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Report Contends Angel Investing is Neglected Segment of Entrepreneurial Finance

October 13, 2016

While academics and policymakers have rushed to embrace venture capital (VC) investors, they have had a tendency to neglect other entrepreneurial financiers (specifically angel investors) who critically affect the success and growth of new ventures, according to a new study from Josh Lerner of the Harvard Business School and Antoinette Schoar of the MIT Sloan School of Management. The study, based on previously released academic research, highlights the importance of angel groups and angel investors in the startup investment system by providing startups/entrepreneurs not only with capital, but hands-on assistance and expert advice.  Based upon the success of high-performing angel groups, Lerner and Schoar contend that angel investors include “some of the most sophisticated and active investors in a given region, which might result in superior decision-making.”

In the study, Lerner and Schoar explore the rise of angel investing and compare it to venture capital including highlighting data that show two large “angel groups (Tech Coast Angels and CommonAngels) outperformed the venture capital industry overall.” They also highlighted that angel groups improve the startup survival rate and help create well-paying jobs. 

In addition to the findings about the performance and added value of angel groups, Lerner and Schoar also highlight two other strengths of angel groups:

  • Angel groups offer angel investors several advantages over their peers who invest alone, such as larger investment rounds through pooled capital; diversification of investment risks due to smaller investments; reduction in the time/cost of due diligence; and, strong deal flow due to visibility. 
  • In addition to their impact on the U.S., angel investors add value all over the world by helping global startups achieve strong economic development impacts.  For instance, angel-backed startups are up to 23 percent more likely to survive for the next one and one-half to three years and grow their employment by 40 percent relative to non-angel-funded start-ups.


The authors also include several recommendations for future academic research including studies that:

  • Research whether angel groups adjust to the changing investment environment in different ways, whether by varying the contracts they write or by adjusting the intensity of oversight provided;
  • Create a better understanding of how differences in the funding environment affect the selection of people who choose to be entrepreneurs; and,
  • Examine how angel groups reacted to the rapid emergence and professionalization of venture capital funds.


Read the study…

angel capital