For nearly 15 years, the business reality television show Shark Tank has introduced the angel investment process to general audiences by spotlighting entrepreneurs as they pitch their products or services to investors. However, still relatively little is known about the angel investment process, which is one of the least transparent transactions in business.
In a recent article in The Journal of Alternative Investments, Brattle Senior Associate Dr. Ryan Leary and his coauthors study the characteristics of Shark Tank’s angel investors and their investments. They measure the extent to which individual investor characteristics – such as experience, reputation, and network – affect investment performance, and seek to find insights that may apply to angel investing beyond the glamourized version seen on TV. The authors find that just appearing on the show significantly improves firm performance, though the show’s investors are unable to pick winning investments on average, regardless of their characteristics. Nonetheless, investor characteristics do matter in predicting whether an investor is more or less likely to close deals and on what terms.
Taken together, the authors’ results suggest that the attractiveness of a potential investor to firms as a partner and the angel’s ability to make deals are more important than the ability to pick winners. This indicates that more but smaller investments across new seed-stage ventures may be the best approach to angel investing.
The full article, “Exploring Angel Investor Impact: Diving into the Shark Tank!,” is available below (subscription required).View Article