47 Pages Posted: 2 May 2014 Last revised: 28 Aug 2015
Date Written: August 27, 2015
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: 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