IEARS

Zhenrui Cao

Zhenrui CaoZhenrui Cao is currently a Ph.D. student in Business Data Science at Martin Tuchman School of Business, New Jersey Institute of Technology. His research field is startup entrepreneurship and venture capital financing. Zhenrui has solid knowledge background in mathematics, statistics and bioinformatics. He also has expertise in programming and machine learning algorithms. Zhenrui’s special research interest lies in strengthening the current understanding on angel and venture capital investments and new startup valuations with the help of new data science techniques. Zhenrui holds a Ph.D. in Bioinformatics from Stony Brook University. He has published more than ten papers in a variety of journals and has presented his research findings on several conferences.


Abstract

Are Angel Investors Egotists?

Early stage technology startups require resources to allow them to scale up their business models. While anyone can be an entrepreneur, we observe technology companies’ CEOs are predominantly white and male. In this paper, we consider whether implicit egotism of angel investors can help explain this phenomenon. We adopt implicit egotism theory in the context of entrepreneurial finance based on two factors. First, we consider whether name-letter preference (NLP), in the form of common initials between investors and entrepreneurs, affects the ratings provided by investors considering investment opportunities. Second, we consider the role of startup entrepreneurs and angel investors’ co-ethnicity in determining the investment ratings. Based on a sample from one of the most active angel groups in the U.S., we constructed a unique dataset of companies and investor ratings. Our analysis supports investor rationality with only very limited support for the hypotheses that name-letter preference effects occurred during investors’ rating process. However, we do find significant implicit bias from white angel invertors that favor entrepreneurs that have similar ethnic origins as themselves.