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Here Are 2 Startup Success Predictors, According to MIT Research
By: Srividya Kalyanaraman
On the internet, there is no dearth of experts predicting factors determining startup success. Add to it the research done by MIT Sloan School of Management.
MIT Sloan’s entrepreneurship and strategy professors Christian Catalini and Scott Stern, in their working paper on venture capital investment and startup founders’ choices, have identified among other things, predictors that signal a startup’s growth and success.
Catalini and Stern from MIT and Jorge Guzman from Columbia Business School analyzed business registration data from 34 states from 1995-2004 for the working paper titled, ‘Passive Versus Active Growth: Evidence from Founder Choices and Venture Capital Investment.’ They found that companies that register in Delaware and obtain intellectual property such as a patent or trademark are far more likely to see equity growth, which leads to more venture capital investment.
The paper suggested that firms that check both those boxes are “278 times more likely” to get venture capital, and achieve more ‘proactive’ growth.
Why do those factors play a key role? Researchers highlighted Delaware’s advanced system of handling corporate arbitration cases and its “pro-business” legal framework.
“Companies that only register in Delaware are 17 times more likely to grow than companies that don’t register in the state,” the study found.
With regards to intellectual property, the researchers found that startups that filed patents within the first year of the company’s registration were more likely to “facilitate transactions with venture capitalists.”
“Companies that have only a patent are 87 times more likely to grow than companies that don’t acquire a patent.”
Other highlights from the study include:
- Successful startups often have names with three words or less (ex. Amazon, Google).
- Companies backed by venture capital are five times more likely to grow than those that are not.
- About 50 percent of proactive firm growth came from companies that didn’t raise venture capital.
