Being the President of the United States is one of the most severely judged jobs in the country. Of the 45 presidents the United States has had (not counting the current one), only 17 were elected twice and only 13 served two full terms in office. Presidential reelection depends strongly on a president’s performance and reputation during their first term. In this way, there’s a clear parallel between investors and electors. Founders who are raising money for their second or third company will often be judged by the performance of their earlier endeavors. A serial entrepreneur who already had a good exit will make investors more confident in investing in their new company. But unlike presidents, founders can still get investors’ money even if their previous company failed. Being a serial founder means having experience growing a company, managing a team, and building relationships with investors. While an unsatisfying term in office often signifies the end of a political career for presidents, investors believe founders can learn from failure.
This Chart of the Week looks at whether investors favored serial founders over first-time entrepreneurs in 2022. In 2021, we compared the amounts invested in serial entrepreneurs to those invested in first-time founders. Today, we compare the amounts invested in teams with at least a serial entrepreneur to those invested in teams with only first-time founders. The methodology is somewhat different, but the results are the same: investors only invest slightly more in serial entrepreneurs.
In 2022, there were more teams with previous startup experience than teams of first-time founders. Previous experiences include successful or unsuccessful ventures ranging from small family businesses to growth-stage startups.
While there are no significant differences in the amounts invested in the two types of teams, teams with serial entrepreneurs raised slightly more than others in the $500,000 to $1 million range as they captured 68.4% of the funding. This is 11% more than the $1 to $50,000 bucket.
There might be a reason why. Many startups under Regulation Crowdfunding (Reg CF) set their maximum investment limits slightly above $1 million. Therefore, raising more than $500,000 is a sign of success in Reg CF, and serial entrepreneurs are succeeding marginally more.
Above the $1 million threshold, about 60% of investments went to teams with serial entrepreneurs. When companies raise more than $1 million, the team profile still matters, but a company’s performance is what attracts a larger crowd of investors and checks. Serial entrepreneurs are not over-performing above the $1 million threshold, and it might be because investors prefer judging them on their current progress more than on their experience.
As investors, looking at a founder’s previous experiences tells us about their skillset but cannot predict their future success. While founders with an exit tend to perform better, founders with a past failed or stopped company do not seem to perform better than first-time founders.
Similarly, while startup experience is important, investors shouldn’t neglect founders’ industry experience and personality. Personally, whether a founder is a first-timer or not, I always try to detect their passion and commitment to the startup they are building. Dedication and enthusiasm can carry a founder through the ups and downs of running a startup — and potentially even compensate for lack of experience.
Note: All data on online startup investing used for the Chart of the Week comes from the KingsCrowd database and represents a snapshot of the US crowdfunding market.