In this Business Week article, contributing editor Chris Farrell questions whether the Dodd financial reform bill could damage angel investing. He points to three particular provisions in the legislation that could decrease the amount of angel investor activity. Farrell rightly argues that angels are crucial to entrepreneurial activity and economic growth in the United States.
A recent study by scholars William Kerr, Josh Lerner, and Antoinette Schoar sheds further light on the importance of angel investing activity. In their study, summarized on the HBS Working Knowledge website, the scholars summarize their findings from a recent study. They conclude that:
"Angel-funded firms are significantly more likely to survive at least four years (or until 2010) and to raise additional financing outside the angel group."
"Angel-funded firms are also more likely to show improved venture performance and growth as measured through growth in Web site traffic and Web site rankings. The improvement gains typically range between 30 and 50 percent."
"Investment success is highly predicated by the interest level of angels during the entrepreneur's initial presentation and by the angels' subsequent due diligence."
"Access to capital per se may not be the most important value-added that angel groups bring. Some of the "softer" features, such as angels' mentoring or business contacts, may help new ventures the most."