Lack of Funding Doesn't Have to Lead to Failure: Study


[qi:110] An underfunded startup can still succeed, and having a superstar management team isn’t key to doing so, according to a study published today out of North Carolina State University. The school’s David M. Townsend collaborated with Lowell W. Busenitz of The University of Oklahoma on the research, which aimed to determine how not raising enough money affected startups. My flip response is that those companies fail, but the research proves that’s not always the case. Some startups can adapt.

The two used information from a local non-profit organization that helps early-stage companies find and raise capital. They ended up reviewing 79 companies that were funded during a 10-year period. The language of the paper is academic, but essentially this is what they found:

  • Rockstar management teams with average technology, and average management teams with rockstar technology, are both more likely to fail because they ran out of money.
  • However, average management teams with average technology are less likely to fail because they ran out of money, possibly because they are more aware of their shortcomings and adjust their capital spend accordingly.
  • Rockstar management teams with rockstar technologies are also likely to get the capital they need to succeed.
  • The better the technology being pushed by the startup, the more likely it is that the startup will not get the money it needs to succeed unless it has a rockstar management team.
  • It’s better to invest in technology and people that work well together than to dump what works in favor of something that looks more attractive. To that end, the study recommends that VCs shouldn’t bring in a new rockstar CEO to a startup unless he or she works well with the current management team.


David Ward

Few VCs willingly over-invest in a startup’s management skills beyond the expected return on its technology. The last bullet is key: Startup success has always been a matter of the right mix of people for a particular technology in a particular market at a particular time.

But situational judgements are not often a VC’s core compentency, hence the desire for “rockstar” executives with prior success, even if they are likely to blow through all their operating capital. VC’s also assume that if they hire a “rockstar”, they are more likely to convince later round investors to help pay the rockstar’s bills.

Sanjay Maharaj

The key is to have a good execution plan , my start up did not raise any major funding but we managed through family and friends round. What we did was to have a game plan for every obstacle we hit and we executed on the plan which helped us achieve our objectives. We are now almost ready to launch


Fitting in and aligning oneself with an organization’s goal is more important than being a rockstar.


I find it interesting about this point

“The better the technology being pushed by the startup, the more likely it is that the startup will not get the money it needs to succeed unless it has a rockstar management team.”

This just proves my opinion that VC’s are like sheep.

Sonal Maheshwari

I think the idea is not as well supported as it could have been . I really thought it was a subjective treatment of the subject. A better writing in future on this is what I would be looking forward to. A good try on an interesting topic, hope to read more on it soon.

Sonal Maheshwari

Sanjiv Singh


Management and technology both are equally important and both complement each other. In today’s scenario innovation is the key to success and unless you are strong in technology it is less likely that you will succeed. Technology helps turning your innovation into implementation.

Startups should always maintain a balance between management and technology. There is no point having a rockstar management without rockstar technologies.

Stacey Higginbotham

Sanjiv, I’m not sure if you are saying that technology trumps all here, and that an average team pushing an average technology can’t succeed, but I will argue that it’s execution (and management) that helps turn an innovation into implementation.



How are the authors defining “average” for management teams or technology? This isn’t clear to me, and seems somewhat subjective.

Stacey Higginbotham

In the study they used the phrase A-team and B-team. To measure the quality of the management team the study used a weighted sum (0-100) of five indicators that included the previous startup experience, ability to achieve milestones at previous ventures, the completion of the team, compensation and access to the board.

For technology the authors used a weighted sum of six points including the benefits of the technology, the existence of a clearly defined development plan, patents, whether or not it has platform potential, reasonable revenue assumptions based on product life cycles, and something the authors called “potential diffusion issues.”

So yes, there are subjective judgments being made, but they’re not arbitrary. As for what score makes someone or a technology an A or a B, that’s not given. Those scores were plotted along with other data and led the authors to arrive at these conclusions. You may want to follow the link to contact them to learn more.

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