Angels and Demons: The Negative Effect of Employees' Angel Investments on Corporate Innovation

Abstract

We analyze data linking angel investors in the U.S. to their employment histories. When employees personally invest in early-stage firms, their employers experience a decline in innovation output. This outcome is likely driven by the diversion of time and effort, and the loss of highly skilled human capital. While angel investors may negatively impact their employers by diverting time and effort, their early-stage firms benefit from their involvement. Our study highlights a tension between the costs for employers and the benefits for early-stage firms.

Keywords: Innovation, Angel Investors, Human Capital, Agency Conflicts, Distraction

JEL Classification: G24, G30, O30, O31, O32