Are Entrepreneurs Better Start-up Investors?

Conventional wisdom holds that start-up investors with prior entrepreneurial experience perform better than investors who come from different backgrounds. Accordingly, entrepreneur-investors may have advantages in sourcing, picking and managing start-ups due to their past experience, unique skills and networks. However, the realization of these advantages hinges upon the assumption that the advantages of experience gained in entrepreneurial roles can be translated into the new investment roles without difficulty. In this paper, we question this assumption and argue that entrepreneur-investors may overestimate the value of their past experience in an investor role, which may adversely affect their performance as investors. Through a matched-sample analysis of entrepreneur-investors and non-entrepreneur-investors in the United States and invested in start-up ventures between 2000 and 2019, we find that (a) entrepreneurial experience is detrimental to investment performance and (b) average venture age in the investor’s portfolio mediates the negative influence of entrepreneurial experience on investment performance.