2025
Working Paper
HBS Working Paper Series

With a Little Help from My Family: Informal Startup Financing

By: Brian K. Baik, Johan Ludvig S. Karlsen and Katja Kisseleva

Format:Print
| Language:English
| Pages:59

Abstract

Using Norwegian administrative data, we identify family equity investments in startups and examine their effects on investor returns and firm behavior. Informal investors earn lower returns than external individuals, and the firms they back are less likely to secure institutional financing or achieve a successful exit. These startups also follow more conservative strategies. Instrumental variable estimates suggest that family members do not cause conservative behavior; rather, they select into firms that take fewer risks. Additional tests support altruism as the driving motive. Informal capital is thus a behaviorally distinct source of startup funding, shaped by relational and non-pecuniary objectives.

Keywords

Early Stage Finance; Informal Investment; Household Finance; Risk Taking; Entrepreneurial Finance; Entrepreneurship; Personal Finance; Family and Family Relationships; Business Startups; Investment; Norway

Citation

Baik, Brian K., Johan Ludvig S. Karlsen, and Katja Kisseleva. "With a Little Help from My Family: Informal Startup Financing." Harvard Business School Working Paper, No. 25-053, April 2025.