Angel Finance: The Other Venture Capital

66 Pages Posted: 2 Nov 2006

Date Written: January 2002


Angel financing is one of the most common, but least studied methods, to finance new ventures. In this paper, I propose a model to explain angel behavior. I use a unique dataset of angel-backed firms to test the predictions of the model and examine the characteristics of angel financing. Although they are exposed to greater uncertainty by investing earlier in the life of a firm compared to venture capital, angel investors do not rely on traditional control mechanisms such as board control, staging, or contractual provisions to protect against expropriation. Instead, angels reduce expected agency costs by forcing entrepreneurs to hold a larger stake in the firm, thereby aligning the interests of the entrepreneur with the outcome of the firm. In addition, angels use more informal methods such as investing in close geographic proximity and syndicating investments with other angels to mitigate risks.

Keywords: Angel, Venture Capital, Entrepreneurship

JEL Classification: G20, G24

Suggested Citation

Wong, Andrew Y., Angel Finance: The Other Venture Capital (January 2002). Available at SSRN: or

Andrew Y. Wong (Contact Author)

Analysis Group, Inc. ( email )

One South Dearborn
21st Floor
Chicago, IL 60603
United States
3122124464 (Phone)

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