Want to double your rate of return? Seek counsel from experienced executives
Years of data from hundreds of successful startups show the impact of relevant executive expertise is even greater than anticipated — it doubles the rate of return on a venture investment.
Rob Olson is a partner and head of data strategy at M13, a venture engine focused on investing in the core technologies that are going to drive and change consumer behavior over the next decade.
Does it really take an average of seven to eight years for a successful startup to exit? What can early-stage founders do to accelerate outcomes?
We wanted to know if founding teams can execute faster with a higher degree of success if they’re able to take advantage of relevant executive expertise. After all, that’s the thesis we built our venture model around — we purposefully designed M13 so that early-stage founders get access to experienced executives they wouldn’t otherwise have the money to hire or the time to vet, onboard and manage.
We looked at years of data from hundreds of successful startups. As it turns out, the impact of relevant executive expertise is even greater than we had anticipated — to the tune of doubling the rate of return on a venture investment.
When it comes to measuring leadership experience, information about an individual executive’s experience — for example, how long they’ve been an exec — is publicly available. Unfortunately, there isn’t readily available structured data around a founding team’s seniority and how early the founders bring on people with more experience as an operator or leader.
To find out if leadership experience significantly impacts startups’ success, we analyzed nearly 800 executives at more than 200 companies that reached a sizable exit (greater than or equal to a $500 million valuation) via an IPO on a U.S. exchange or an exit via M&A from 2004-2019. About 70% of the companies in our dataset exited between 2016-2019, including notable IPOs like Spotify, Zoom, Uber and Peloton. We decided to exclude companies in the biotech/life sciences space because these companies follow a different growth trajectory than consumer tech and B2B tech and traditionally exit via IPO or M&A at a much earlier stage.
Here’s what our analysis of startups with successful exits revealed.
Of successful exits, the average actually is 7-8 years
While there are other intangible variables for startup success, the basic equation is the time and capital required to achieve an exit and the size of that exit.
Our dataset validates the widely accepted statement that successful exits take about seven to eight years:
But could a variable like relevant leadership experience actually accelerate the time to exit? We wondered: Beyond time and capital, are there any factors — like experience as a leader or operator — that can have an exponential impact on the exit outcome? And when is the right time for those human capital resources to be introduced to make that impact?