Despite all the media attention venture capital gets, it’s far from the most common source of startup funding. As Diane Mulcahy explained in a 2013 Harvard Business Review article: ”Angel investors — affluent individuals who invest smaller amounts of capital at an earlier stage than VCs do — fund more than 16 times as many companies as VCs do,” she wrote, “and their share is growing.”

Last year total U.S. angel investments ran to $24.1 billion, according to the Center for Venture Research at the University of New Hampshire.

Total U.S. angel investments ran to $24.1 billion.

More than 73,000 ventures received angel funding, and there were 316,000 active investors. Yet for how substantial the market is, there’s relatively little data on the decision making process of those who invest in early stage startups.

As a result, we’re stuck with the question of how investors choose which startups to fund. It’s hard to predict whether a novel idea will succeed, and these fledgling firms typically have no financial track record or tangible assets.

So Shai Bernstein, an assistant professor of finance at Stanford’s GSB, and Arthur Korteweg of USC’s Marshall School of Business devised an experiment to identify what characteristics do distinguish startups. They partnered with Kevin Laws, the founder of AngelList, and used his platform to measure investors’ initial screening process.

In a recent working paper, “Attracting Early Stage Investors: Evidence from a Randomized Field Experiment,” they report their findings: the average investor responds strongly to the founding team, but not so much to the startup’s traction (its sales or user base) or existing investors.

This probably isn’t much of a surprise. In fact, the importance of founders has been emphasized in these pages before. Nearly 20 years ago, William A. Sahlman argued that most business plans wasted too much ink on numbers, not paying sufficient attention to the information that really matters to investors: people. “When I receive a business plan, I always read the resume section first,” he wrote. “Not because the people part of the new venture is the most important, but because without the right team, none of the other parts really matters.”

Now, Bernstein, Korteweg, and Laws have the evidence to back this up. AngelList regularly sends emails (shown below) highlighting “featured” startups to investors on the platform.

These are firms that AngelList’s algorithm matches to investors who have already noted interest in the firms’ industry or location.

The email describes the startup’s idea and funding goal, as well as its founding team, traction, and current investors — but the latter three categories only appear if they pass a certain threshold defined by AngelList’s algorithm.

To investors, this signals high quality; seeing one of these in the email means that it’s worth paying attention to. So for example, the founders would only be listed if they went to a top university like Harvard or Stanford or previously worked at a Google or PayPal.

Investors respond by clicking “View,” which brings them to the company’s full AngelList profile, or “Get an Intro,” which sends the company an introduction request — or they withhold their click and pass on the company. The researchers randomly choose which categories would appear in the email to alter the perceived quality of the startup’s team, traction, and current investors.

So say one company’s team and traction passed AngelList’s threshold; they would create three emails: one that only listed the team, one that only described the traction, and one that showed both. (The idea and funding goal were always visible, and they never excluded all categories from an email.)

If AngelList was planning to send that company to a community of 1,500 investors interested in biotech, the researchers would randomly send 500 of them the email showing the team, while another 500 would see traction, and the other 500 got the control email displaying both.

The experiment ran for eight weeks in the summer of 2013, and spanned 21 startups, 4,494 investors, and nearly 17,000 emails.

They found that information about the founding team raised investors’ click rate by 2.2% (average investors’ probability to click is 16%, so in relative terms, founding team information increased the click rates by almost 14%, which is economically important), whereas knowing that the startup had material traction or notable investors did not significantly make investors more likely to click.

And these clicks are meaningful — they capture the investors’ level of interest in the startup, which affects funding decisions.

This suggests that a startup’s human capital is uniquely important to potential investors. However, Berstein said they’re not arguing that the team is more important than the idea, since their setting didn’t allow that comparison.

Rather, they found that conditional on the idea, the team is quite important — more so than the product’s initial traction and ability to attract earlier investors.

The authors have two hypotheses for why the founding team is so highly valued. The first, they wrote, is that “operational capabilities of the founding team may be important at the earliest stages of a start-up, when most experimentation takes place.”

The second, and this is where it gets more speculative, is best explained with an example: “Say we have a team that graduated from HBS. They have many opportunities they could pursue, but the fact that they decided to pursue the startup, and not go work for another venture, signals that this is a really good idea and a very promising venture,” Bernstein told me.

He said that they found supportive evidence of the first hypothesis, but they do not rule out the existence of the second.

But does investing based on the founding team work? The researchers couldn’t answer this directly, since these were still very early-stage companies and they didn’t have information about long-term performance.

However, when they distinguished between investors’ experience levels, they found that the more experienced and successful investors (measured by their number of prior investments) only responded to information about the team, while the least experienced responded to all three categories.

Because the former is more likely to invest in successful startups, the authors said, this offers indirect evidence that selecting based on the founding team is a viable investment strategy.

Angel investors sort through thousands of startups vying for funding, each promising the next big breakthrough. This experiment illustrates how they use various cues to filter their pipeline — and how founders significantly influence their decisions to invest.

The formula for long-term success may be different, though, when you consider how founders are often replaced, for various reasons, before the startup’s IPO. “What we find suggests that at the very early stages, at which the startup is still experimenting and trying to find the right business model, the founders are very important. Maybe later on, when the company is on track and growing to a larger scale, the founder becomes less important,” Bernstein said. “But our evidence suggests that at least at the very early stages, investors seem to think tremendously about the team and the founders.”

This article originally appeared in Harvard Business Review and HotTopics.ht.