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Does Angel Participation Matter? An Analysis of Early Venture Financing

Brent D. Goldfarb
University of Maryland - Robert H. Smith School of Business

Gerard Hoberg
University of Maryland - Department of Finance

David Kirsch
University of Maryland

Alexander J. Triantis
University of Maryland - Robert H. Smith School of Business

March 24, 2009

Robert H. Smith School Research Paper No. RHS 06-072

Abstract:
We examine the role of angel investors in early venture financing using a new sample of 182 Series A preferred stock rounds. Our sample includes deals in which angels invest alone, those where they co-invest with venture capitalists (VCs), and deals in which VCs invest alone. We find that investor composition is strongly related to control rights, and deals with more angel investors have weaker control rights. Our broad results regarding outcomes and investor selection are consistent with a constrained matching explanation regarding how firms pair with investor types. Among smaller deals, matching is unconstrained, and outcomes are not correlated with investor composition. Among larger deals, VC participation is generally a necessary condition for raising capital, and firms for which this constraint binds experience inferior outcomes.

Keywords: Venture Capital, Angel Investors, Entrepreneurship, Control Rights, Term Sheets

JEL Classifications: G20, G24, G32

Working Paper Series

Date posted: March 19, 2008 ; Last revised: July 17, 2009

Suggested Citation

Hoberg, Gerard, Goldfarb, Brent D., Kirsch, David and Triantis, Alexander J., Does Angel Participation Matter? An Analysis of Early Venture Financing (March 24, 2009). Robert H. Smith School Research Paper No. RHS 06-072. Available at SSRN: http://ssrn.com/abstract=1024186

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Contact Information

Brent D. Goldfarb (Contact Author) University of Maryland - Robert H. Smith School of Business ( email ) College Park, MD 20742-1815 United States 301-405-9672 (Phone) 301-314-8787 (Fax)
Gerard Hoberg University of Maryland - Department of Finance ( email ) Robert H. Smith School of Business Van Munching Hall College Park, MD 20742 United States
David Kirsch University of Maryland ( email ) College Park, MD 20742 United States
Alexander J. Triantis University of Maryland - Robert H. Smith School of Business ( email ) Department of Finance College Park, MD 20742-1815 United States 301-405-2246 (Phone) 301-314-9157 (Fax)