Friends or foes? The interrelationship between angel and venture capital markets

Thomas Hellmann, Veikko Thiele
2015 Journal of Financial Economics  
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
more » ... vels, and exit rates. We discuss how the model generates alternative testable hypotheses for the recent rise of angel investing.
doi:10.1016/j.jfineco.2014.10.009 fatcat:722fhnxbxvfffhu6r74sod6bve