Angels and Venture Capitalists: Substitutes or Complements?

111 Pages Posted: 5 May 2015 Last revised: 14 Sep 2019

See all articles by Thomas F. Hellmann

Thomas F. Hellmann

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

Paul Schure

University of Victoria - Economics

Dan Vo

Sauder School of Business, University of British Columbia

Date Written: September 1, 2019

Abstract

Understanding an entrepreneurial finance ecosystem requires an appreciation of how different investors interact with each other. Angels and venture capitalists constitute two very important investors in start-ups. We develop and empirically test hypotheses about the interactions between these two investor types. The focus is on the dynamics of the funding path of start-up companies. We ask whether angels and VCs are complements or substitutes, and also whether funding decisions are primarily investor- or company-led. Using a unique database from British Columbia, Canada, we show that angel and VCs are dynamic substitutes. An instrumental variable approach based on available tax credits for investors suggests that the substitutes relationship is company-led. The dynamic substitute pattern applies across the performance range for companies. It is more pronounced for casual angels and angel funds than for serial angels. Overall the evidence from the entrepreneurial finance ecosystem in British Columbia suggests the presence of parallel streams for angel and VC funding, with fewer transitions across streams than is traditionally assumed.

Keywords: angels, venture capital, entrepreneurial finance

JEL Classification: G24; M13

Suggested Citation

Hellmann, Thomas F. and Schure, Paul and Vo, Dan, Angels and Venture Capitalists: Substitutes or Complements? (September 1, 2019). Saïd Business School WP 2015-2; European Corporate Governance Institute – Finance Working Paper No. 628. Available at SSRN: https://ssrn.com/abstract=2602739 or http://dx.doi.org/10.2139/ssrn.2602739

Thomas F. Hellmann (Contact Author)

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

Paul Schure

University of Victoria - Economics ( email )

Victoria V8W Y2Y, BC
Canada

Dan Vo

Sauder School of Business, University of British Columbia ( email )

2329 West Mall
Vancouver, British Columbia BC V6T 1Z4
Canada

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