How Angel Investors help Startup Firms

March 3, 2016

Firms which are backed by angel investors are more likely to survive, create more jobs, and have a greater chance of successfully exiting the startup phase than otherwise comparable firms without this support.

Angels — wealthy individuals who often are actively involved in the startups they back, and who typically are not professional investors — have surpassed venture capitalists as a funding source for startup enterprises in the United States. They are estimated to have had $24.1 billion of capital deployed in 2014, up from $17.6 billion in 2009. Investments by angels and angel groups grew even faster in other countries during this period, nearly doubling in Europe and tripling in Canada, starting from a much lower level.

Angel investors, like venture capitalists, fund early-stage entrepreneurs and serve as mentors or outside directors of startups. They are often more idiosyncratic than venture capitalists and uniquely focused on the firms they back.

According to research by Josh Lerner, Antoinette Schoar, Stanislav Sokolinski, and Karen Wilson presented in The Globalization of Angel Investments: Evidence across Countries (NBER Working Paper No. 21808), angels are beneficial to the growth, performance, and survival of startups, even if they are located in economies that are not friendly to entrepreneurs. Startups that have angel backing are at least 14 percent more likely to survive for 18 months or more after funding than firms that do not. Angel-backed firms hire 40 percent more employees, and angel backing increases the likelihood of successful exit from the startup phase by 10 percent, to 17 percent. In countries other than the United States, angel-funded firms are also more likely to attract follow-on financing… Read More