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What happens to a startup if the founder dies? May 28, 2008

Posted by jeremyliew in founders, start-up, startup, startups.
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Paul Kedrosky points to a paper by Hans Hvide asking, “What happens to a startup if the founder dies?“:

I analyze the causal effect of the founder for firms in their infancy by using variation in the occurrence of founder death. Both cross-sectional and within-firm estimates suggest that founder death has only a slight effect on firm performance, as measured by firm survival, profitability, or growth. I interpret this as the founder being substitutable even in a firm’s infancy and that the main function of the founder is to discover new opportunities and setting up the firm rather than managing it.

Or as Paul sums it up:

Hey, What if the Founder Gets Hit By a Bus? Nada

It is hard to reconcile this research with our our investment experience; we have found that strong founding teams matter a great deal. In fact, we specifically include as part of Lightspeed‘s stated mission “to partner with exceptional entrepreneurs “.

Digging deeper into the research paper sheds some light into the potential areas of disconnect. Hvide’s research is based solely on a set of 6,800 companies started in Norway between 1996 and 2003. Of these, only 40 were information technology companies where the founder died. These two facts may be two reasons that the conclusions from Hvide’s research are not broadly applicable to the sorts of company in which we typically invest.

At least Hvide’s research gives comfort to VCs who invest in non tech Norwegian startups founded by unhealthy or risk taking entrepreneurs. Unfortunately, or perhaps fortunately, Lighstpeed isn’t such a VC firm!

Comments»

1. Robert Accettura - May 28, 2008

Technically if the venture is a sole proprietor, it dies with the owner. If it’s pretty much anything else… the company lives on with the survivors (other partner for example).


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