Do Founders Fail Up? Reevaluating the Returns to Entrepreneurship

Abstract

Is venture capital-backed entrepreneurship a non-diversifiable burden with low expected returns? Is VC-backed entrepreneurship economically irrational? This paper suggests not. Tracking the full careers of 5.6 million individuals between 1980 and 2019, we find that VC-backed founders— including failed founders—enjoy substantially higher lifetime wages and job seniority than similar non-founders. Although large payoffs from successful startup exits are uncommon, founders, irrespective of exit outcomes, outearn similar non-founders by 37-62% per year during their post-founding careers. After incorporating post-founding earnings premia into a Hall and Woodward (2010)-style calibration, the certainty equivalent value of VC-backed entrepreneurship becomes strongly positive, even for risk-averse individuals.