Are Angel Investors More Likely than Venture Capitalists to Drive Entrepreneurial Experimentation?

Abstract

Although angel investors and venture capitalists (VCs) both participate in the supply side of the same market, providing capital and advice to startup firms, they are distinct in several ways. The differences in when they deploy capital are well studied. The differences in when they provide advice are not. Using a sample of 7,914 mentoring decisions by seed-stage investors from which I construct a novel typology of startup activities, I report among the first empirical findings on systematic differences in angel advice versus VC advice. Angels are more likely than VCs to provide advice on the design and execution of experiments, whereas VCs are more likely than angels to provide advice on analysis. While analysis is a skill that can be learned from studying, hypothesis testing is a skill developed via learning-by-doing. I report evidence consistent with the hypothesis that angels are more likely to provide experimentation advice because they have a skill advantage in that domain due to operational experience. I also provide evidence that is inconsistent with alternative explanations, including financial incentives and selection.