Case Study #4 – Matthew Callahan, successful serial biotechnology entrepreneur
- Case Study #5 – Anthony Thomson, serially successful banking entrepreneur