Hi, I had the same problem, to solve it I added my user to the "kvm"
group and everything is working now. After add your user to the kvm
group you have to log off an log in.

To solve execute:
sudo adduser [username] kvm

Best regards.

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virDomainCreateLinux() failed Timed out while reading console startup output
https://bugs.launchpad.net/bugs/187048
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