Luke Stein, Assistant Professor, Finance, Arizona State University.

Angels, Entrepreneurship, and Employment Dynamics: Evidence from Investor Accreditation Rules

(joint work with Lindsey Laura)

This paper examines the effects of a shock to angel finance on entrepreneurial activity and employment. Using public micro data from the U.S. Census, we construct a state-level estimate of the fraction of accredited investors likely affected by Dodd-Frank's elimination of housing wealth in the determination of accreditation status. We demonstrate that a larger reduction in the pool of potential accredited investors negatively affects firm entry and reduces employment levels at small entrants. Employment increases at small and young incumbents as workers are absorbed, and relative wages for the startup sector decline. Angel finance appears to be a complement to organized venture capital and of greater  importance in less concentrated and lower startup-capital-intensive industries. Our paper quantifies the impact of angel finance at the margin and offers insight on the geographies and sectors where it matters most.