Tech Coast Angels today shared insights and comments regarding a recently published paper by Professor Josh Lerner of the Harvard Business School and Professor Antoinette Schoar of the MIT Sloan School of Management, which explores angel investing, its importance, and its contrast to venture capital. 

The paper, titled “Rise of the Angel Investor: A Challenge to Public Policy,” analyzed the detailed, deal-level data of two key angel networks (Tech Coast Angels (Southern California) and CommonAngels (Boston area)) to “differentiate the different channels by which angels might affect the success of the firms they invest in.” 

The authors noted a clarity of emerging patterns from their analysis: 

  •     interest levels expressed by angels in deals were a substantial factor in funding decisions; 
  •     when firms that received funding were compared to those that did not within a narrow quality range, “the funded firms overall look more successful than those that pitched to the angel group but did not receive it: They were 20%-25% more likely to survive for at least four years. They were also 9%-11% more likely to undergo a successful exit (IPO or acquisition) and 16%-19% more likely to have either reached a successful exit or grown to 75 employees by the end of our sample period. Funded companies had 16-20 more employees as of 2010, were 16%-18% more likely to have a granted patent, and are growing faster as measured through web traffic performance;” and
  •     “…funded companies were better financed. Overall, they had a 70% higher likelihood of obtaining entrepreneurial finance and had, on average, a little less than two additional financing rounds. These subsequent deals are often syndicated by the angel group with other venture financiers.”

“Tech Coast Angels has the benefit of over 300 members, each with a lifetime of diverse experiences and expertise,” said John Harbison, chairman of Tech Coast Angels. “Our angels put a lot of effort and attention into the due diligence process as well as the post-funding mentoring of the companies we fund. That experience and expertise helps us make better funding decisions, but it also helps the companies — including those that don’t end up receiving funding from us. We try to give constructive feedback and suggestions that will help all applicant companies refine their business and perhaps go on to success with other funding sources.” 

The authors found that “…angel investors have a positive impact on the growth of firms they fund, both in terms of their performance and survival. Start-ups funded by angel investors are 14% to 23% more likely to survive for the next 1.5 to 3 years and grow their employment by 40% relative to non-angel-funded start-ups. Angel funding affects the subsequent likelihood of a successful exit, raising it by 10% to 17%. Having angel funding also seems to matter significantly for the ability of a firm to obtain follow-on financing.”

“It’s interesting that the authors concluded that angel investing yielded higher returns than VCs,” concluded Mr. Harbison. “This is not surprising since angel investing is higher risk and, hence theoretically, should yield higher overall returns. In the case of Tech Coast Angels, our portfolio has realized a return of 3.3 times the capital invested, and an IRR of 26%. But in addition to IRR, we are encouraged that this study reinforces that angels are adding real value to the entrepreneurs with whom we interact – helping bring innovation to the world and solve real problems.”

Rise of the Angel Investor: A Challenge to Public Policy, in its entirety, can be found at