The results of this study and our border analysis in particular, suggest that angel investments improve entrepreneurial success. By looking above and below the discontinuity in a restricted sample, we remove the most worrisome endogeneity problems and the sorting between ventures and investors. We find that the localized increases in interest by angels at break points, which are clearly linked to obtaining critical mass for funding, are associated with discrete jumps in future outcomes like survival and stronger web traffic performance.

Our evidence regarding the role of angel funding for access to future venture financing is more mixed. The latter result could suggest that start-up firms during that time period had a number of funding options and thus could go to other financiers when turned down by our respective angel groups. Angel funding per se was not central in whether the firm obtained follow-on financing at a later point. However, angel funding by one of the groups in our sample does positively affect the long run survival and web traffic of the start-ups. We do not want to push this asymmetry too far, but one might speculate that access to capital per se is not the most important value added that angel groups bring. Our results suggest that some of the “softer” features, such as their mentoring or business contacts, may help new ventures the most.

Overall we find that the interest levels of angels at the stages of the initial presentation and due diligence are predictive of investment success. However, additional screening and evaluation do not substantially improve the selection and composition of the portfolio further. These findings suggest that the selection and screening process is efficient at sorting proposals into approximate bins: complete losers, potential winners, and so on. The process has natural limitations, however, in further differentiating among the potential winners (e.g., Kerr and Nanda, 2009).

At the same time, this paper has important limitations. Our experiment does not allow us to identify the costs to ventures of angel group support (e.g., Hsu, 2004), as equity positions in the counterfactual, unfunded ventures are not defined. We thus cannot evaluate whether taking the money was worth it from the entrepreneur‘s perspective after these costs are considered. On a similar note, we have looked at just a few of the many angel investment groups that are active in the US. Our groups are professionally organized and managed, and it is important for future research to examine a broader distribution of investment groups and their impact for venture success. This project demonstrates that angel investments are important and also offer an empirical foothold for analyzing many important questions in entrepreneurial finance.

» The full paper is available for download here. «

(via)

It came to me that you might learn more from the failed ideas and errors in execution, than the few successes that are now listed on the stock exchange. (via)

1. Entrepreneurs who have been successful in one field and have developed a “blueprint” for what it takes to be successful, can sometimes struggle to translate that blueprint into a new field.  Therefore, they should be thoughtful about what skills and habits they should adapt to develop a new blueprint that suits the new field.  […]
2. Harnessing and containing strong, visionary founders is a tricky endeavor, but there are some useful techniques that can be applied to improve the chances of success.  Some of the students had worked with Jeff Bezos, Michael Dell, and other larger-than-life founders, and shared their related challenges and lessons learned in those environments.  In many situations, the founder is a creative force of nature rather than an experienced operating manager, and skillfully managing the tension between those two essential ingredients can make or break a start-up.

(via seeingbothsides.com/jeffbussgang.com)

Highly Recommended …

Investing For Dummies

If you don’t know how to invest, then don’t do it.

That’s it. That’s all you need to know. I wish there was a big secret to all of this investing. Something like: spend 5 hours a day sitting at your computer reading endless stories and documents about companies in the energy sector, call 3 brokers and see what they think, and then make your decision after the 3rd day of having talked to an investment professional. But there is no such investing secret.

If you don’t know how to invest, don’t do it. Of course, there is a cure for ignorance and that cure is knowledge. So, your only other option is to learn how to invest.

I’ve said it before and I’ll say it again: invest in businesses you understand and know about. If you don’t really know anything about any kind of business, then get out from under the rock you’ve been living under and take a look around. It really doesn’t make a lot of sense for anyone to invest in companies that they don’t understand.

Or

Saving Money Is Not Optional

An unspoken assumption held by many people is that “saving money is optional”. “I know I need to save money,” says a client, “but I just don’t have anything left over at the end of the month”. Think about what is being said here. There are only 2 possible situations a person will find themselves in, financially:

1) An individual consumes more than they produce. This situation is really only a temporary transition to death. You CAN’T continue living this way because if you try, you’ll die-literally-as you find yourself homeless and unable to afford food.

2) An individual consumes less than they produce. This describes nearly everyone. The fact that you produce more than you consume means that you are saving money-by definition. What you do with that excess money is a matter of choice.

When I say this to people, a third option is often invented-“but Dave, what happens when a person consumes as much as they produce and have nothing left?”. I would say that this, for the most part, is a fallacy. It’s really part of the transitional phase to the first scenario of consuming more than you produce.

Consuming exactly what you produce rarely happens out of necessity. Normally, when someone says that they are spending everything that they make and that they don’t have any money left over to save, what they are really saying is that they are spending all of their savings and are choosing not to save any money.