Angel Investors, Measuring Their Added Value

Can you measure the value that angel investors add toward the success and growth of new ventures?

Following a recent Tweet from CommonAngels (aka James Geshwiler) , I uncovered a working paper on this topic authored by William R. Kerr and Josh Lerner of HBS and Antoinette Schoar of MIT. Their conclusions:

• Angel-funded firms are significantly more likely to survive at least four years  and to raise additional financing outside the angel group,

• Angel-funded firms are also more likely to show improved venture performance and growth as measured through growth in Web site traffic and Web site rankings; The improvement gains typically range between 30 and 50 percent,

• Investment success is highly predicated by the interest level of angels during the entrepreneur's initial presentation and by the angels' subsequent due diligence,

• Access to capital per se may not be the most important value-added that angel groups bring. Some of the "softer" features, such as angels' mentoring or business contacts, may help new ventures the most.

Another interesting conclusion: “Angel investors as research subjects have received much less attention than venture capitalists, even though some estimates suggest that these investors are as significant a force for high-potential start-up investments as venture capitalists, and are even more significant as investors elsewhere. This study demonstrates the importance of angel investments to the success and survival of entrepreneurial firms.”

I am particularly intrigued by the authors’ conclusion that mentoring and business contacts may be more valuable than money. Entrepreneurs never make me feel that way, which is unfortunate, as I have lots of advice available.


The study is based primarily on data provided by the Tech Coast Angels and the Common Angels. Cooperating with the authors were some of the usual suspects: James Geshwiler of CommonAngels, Warren Hanselman and Richard Sudek of Tech Coast Angels, and John May of the Washington Dinner Club. The Kauffman Foundation partially supported this research.

You can find a summary of this paper, The Consequences of Entrepreneurial Finance: A Regression Discontinuity Analysis, right here. The full paper is also available online.