Boy, if only this Harvard University business school study came out before February, when Minnesota Tax Committee Chair Rep. Ann Lenczewski argued, somewhat nonsensically, that direct grants to startups were superior than angel tax credits.
She even commissioned a much ridiculed report from the House Research Committee to back her claims.
Fortunately, common sense prevailed and Minnesota enacted a five-year, nearly $60 million angel credit program. But Lenczewski was right about one thing: There has been little quantitative evidence to support angel credits.
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Until now. The recent Harvard study, first published in April, doesn’t specifically focus on angel credits. But it does prove the value of angel investors to startups beyond mere money, something Lenczewski either failed to understand or simply did not want to understand.
The study, authored by William R. Kerr, Josh Lerner and Antoinette Schoar, concludes angel-backed startups last longer and grow faster than companies that don’t receive angel support, thanks in large part to the expertise and due diligence of the angels that fund them.
“Overall, the results suggest that the bundle of inputs that angel investors provide have a large and significant impact on the success and survival of startup ventures,” the study says.
The study examined the performance of 130 firms that received interest from Tech Coast Angels and CommonAngels between 2001 and 2006. The samples include companies that ultimately won funding or were turned down.
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Angel-backed companies were more likely to survive at least four years, the study says. In addition, these startups saw traffic to their Web sites jump 30 percent to 50 percent in the time period.
The study is not perfect. Using Web traffic to gauge a company’s growth seems odd, especially for a medical device startup. But then again, as the study noted, data like profits and sales are hard to come by for private companies. And angel groups will never disclose how much money, if any, they made off a particular deal.
Still, the study at least tries to quantify what entrepreneurs and investors only know by experience: That angels boost a startup’s chances of success in a model where most young companies will probably fail.
