Are Some Angels Better Than Others?

Abstract

This paper uses Norwegian tax records to examine the performance of angel investors. While most angel investments perform poorly, mean returns are twice the invested capital, due largely to extreme skewness: around one-third of investments are a total loss, but the top one-percent return more than fifty times invested capital. Performance persistence among angels is largely attributable to unobserved investor characteristics. Professional networks are critical determinants of performance: top-performing angels tend to have broader business connections with startups and fellow investors, consistent with having access to superior deal flow.

Keywords: angel investing, returns, performance persistence, investment behavior, entrepreneurship

JEL Classification: D14, G40, G50, G51, G53, L26