Consequences of Entrepreneurial Finance, The: Evidence from Angel Financings

Innovation and Economic Growth

Article Snapshot


William R. Kerr, Josh Lerner and Antoinette Schoar


Oxford University Press on behalf of The Society for Financial Studies. October 9, 2011


This paper quantifies the effect of angel investor funding on startup growth and survival.

Policy Relevance

Angel investor groups play a useful role in funding startups. Policies hindering their operation are likely to reduce startup viability.

Main Points

  • Angel investors are semi-formal networks of high net worth individuals, often experience entrepreneurs, who meet regularly to hear new business pitches from fledgling entrepreneurs.

    • Angel investor groups perform due diligence and vote on investment decisions.

    • These investors often involve themselves in the businesses they invest in, providing advice and business contacts.
  • Businesses that are funded by angel investors might be expected to do better than firms that are not funded.  However, it is not clear whether this is only because startups with better prospects are more likely to receive funding, or whether angel investor guidance helps new firms.

    • Monitoring and control by experienced entrepreneurs might improve startup governance and operating efficiency, and make future funding and growth easier.
  • The authors use angel fund voting records to compare firms that were just funded with firms that were narrowly denied funding to determine that angel investor intervention is very beneficial to firms, all else equal.

    • Funded firms were much more likely to survive for four years and raise additional funds.

    • Mentoring and access to business contacts may be the most valuable angel investor services.

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