4 ms·

Full Abstract: Entrepreneurs face high uncertainty, and often make costly investments in new business ideas without knowing the expected payoff. This paper emp

Full Abstract: Entrepreneurs face high uncertainty, and often make costly investments in new business ideas without knowing the expected payoff. This paper empirically examines whether ex-ante assessment of earlystage startup ideas can predict their subsequent commercialization. We leverage an entrepreneurship program at the Massachusetts Institute of Technology in which early-stage venture ideas, presented in the form of succinct standardized summaries, elicit subjective evaluations from a large set of experienced entrepreneurs and executives. Using data on 652 ventures in multiple industry sectors, evaluated over an 8-year period, we find that ideas that elicit more positive evaluations are significantly more likely to ultimately reach commercialization. We further show that these results are driven by venture ideas with documented intellectual capital in research-and-development-intensive sectors, such as life sciences and medical devices. We find no evidence, by contrast, that experts can effectively assess the commercial potential of venture ideas in non-R&D-intensive sectors such as consumer web and enterprise software. Finally, we find that industry-specific and scientific expertise is not critical to experts’ collective ability to predict ventures’ commercial viability.

Balgair 11y ago
Hmm, so in a tech filed where you have the IP or some legal rigmarole to protect a complicated process-invention-proceedure-etc, it is statistically easier to see that it's a winning bet. I mean, duh. But this is important because it doesn't hold for companies trying to be another FB or Zynga, those are gambles. If the company has good stuff and the wherewithal to protect it, good people will know it when they see it.
tjradcliffe 11y ago
Their results may be significant to VCs, but likely aren't to anyone else. They get about a 4% increase in good outcomes, from 23% to 27%, for a 1 sigma increase in expert positive response. This is significant at the 5% level. It's enough to say that "Experts do slightly better than chance in IP-heavy fields", but about 3/4 of those businesses will still fail, and that remains true regardless of expert evaluation. If you're a big investor this could make a difference to your bottom line. If you're a small investor or entrepreneur, it is pretty much irrelevant.

Balgair 11y ago

Hmm, so in a tech filed where you have the IP or some legal rigmarole to protect a complicated process-invention-proceedure-etc, it is statistically easier to see that it's a winning bet. I mean, duh. But this is important because it doesn't hold for companies trying to be another FB or Zynga, those are gambles. If the company has good stuff and the wherewithal to protect it, good people will know it when they see it.

tjradcliffe 11y ago

Their results may be significant to VCs, but likely aren't to anyone else. They get about a 4% increase in good outcomes, from 23% to 27%, for a 1 sigma increase in expert positive response. This is significant at the 5% level. It's enough to say that "Experts do slightly better than chance in IP-heavy fields", but about 3/4 of those businesses will still fail, and that remains true regardless of expert evaluation. If you're a big investor this could make a difference to your bottom line. If you're a small investor or entrepreneur, it is pretty much irrelevant.