Attracting Early Stage Investors: Evidence from a Randomized Field Experiment

Abstract

This paper uses a randomized field experiment to identify which start-up characteristics are most important to investors in early stage firms. The experiment randomizes investors’ information sets of fund-raising start-ups. The average investor responds strongly to information about the founding team, but not to firm traction or existing lead investors. We provide suggestive evidence that team is not merely a signal of quality, and that investing based on team information is a rational strategy. Altogether, our results indicate that information about human assets is causally important for the funding of early stage firms, and hence, for entrepreneurial success.

Keywords: Angel investors, early stage firms, entrepreneurship, crowdfunding, theory of the firm, portfolio selection, correspondence testing

JEL Classification: G32, L26, D23