Fifty percent of startups fail within five years, and those that survive grow at vastly different speeds. Using Census microdata, we estimate that the lion’s share of these differences is determined by ex-ante heterogeneity rather than persistent ex-post shocks. Embedding such heterogeneity in a firm dynamics model shows that ex-ante differences are key determinants of the firm size distribution, up-or-out dynamics, and associated aggregate gains. Gazelles, rare high-growth startups, are essential for these outcomes. Analyzing changes in the distribution of ex-ante heterogeneity over time reveals that the birth rate and growth potential of gazelles has declined, creating substantial aggregate losses.
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