How do investors evaluate past entrepreneurial failure? Unpacking failure due to lack of skill versus bad luck

Zunino, D, Dushnitsky, G and van Praag, M (2022) How do investors evaluate past entrepreneurial failure? Unpacking failure due to lack of skill versus bad luck. Academy of Management Journal, 65 (4). pp. 1083-1109. ISSN 0001-4273

Abstract

In recent years, it has become easier than ever to launch entrepreneurial ventures due to digitization and the ensuing drop in the cost of computational power, distribution channels, and so on (Greenstein et al., 2013). The lower cost of entry has led to higher failure rates as more individuals pursue entrepreneurship (Klepper, 2015; Nanda & Rhodes-Korpf, 2014). Individuals now experiment with launching not one but multiple entrepreneurial ventures. Among those engaged in entrepreneurship, many have previously launched a venture and failed. This fact marks a qualitative change in entrepreneurship in general and has immediate implications for studying entrepreneurial resource acquisition in particular (Huang, 2018; Vissa, 2011). Hence, we ask: How do investors evaluate past entrepreneurial outcomes? Specifically, how do investors evaluate entrepreneurs who have previously experienced failure?