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Friends or foes? The interrelationship between angel and venture capital markets

Thomas Hellmann () and Veikko Thiele ()

Journal of Financial Economics, 2015, vol. 115, issue 3, 639-653

Abstract: This paper develops a theory of how angel and venture capital markets interact. Entrepreneurs first receive angel then venture capital funding. The two investor types are ‘friends’ in that they rely upon each other׳s investments. However, they are also ‘foes,’ because at the later stage the venture capitalists no longer need the angels. Using a costly search model we derive the equilibrium deal flows across the two markets, endogenously deriving market sizes, competitive structures, valuation levels, and exit rates. We also examine the role of legal protection for angel investments.

Keywords: Entrepreneurship; Angel investors; Venture capital; Start-ups; Search (search for similar items in EconPapers)
JEL-codes: D53 D83 G24 L26 (search for similar items in EconPapers)
Date: 2015
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Working Paper: Friends or Foes: The Interrelationship between Angel and Venture Capital Markets (2014) Downloads
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DOI: 10.1016/j.jfineco.2014.10.009

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