Friends or Foes? The Interrelationship between Angel and Venture Capital Markets

56 Pages Posted: 10 Sep 2013 Last revised: 20 Jun 2014

See all articles by Thomas F. Hellmann

Thomas F. Hellmann

University of Oxford - Said Business School; University of Oxford - Said Business School

Veikko Thiele

Queen's University - Smith School of Business

Date Written: June 19, 2014

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, firm valuation, start-ups, hold-up, search

JEL Classification: D53, D83, G24, G32, L26

Suggested Citation

Hellmann, Thomas F. and Thiele, Veikko, Friends or Foes? The Interrelationship between Angel and Venture Capital Markets (June 19, 2014). Available at SSRN: https://ssrn.com/abstract=2323553 or http://dx.doi.org/10.2139/ssrn.2323553

Thomas F. Hellmann

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain
+44 (0)1865 288937 (Phone)

HOME PAGE: http://www.sbs.ox.ac.uk/community/people/thomas-hellmann

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain
+44 (0)1865 288937 (Phone)

HOME PAGE: http://www.sbs.ox.ac.uk/community/people/thomas-hellmann

Veikko Thiele (Contact Author)

Queen's University - Smith School of Business ( email )

Goodes Hall
143 Union Street
Kingston, ON K7L 3N6
Canada
+1 613 533-2783 (Phone)
+1 613-533-6589 (Fax)

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