Should Angel-Backed Start-Ups Reject Venture Capital?

2 Mich. J. Private Equity & Venture Cap. L. 251 (2013)

Univ. of Wisconsin Legal Studies Research Paper No. 1170

20 Pages Posted: 30 Aug 2011 Last revised: 24 Jun 2013

Date Written: August 29, 2011


The conventional wisdom is that entrepreneurs seek financing for their high-growth, high-risk start-up companies in a particular order. They begin with friends, family, and bootstrapping. Next they turn to angel investors, or accredited investors (and usually ex-entrepreneurs) who invest their own money in multiple, early-stage start-ups. Finally, after angel funds run dry, entrepreneurs seek funding from venture capitalists, whose big dollars and deep connections lead the start-up to an initial public offering or sale to a larger company in the same industry. That conventional wisdom may have been the model for start-up success in the past, but this Essay challenges it for the future. In particular, this Essay argues that some start-ups that attract angel funding should stop there, rejecting proffers of venture capital. It challenges the notion that venture capital is a necessary condition for start-up success, and argues the counterintuitive proposition that venture capital may actually be harmful to entrepreneurs and angel investors in some situations.

Keywords: angel investor, venture capital, start-up, entrepreneurship

JEL Classification: G24, G32, K20, K22, M13

Suggested Citation

Ibrahim, Darian M., Should Angel-Backed Start-Ups Reject Venture Capital? (August 29, 2011). 2 Mich. J. Private Equity & Venture Cap. L. 251 (2013). Available at SSRN: or

Darian M. Ibrahim (Contact Author)

William & Mary Law School ( email )

South Henry Street
P.O. Box 8795
Williamsburg, VA 23187-8795
United States

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