Angels, Entrepreneurship, and Employment Dynamics: Evidence from Investor Accreditation Rules

Abstract

This paper examines the effects of a shock to angel finance on entrepreneurial activity and employment. Using U.S. Census data, we estimate the state-level fraction of households that lost accreditation status from Dodd–Frank’s elimination of housing wealth in determining accreditation. A larger reduction in the pool of potential investors reduces firm entry and employment at small entrants, particularly in areas with alternate sources of financing. Employment increases at small and young incumbents, and relative wages for the startup sector decline, especially for high-skilled workers and industries. These results suggest that angels are an important source of entrepreneurial finance to high-quality, competitive firms.

JEL Classification: G24, G28, L26, K22