Harvard Business School Study Shows that Angel Investing is King


This is part of my Series on Angel Investing.

In their recently published landmark study, Professors Josh Lerner and William Kerr were able to demonstrate that on the whole, angel-backed companies enjoy performance gains of 30-50% when compared to other non-funded startups.  Their paper is meticulously researched, invoking in one instance Hammurabi's Code itself to underscore the ancient provenance of individuals making equity investments in high-risk ventures. A great deal of the data analyzed was derived from the actual practices and outcomes of both the Tech Coast Angels (Southern California) and the CommonAngels (Boston).

Here is a summary of the study's findings:

  • 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.


Though it's true that the "street-wisdom" of most entrepreneurs and angels could have already told you this without the benefit of such a study, it's nevertheless very valuable from a policy perspective to have the benefit of such empirical data. The next time some politician with no concept of the seminal importance angel investing tries to hamstring the industry, we will now have even more incontrovertible evidence to bolster our overwhelming case.

For the next post in this Series, click here.