Testing an investment readiness program for start-ups

A sample of 346 firms were randomly divided into two groups: a treatment group of 174 which receives the investment readiness program, and a control group of 172 which does not. The investment readiness program consists of a combination of training, mentoring, master classes, networking, and pitch preparation. Both groups will then pitch their businesses in a venture forum, and will be scored by judges to measure their investment readiness. They will then be tracked over time to see the extent to which this translates into longer-term business outcomes.

2015-09-15

2015-12-15

The key short-term outcomes are:
- Investment Readiness: a score of how investible the firm is, according to scores by judges in a pitch competition. The pre-analysis plan provides details on how this will be measured.

Survey measures: (discussed in pre-analysis plan)
- willinginess and interest in taking equity investment
- general investability
- meeting the specific needs of investors
- steps towards receiving external financing and external financing received

Longer-term outcomes are:
- Business survival
- Whether or not they have an external investor
- Business growth as measured by:
- Employment as measured through a survey
- Sales as measured through a survey
- online activity as measured by Alexa
- appearance in news articles as measured by Lexis/Nexis or Meltwater
- appearance in Angel List
- number of followers on LinkedIn, twitter and facebook

The firms are randomized at the individual level into a treatment group and a control group

Applications were screened to ensure they meet the eligibility requirements. Eligible applications were then scored on four criteria to measure their initial level of investment readiness: market attractiveness, product technology, traction, and team. The top 10 proposals overall in terms of score were then randomly assigned to 5 in treatment and 5 in control, in order to ensure that some of the very top proposals were in both groups. Then the remainder of firms were divided into groups (strata) based on country (Serbia, Croatia, or the rest) and whether or not they already have a private investor. Within these six groups firms were ranked into groups of four on the basis of their investment readiness score. Within these quartets two firms were randomly chosen for treatment and two for control.
This was done for an initial batch of 335 firms, allocating 167 to treatment and 168 to control. A batch of 12 additional firms whose details had taken longer to check were then received. These were stratified into three quartets based on score, with firms then randomly assigned to treatment and control within quartet. Finally one last firm was received, and a single random draw used to assign this to treatment. This resulted in 348 firms, with 174 treatment and 174 control. Two duplicates were dropped resulting in a final sample of 346.

Randomization done in office by a computer

Individual firm

No

346 firms

346 firms

174 treated, 172 control

Initial investment readiness has a mean of approximately 3 and standard deviation of 0.75 (on a score out of 5). The minimal detectable effect is a 0.18 increase in investment readiness, assuming an autocorrelation of 0.6. This equates to 0.24 standard deviations: sampsi 3 3.18, n1(172) n2(174) sd1(0.75) pre(1) post(1) r01(0.6)

Pre-analysis plan (May 16, 2016 update)

Pre-analysis plan (November 10, 2015 update)

Pre-analysis plan

Many innovative firms have good ideas, but do not have these ideas fine-tuned to the stage
where they can attract outside funding. We conduct a five-country randomized experiment that
tests the impact of an investment readiness program. Firms then pitched their ideas to
independent judges. The program resulted in a 0.3 standard deviation increase in the investment
readiness score. Two years later, treated firms attain significantly more media attention, but,
while positive, the impacts on firm outcomes are not statistically significant, with firms 5
percentage points (-4.7 p.p., +14.7p.p.) more likely to have made a deal with an outside investor.

Cusolito, Ana, Ernest Dautovic and David McKenzie (2018) "Can Government Intervention Make Firms More Investment-Ready? A Randomized Experiment in the Western Balkans", World Bank Policy Research Working Paper no 8541

http://documents.worldbank.org/curated/en/453261533567046459/Can-government-intervention-make-firms-more-investment-ready-a-randomized-experiment-in-the-Western-Balkans

Innovative firms with good ideas may still struggle to fine-tune them to the stage where they can
attract outside funding. We conduct a five-country randomized experiment that tests the impact
of an investment readiness program. Firms then pitched their ideas to independent judges. The
program resulted in a 0.3 standard deviation increase in the investment readiness score. Two
years later, the average impacts on firm investment outcomes are positive, but small in
magnitude, and not statistically significant. Larger and statistically significant impacts on
receiving outside funding occur for smaller firms, and for firms with lower likelihoods of
otherwise being funded.

Ana Paula Cusolito, Ernest Dautovic, David McKenzie; Can Government Intervention Make Firms More Investment Ready? A Randomized Experiment in the Western Balkans. The Review of Economics and Statistics 2021; 103 (3): 428–442.

doi: https://doi.org/10.1162/rest_a_00882