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Attracting Early Stage Investors: Evidence from a Randomized Field Experiment

47 Pages Posted: 2 May 2014 Last revised: 28 Aug 2015

Shai Bernstein

Stanford Graduate School of Business

Arthur G. Korteweg

University of Southern California - Marshall School of Business

Kevin Laws

AngelList

Date Written: August 27, 2015

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

Suggested Citation

Bernstein, Shai and Korteweg, Arthur G. and Laws, Kevin, Attracting Early Stage Investors: Evidence from a Randomized Field Experiment (August 27, 2015). Journal of Finance, Forthcoming; Rock Center for Corporate Governance at Stanford University Working Paper No. 185; Stanford University Graduate School of Business Research Paper No. 14-17. Available at SSRN: https://ssrn.com/abstract=2432044 or http://dx.doi.org/10.2139/ssrn.2432044

Shai Bernstein (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Arthur G. Korteweg

University of Southern California - Marshall School of Business ( email )

3670 Trousdale Parkway
Los Angeles, CA 90089
United States

HOME PAGE: http://www-bcf.usc.edu/~korteweg/

Kevin Laws

AngelList ( email )

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