Can Entrepreneurs Who Experienced Business Closure Bring Their New Start-Up to a Successful M&A?

Abstract

Numerous technology start-ups end up shutting down their operations. The present study aims to answer the following research questions: can entrepreneurs who closed their previous ventures bring their new venture to a successful exit through M&A and to what extent does this positive outcome correspond to whether investors funded their start-up? We examine 9723 technology start-ups established by 19,458 entrepreneurs. About half of the start-ups were funded, and 3463 of them had entrepreneurs with closure or with M&A experience. We find that entrepreneurs with closure experience are negatively associated with the probability of M&A as a main effect, in line with the theory that indicates imprinting. Nevertheless, entrepreneurs with closure experience are positively associated with the probability of M&A when their co-founders have M&A experience. We suggest that entrepreneurs with closure experience can compensate for their lack of M&A experience by learning from their peers who possess this experience. We discuss implications for theory, investors, and entrepreneurs.

Retiring entrepreneurs and succession planning: does entry mode determine exit strategy?

“…De Cock et al, 2021;Hsu and Lim, 2014;Snihur and Zott, 2020;Leung et al, 2013) and some on imprinting in conjunction with exit. Guenther et al (2016) examine the effects of founder exit, and Harel et al (2022) show the impacts of business closure on later mergers and acquisitions. Amankwah-Amoah et al (2018) argue that the experience of failure in business leaves an imprint on the founder's later venturing.…”