This paper uses a randomized field experiment to identify which start-up characteristics are most important to investors in early stage firms. The experiment randomizes investors’ information sets of fund-raising start-ups. The average investor responds strongly to information about the founding team, but not to firm traction or existing lead investors. In contrast, inexperienced investors respond to all information categories. Our results suggest that information about human assets is causally important for the funding of early stage firms, and hence, for entrepreneurial success.
Investors' responses to emails using the "View" button included in each AngelList featured email.
In this controlled environment, investors react most strongly to information about startups' founding team. Results suggest that investors care about strong founding teams not only for pure signaling reasons, but also because teams matter for operational reasons. The most experienced and successful investors only react to team information, suggesting that selecting on founding team information is a successful and viable investment strategy. Human capital assets are critical for the success of early stage firms.