The Consequences of Entrepreneurial Finance: A Regression Discontinuity Analysis

35 Pages Posted: 14 Mar 2010  

William R. Kerr

Harvard University - Entrepreneurial Management Unit

Josh Lerner

Harvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER)

Antoinette Schoar

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: March, 13 2010

Abstract

This paper documents the role of angel funding for the growth, survival, and access to follow-on funding of high-growth start-up firms. We use a regression discontinuity approach to control for unobserved heterogeneity between firms that obtain funding and those that do not. This technique exploits that a small change in the collective interest levels of the angels can lead to a discrete change in the probability of funding for otherwise comparable ventures. We first show that angel funding is positively correlated with higher survival, additional fundraising outside the angel group, and faster growth measured through growth in web site traffic. The improvements typically range between 30% and 50%. When using the regression discontinuity approach, we still find a strong, positive effect of angel funding on the survival and growth of ventures, but not on access to additional financing. Overall, the results suggest that the bundle of inputs that angel investors provide have a large and significant impact on the success and survival of start-up ventures.

Suggested Citation

Kerr, William R. and Lerner, Josh and Schoar, Antoinette, The Consequences of Entrepreneurial Finance: A Regression Discontinuity Analysis (March, 13 2010). AFA 2011 Denver Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1570269 or http://dx.doi.org/10.2139/ssrn.1570269

William R. Kerr

Harvard University - Entrepreneurial Management Unit ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Josh Lerner (Contact Author)

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6065 (Phone)
617-496-7357 (Fax)

HOME PAGE: http://www.people.hbs.edu/jlerner/

Harvard University - Entrepreneurial Management Unit

Cambridge, MA 02163
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Antoinette Schoar

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

50 Memorial Drive, E52-447
Cambridge, MA 02142
United States
617-253-3763 (Phone)
617-258-6855 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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