Serial Founders: Does Prior Experience Pay Off in Leveraged Buyouts?
This paper explores the impact of a founder's prior experiences on the price of their business during a private equity leveraged buyout (LBO) of their company. The paper reviews the existing literature on serial founders, which is predominately focused on venture capital (i.e., early stage) private investments. The paper uses relative valuation multiples, rather than absolute dollars raised, to determine whether repeat founders are raising more money due to their prior experiences or simply because they have larger businesses. Using a dataset of U.S. LBOs, this study finds that there is a significant difference in revenue multiples and EBITDA multiples paid for repeat founders versus their novice counterparts. The paper proposes a theoretical framework to explain this potential founder effect, suggesting that variations in cash flows and risk profiles may contribute to differences in valuations for repeat founders. The paper also contends that principal-agent problems within private equity firms may play a role in the disparity between relative multiples for these two groups. To illustrate the plausibility of these hypotheses, the paper examines the case of EverCommerce, a company that went through the LBO process with a repeat founder.