Friends or Foes: The Interrelationship between Angel and Venture Capital Markets
Thomas Hellmann () and
Veikko Thiele ()
No 20147, NBER Working Papers from National Bureau of Economic Research, Inc
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 discuss how the model generates alternative testable hypotheses for the recent rise of angel investing.
JEL-codes: D53 D83 G24 L26 (search for similar items in EconPapers)
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Published as Hellmann, Thomas & Thiele, Veikko, 2015. "Friends or foes? The interrelationship between angel and venture capital markets," Journal of Financial Economics, Elsevier, vol. 115(3), pages 639-653.
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