Angel funding and entrepreneurs' well-being: The mediating role of autonomy, competence, and relatedness

Abstract

While external funding is indispensable for most entrepreneurs to scale their ventures, entrepreneurship literature highlights the additional benefits of investors' continued involvement, such as access to their expertise and network. Angel investors, whose primary value-add often emerges through their relationship with the entrepreneurs, generate particularly pronounced benefits. Entrepreneurship research has established that bringing angel investors on board comes at the cost of relinquishing partial equity, which restricts entrepreneurs' control over their ventures; however, the individual-level consequences of funding for entrepreneurs remain largely unexplored. To address this gap, we study how angels' funding and their post-investment involvement in the venture affect entrepreneurs' eudaimonic well-being in the long term. Drawing on self-determination theory, we explore further how the psychological need for autonomy, competence, and relatedness mediates the relationship between angel funding and entrepreneurs' well-being. Self-determination theory states that individuals' verbalized language reflects their needs; accordingly, we use Linguistic Inquiry and Word Count (LIWC) analysis on a unique dataset of almost 125 million words derived from the tweets of 1667 entrepreneurs on X (formerly Twitter). As hypothesized, we find a positive association between angel funding and entrepreneurs' well-being. Autonomy negatively mediates this relationship, while competence and relatedness mediate it positively. We advance research on entrepreneurs' eudaimonic well-being and extend the literature on self-determination theory and individual-level consequences of angel funding.

Executive summary

Entrepreneurs often face a difficult trade-off: They must decide whether to accept funding from angel investors or relinquish some control over their venture. While much research centers on the business implications of this trade-off (Davila et al., 2003; Politis, 2008), the personal impact on entrepreneurs' eudaimonic well-being remains underexplored (Collewaert and Sapienza, 2016). This knowledge gap is concerning because entrepreneurs' well-being closely relates to their ventures' performance (Stephan et al., 2020b; Wach et al., 2016).

Recent calls for research (Stephan et al., 2023) emphasize the need to understand how external factors, like investor involvement, affect entrepreneurs' well-being by influencing the extent to which their psychological needs for autonomy, competence, and relatedness are satisfied, as outlined by self-determination theory (SDT) (Deci and Ryan, 1985, 2000). Despite the recognized importance of these factors, the impact of angel investors, who often form close relationships with entrepreneurs and engage deeply in their ventures (Fairchild, 2011; Politis, 2008), has been largely overlooked.

Our study addresses this gap by examining how angel funding and subsequent involvement influence entrepreneurs' eudaimonic long-term well-being. Using a dataset of 125 million words compiled from 1667 entrepreneurs' tweets on Twitter (now X) from 2006 to 2022, we apply Linguistic Inquiry and Word Count (LIWC) analysis to gain insights into the psychological states of these entrepreneurs (Block et al., 2019; Obschonka et al., 2017). This approach aligns with SDT, which posits that psychological needs fulfillment manifests in communication (Vansteenkiste et al., 2020).

Our findings reveal that angel investor involvement can significantly influence entrepreneurs' eudaimonic well-being—positively and negatively—by affecting entrepreneurs' psychological needs fulfillment. Our study thus complements research on entrepreneurs' well-being with longitudinal insights. First, it extends the literature on entrepreneurial well-being by providing a nuanced understanding of how angel funding and involvement, mediated by autonomy, competence, and relatedness, affect entrepreneurs' well-being over time (Stephan et al., 2023). Second, our study contributes to SDT literature by contextualizing investor involvement as an external factor and using large-scale social media data to assess entrepreneurs' psychological needs (Stephan et al., 2020a). Third, our study highlights the importance of the dynamics between angel investors and entrepreneurs, showing that such relationships significantly shape entrepreneurs' personal outcomes (Collewaert and Sapienza, 2016; Politis, 2008).

Beyond academic contributions, our study offers practical insights for entrepreneurs, angel investors, policy-makers, and universities by emphasizing the importance of understanding and managing the entrepreneurs' personal impacts of bringing angel investors on board.