Are you a happy entrepreneur?

Entrepreneurship and life satisfaction

I always wonder how happiness and economic growth are related. As a venture investor, I observe entrepreneurial activity and make funding decisions based on the potential of that activity. Those funding decisions can deeply impact the economic growth opportunity given to an entrepreneurial team. So, we take them very seriously.

A favourite research scientists of mine, Max Rosen (graph above is also from him), shows that economic history is a very simple one. It has only two parts:

1. The first part is the very long time in which the average person was very poor and human societies achieved no economic growth to change this. For example, average incomes (as measured by GDP per capita) in England between the year 1270 and 1650 were £1,051 when measured in today’s prices.
2. The second part is much shorter, it encompasses only the last few generations and is radically different from the first part, it is a time in which the income of the average person grew immensely — from an average of £1051 incomes per person per year increased to over £30,000, a 29-fold increase in prosperity.

The result is that the production of the average person in two weeks today is equivalent to the production of the average person in an entire year in the past.

Pause and think about this, productivity of average:

Phase 2 person = 26 x phase 1 person

There are two ways to increase output over time: Increase inputs or to increase productivity, the ratio of output to input. How it is possible to raise productivity can be most clearly seen when one considers a single industry only. Think about the transportation industry. Only a few decades ago the average person traveled 20 kilometers from where they were born in their lifetime. Today we are much more active and travel with such ease at multiples of those distances, sometimes in a day! With autonomous vehicles, we are going to get even more productive.

How is ‘happiness’ measured?

This type of growth looks familiar to VCs. It shows exponential growth. It is the number that we put in our exit analysis part of our investment memos. Every venture backed company should have the potential to achieve this return.

However, exponential growth on its own is not enough. Growth needs to be sustained for prosperity to spread and what is happiness but well distributed prosperity? When we see that everyone around us is growing with more or less the same standard, then we are truly happy.

As a VC, measuring this happiness, especially that of our portfolio startups, is something we’ve been thinking a lot about. If we can figure out how to relate this happiness to the traditional (=financial) measures of success, we have a metric that can indicate economic growth and human prosperity from the ground up, seed-stage entrepreneurs.

This is the twenty fifth in a series of posts about our investment criteria and ecosystem resources. We’d love to hear from ambitious teams who already see themselves as global startups. If you’re looking for global expansion, get in touch.