Working Paper: CEPR ID: DP13098
Authors: Ana Paula Cusolito; Ernest Dautovic; David McKenzie
Abstract: Many innovative start-ups and SMEs have good ideas, but do not have these ideas fine-tuned to the stage where they can attract outside funding. Investment readiness programs attempt to help firms to become ready to attract and accept outside equity funding through a combination of training, mentoring, master classes, and networking. We conduct a five-country randomized experiment in the Western Balkans that works with 346 firms and delivers an investment readiness program to half of these firms, with the control group receiving an inexpensive online program instead. A pitch event was then held for these firms to pitch their ideas to independent judges. The investment readiness program resulted in a 0.3 standard deviation increase in the investment readiness score, with this increase occurring throughout the distribution. Two follow-up surveys show that these judges’ scores predict investment readiness and investment outcomes over the subsequent two years. Treated firms attain significantly more media attention, and are 5 percentage points (p.p.) more likely to have made a deal with an outside investor, although this increase is not statistically significant (95 confidence interval of -4.7 p.p., +14.7p.p.).
Keywords: investment readiness; startups; innovation; equity investment; entrepreneurship; randomized controlled trial
JEL Codes: L26; M2; M13; O12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Investment readiness program (G24) | Investment readiness scores (G24) |
| Investment readiness program (G24) | Selection likelihood for pitch competition (C52) |
| Investment readiness scores (G24) | Willingness to accept equity investment (G31) |
| Investment readiness scores (G24) | Actual receipt of external financing (G39) |
| Investment readiness scores (G24) | Media attention (L82) |
| Investment readiness program (G24) | Media attention (L82) |
| Investment readiness program (G24) | Deal with outside investor (G24) |