Startable – Healy Jones’ & Prasad Thammineni’s Blog

I’m not really sure how I came across this piece of academic research, but Rebecca Zarutskie of Duke University published a research piece in May 2008 called “The role of top management team human capital in venture capital markets: evidence from first-time funds.” Basically, she looks at various qualities of the partners at first time venture capital funds and runs regressions to see if any of those experiences impact fund performance.*

She concludes that VCs with previous venture capital experience, previous experience as startup execs and experience as management consultants make for better funds. Ok, so other than the last piece, this isn’t too surprising. She also looks to see if other things like having a PhDs or law degrees  help as a partner, and she doesn’t find a statistical improvement in exit percentages.

But there is one finding that is statistically significant that I find a little funny:

Funds with MBAs perform WORSE

That’s right, if the partners of a fresh fund have MBAs their fund is likely to do worse than a fund without! The finding is statistically significant.

Is it possible that MBAs make you a worse investor? That would seem like a real problem, since something like 59% of the investors in her sample had them.

Rebecca isn’t really sure how to interpret this finding:

However, I do find, perhaps counter-intuitively, that management teams with more general human capital in business obtained through MBAs perform on average worse than other fund management teams. A possible explanation for this result is that there is an oversupply of individuals of possessing MBAs relative to those with other educational backgrounds who are typically candidates to enter the venture capital industry.

My gut would be that, no, being an MBA does not make you a worse potential investor, but that it might make it easier for you to raise that first fund. And, since the bar may be a little lower for first time funds if the partners have MBAs then the group as a whole may under perform. The reason I’d think it would be easier to raise a fund if you had an MBA is 1) better connections, 2) LPs may like the brand associated with people who have HBS type degrees and well, that’s the two reasons.

Forgive me if someone already wrote about this research a while ago, I just discovered it over the weekend.

*(Her definition of fund performance is the % of deals in the fund that were exited, which is a crude but decent enough metric to make her research interesting.)