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A new study published by professors at the Harvard Business School shows that angel-backed companies are more likely to succeed and show more growth than those funded by venture firms alone. Researched and written by William Kerr and Josh Lerner, the report found that companies with angel funding see between 30% and 50% higher growth figures in terms of website traffic, are more likely to survive for four years, and are also in a better position to receive further rounds of funding. Sponsor Angel investing itself has seen large growth over the last several months with the creation of various organizations, events, firms and legislation to spur it on. We've discussed the Open Angel Forum series of events, the creation of "Super Angel" firms , the curated Venture Hacks AngelList , as well as current legislation both helping and hurting angel investments. Angel investing has become more common, and as this report shows, this is largely due to the value and success it tends to breed. But why are angel investments the secret sauce for some companies? As the report points out, its the intangibles that angels bring to the table that could be playing a large role in company success. "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," the report says. One of the other reasons that companies could tend to be more successful with angel funding is because of the human face placed on the investments. Angels are usually investing in companies at an early stage, and are investing their own capital in the company. Entrepreneurs may be more likely to work that extra bit harder when they know they are playing with the personal cash of an actual person, not the collected funds of an entire firm without a human name. The reputation of the angel could play a large role as well, both for the attitude of the people running the company, and for the audience they are looking to attract. Most angels tend to be successful entrepreneurs themselves, and thus are likely well known in the startup scene. The chance to sit and talk with these investors, let alone receiving funding from them, is likely a treat for most entrepreneurs, so they may be more likely to be more careful with their money. Additionally, when the public hears of a new startup that may not immediately interest them, the mention of particular angel investors can change their mind. As angel investors mature, they build their own personal portfolio of companies they noticed and provided early funds for, so when company XYZ launches with angel funding from an influential angel investor, that alone can attract people to the product. I know personally that I have looked into startups I otherwise would have largely ignored simply because an important angel investor was certain they'd be a hit. "Some of the 'softer' features, such as angels' mentoring or business contacts, may help new ventures the most." - Harvard Business School report Since some companies receive early financing rounds from angels, it is also logical to assume that when working with a limited amount of cash, the entrepreneurs may be more focused on doing more with less. A company that bursts out of the gate with large amounts of VC firm funding may spend it slightly more haphazardly, whereas a company running on limited angel funds may adopt leaner practices and take baby steps toward success and future funding. As the report mentioned above, the "softer" features provided by the angels are also a large help to the companies. In his email newsletter yesterday, angel investor Jason Calacanis discussed loyalty and how he goes to bat for the people who are loyal to him and his companies. He mentioned that whenever he invests in a company, he immediately becomes an evangelist for that company and it's founders, doing all he can to promote it. This may not be the same for all angels, but when influential investors like Jason get behind your company, they do their best to make sure good things happen. I would be interested to see similar data from this report that compares companies with solely angel funding versus those with more traditional VC firm funding mixed in. The influence of angel investors is significant, but I would think the angels alone are not enough to create more successful businesses at a higher rate. But the lesson here is, if your startup has the opportunity to include some angel investors (especially at the early stages), it would seem like a wise decision to go ahead with. Photo by Flickr user Brooke Anderson . Discuss
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Angel-Backed Companies More Likely to Succeed, Says Harvard Study
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Back when I was in graduate school getting my masters in journalism and mass communication, I worked on various "lab projects" which were challenges faced by media organizations that they wanted to tackle but didn't have the means or the resources to do so. So basically, the students at my school were a think tank for the local media. One of the first issues we were tasked with investigating was finding a new way to allow comments for online news stories to be more efficient and less offensive. Sponsor The problem faced by most online news sites is that the anonymous nature of the Internet makes it very easy for vulgarity and off-putting comments to be posted, and for some sites, these types of comments pervade their site. Many of today's popular sites with comments have integrated systems to where readers can vote down bad comments while promoting good comments, which helps the bad stuff to be filtered out. Others have tried blocking fowl language with asterisks or by deleting the comment automatically, but this has only lead users to find unique ways of spelling their beloved curse words. Some startups, like Disqus , have made it much easier to manage comments, and identity tools like OpenID and Facebook Connect have helped to lower the amount of anonymous commenters on the web, but anonymity is a fundamental cornerstone of Internet culture. Or is it? In a recent New York Times article about how many news sites are starting to remove anonymous commenting, Arianna Huffington of The Huffington Post said she thinks that anonymity is losing its once exalted position atop the foundation of the Web. "Anonymity is just the way things are done. It's an accepted part of the Internet, but there's no question that people hide behind anonymity to make vile or controversial comments," says Huffington. "I feel that this is almost like an education process. As the rules of the road are changing and the Internet is growing up, the trend is away from anonymity." Fred Wilson of Union Square Ventures says there is plenty of room for innovation within comment boards. Wilson uses Disqus on his blog and has some suggestions for features they could include to make the commenting experience better, but he believes one of the ways to innovate in the space is to introduce game mechanics into commenting. "Game mechanics will reward the kind of behavior the community wants and will punish the kind of behavior the community does not want," writes Wilson on his blog. "The anonymous commenter who has valuable information but can't publish in their own name will be rewarded. The anonymous commenter who leaves a hostile name calling piece of crap will be punished. And the comment thread and community will be better off for it." Entrepreneurs that strive to create a truly innovative product usually first start with a problem that needs solving, and comment systems are certainly a problem that needs solving. Therefore by some transitive property, innovation in the commenting space seems to be an open door of opportunity for startups to walk through and offer a solution. Are there other companies like Disqus that may be looking to disrupt the traditional comment system, or do you have an idea for making the process more user friendly? Let us know your thoughts on the state of comments and how you would change them in our very own comments section below! Disclosure: The New York Times is a syndication partner of ReadWriteWeb. Discuss
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Comment Innovation: An Open Door of Startup Opportunity?
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We've talked now and then about college programs that are making strides to provide students with entrepreneurial training , but the Harvard Business School (HBS) has so far not come up in our discussions. This might seem odd that one of the top businesses schools in the nation doesn't gather much attention from things like The Princeton Review's ranking of entrepreneurial programs , but one HBS grad may have an answer to that puzzle. Sponsor Stu Wall , co-founder of the startup Postabon with an MBA from Harvard, recently wrote about some of the reasons that he thinks cause MBAs to make mistakes when trying to form a startup. The biggest obstacle in their way is that through their years of education, MBA students are taught to meticulously plan their businesses, but nothing can substitute from actually getting your hands dirty. "With three months and ~$10K, we created a bare-minimum website and iPhone app that allowed us to iterate daily based on consumer feedback. No amount of time in Baker Library would have substituted," writes Wall. "Building a product will allow you to identify a viable strategy, iterate, and prove your team can win. Research, formatting and nicely worded emails are a prerequisite but by no means a differentiator." Does this mean that no startup ever got funded without a working demo or beta phase product? Probably not, but the point here is that the amount of discovery and business education you give yourself by actually building a product and testing it trumps anything you can learn from a lecture or a book. I would assume that at some point during his Harvard MBA education Wall had some sort of "lab" experience in which he was tasked with actually creating a business, but I can't be sure. If he did, it may not be likely that the experiments they ran were in the realm of startups, but they could have been. The point is, Wall seemed to learn a lot more about forming a startup simply by doing than he thinks he did from school. Another pitfall he sees with MBA students is that the culture implanted into the minds of most business school students doesn't jive well with startup culture. By this he means that MBAs spend tens of thousands of dollars on an education as an investment toward a future with a high paying career, but that startup culture is a different kind of road to success than they may have expected. "By the time we're thinking about career decisions, many have a 'what will you do for me' attitude," writes Wall. "Entrepreneurship is the truest form of meritocracy where 'credentialing' counts for nothing. Be humble and cognizant of your weaknesses, and put your passion for idea show (as opposed to your $$ aspirations)." Discuss
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Harvard Grad on Why MBAs Stumble Off the Blocks
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A new startup is looking to apply crowdsourcing to the fashion industry. Fashion Stake , whose website will open to the general public in several weeks, will allow the fashion-conscious to directly invest in designers. Its motto is, "Democratize Fashion" - a tall order. The site, led by Harvard Business School alumnus Daniel Gulati, will put designers and companies together with consumers on two levels, financially and critically. Financially, an investment in a designer will return the ability to apply credits toward purchasing that designer's garments. Sponsor Critically, the full space of social media tools will be used. Viewers may browse collections, vote them up or down and suggest ideas for new garments or lines and praise or criticize designer directions. Although Gulati told us he could not divulge the number or nature of the designers he has waiting in the wings, a screenshot on the company's blog shows the names Phillip Lim, Alexander Wang, Donna Karan and Jeffrey Montero. Given the increasing comfort level that consumers have with dialogic shopping - as well as the horrendous downturn in an industry that was already plagued with vicious gatekeepers - it could provide a price-conscious connection to haute couture , as well as the sense of investment that fashion-oriented television shows like Project Runway have tapped into. In addition to the front page of the website , Fashion Stake also has its blog , a Twitter account and a Facebook page . Discuss
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Fashion Stake Crowdsources Haute Couture
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We have talked about the power of utilizing social networks for businesses before in our Weekend Reading series with books like The Facebook Era , by Clara Shih and Crush It! , by Gary Vaynerchuk, and this week we've got another book under a similar vein. Published just last month, Social Networking for Businesses: Choosing the Right Tools and Resources to Fit Your Needs , by Rawn Shah is a guide for companies looking to take advantage of the collaborative communities of social networks to improve their business. Sponsor Author Rawn Shah has plenty of experience in this very subject as he is the Best Practices Lead on the Social Software Adoption Team at IBM. In Social Networking for Businesses , Shah breaks down the essentials and methods of modeling social experiences for businesses to get the most out of their users and customers. One of the most important factors to the success of social business experiences is the leadership of those experiences, says Shah, who points to the success of blogs and Wikipedia as examples. "The success of each blog is a result of the leadership of its owners, who independently set the rules for what to publish and who can contribute," says Shah. Wikipedia, he says, only succeeded when its leadership structure changed to let anyone to contribute, allowing the best content to rise to the top and be curated by public editors. "This defining change in how people could make decisions on the content and direction of the site -- a leadership model that allowed anyone to become an editor and leader -- drove Wikipedia's overwhelming success," says Shah. Other topics covered by Shah in his book include building skills to create and manage social experiences, building a social culture within your business, collaborating with customers and users on ideas, and measuring the results of social environments. "Online communities and social computing software are rapidly appearing both on the Internet and within organizations as a means to allow people to collaborate, although quite frequently without a plan or a link to organizational and business value," says Shah. "By framing collaboration around specific goals and methods instead of herding people towards generic ideas, social computing can help develop and direct innovative development in an organization." This book is a little more of a deep-dive than some of the other books we've recommended over the last several weeks. If your startup is looking to encourage unique social interaction between your users and your business, this could be a great book to check out. Disclosure: A review copy of Social Networking for Businesses was provided to ReadWriteWeb by Pearson Education and Wharton School Publishing . Discuss
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Weekend Reading: Social Networking for Businesses, by Rawn Shah
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