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

56 Pages Posted: 26 May 2014 Last revised: 30 Sep 2014

See all articles by Thomas F. Hellmann

Thomas F. Hellmann

University of Oxford - Said Business School; University of Oxford - Said Business School; European Corporate Governance Initiative

Veikko Thiele

Queen's University - Smith School of Business

Date Written: May 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 discuss how the model generates alternative testable hypotheses for the recent rise of angel investing.

Suggested Citation

Hellmann, Thomas F. and Thiele, Veikko, Friends or Foes: The Interrelationship between Angel and Venture Capital Markets (May 2014). NBER Working Paper No. w20147, Available at SSRN: https://ssrn.com/abstract=2441778

Thomas F. Hellmann (Contact Author)

University of Oxford - Said Business School ( email )

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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

European Corporate Governance Initiative ( email )

c/o the Royal Academies of Belgium
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1000 Brussels
Belgium

Veikko Thiele

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

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

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