Testing an investment readiness program for start-ups

The team wants to test the impact of an Investment Readiness Program (IRP) that is geared to facilitate access to equity finance for innovative start-ups and SMEs. Lack of access to equity finance for innovative start-ups and SMEs has been recognized as a major problem in the region, and there is a belief that many firms have good ideas but lack the necessary know-how and preparedness to be ready to pitch their ideas to external investors. The investment readiness program is aimed at getting firms ready for a pitch event, through a combination of training, mentoring, master classes, pitch practice, and other assistance.

External Link(s)

Registration Citation

Citation

Cusolito, Ana Paula and David McKenzie. 2015. "Testing an investment readiness program for start-ups." AEA RCT Registry. November 06. https://doi.org/10.1257/rct.895-2.0

Former Citation

Cusolito, Ana Paula and David McKenzie. 2015. "Testing an investment readiness program for start-ups." AEA RCT Registry. November 06. https://www.socialscienceregistry.org/trials/895/history/5907

Sponsors & Partners

Experimental Details

Interventions

Intervention(s)

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.

Intervention Start Date

2015-09-15

Intervention End Date

2015-12-15

Primary Outcomes

Primary Outcomes (end points)

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.
- Initial investment made: a binary variable of whether an initial investment offer is made by an investor participating in the pitch competition/venture forum.

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

Primary Outcomes (explanation)

Secondary Outcomes

Secondary Outcomes (end points)

Secondary Outcomes (explanation)

Experimental Design

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

Experimental Design Details

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 Method

Randomization done in office by a computer

Randomization Unit

Individual firm

Was the treatment clustered?

Experiment Characteristics

Sample size: planned number of clusters

346 firms

Sample size: planned number of observations

346 firms

Sample size (or number of clusters) by treatment arms

174 treated, 172 control

Minimum detectable effect size for main outcomes (accounting for sample design and clustering)

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)

Supporting Documents and Materials

IRB