Angel investors and the market for angel investments

2009

Angel investors are an important source of funding for entrepreneurs that bridge the gap between the so-called friends and family rounds and the venture capital rounds of financing. Angel investors are generally high-net-worth individuals who typically invest in companies at a seed or start-up stage. Given the nature of these investments, failure rates are high, thus giving

Journal of Business Venturing Insights, 2020

Angel investing has grown globally across economies, accompanied by growth in both academic and policymaking interest. In this paper, we critically analyse the current state of knowledge about the process and impact of angel investment. We use a series of stylised facts to highlight key trends as well as misperceptions about those trends. These include the rise of formal and ad hoc angel groups, the efficiency of early stage risk capital markets, the complex interaction between angel and institutional venture capital, and policymaking to address perceived capital market failures. We review the emerging literature on angel investment returns and draw on a new simulation-based analysis of tax incentives to challenge the rationale for government intervention in angel investing.

SSRN Electronic Journal, 2000

Understanding an entrepreneurial finance ecosystem requires an appreciation of how different investors interact with each other. Angels and venture capitalists constitute two of the most important equity investors for start-ups. In this paper we develop and empirically test some hypotheses about the interactions between these two investor types. The focus is on the dynamics of the funding path of start-up companies. We distinguish complements and substitutes relationships between investor types, and between investor-versus company-led interactions. Using a unique database from British Columbia, Canada, we provide evidence that angel and venture capital funding are dynamic substitutes. An instrumental variable approach based on available tax credits for investors shows 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.

SSRN Electronic Journal, 2016

We document that the choice between disintermediated individual angel investments and intermediated private equity and venture capital investments depends on legal, economic, and cultural differences. We find evidence of this using PitchBook's comprehensive data on more than 5,000 angel and 80,000 private equity and venture capital investments in 96 countries from 1977 to 2012. The data further indicate that investee firms funded by angels are less likely to successfully exit through either an IPO or an acquisition. These findings are robust to propensity score matching methods, as well as to clustering standard errors and excluding U.S. observations, among other approaches.

University of Maryland, 2007

We examine the impact of business angels on 182 Series A financings and subsequent company outcomes. Our studied rounds have a varied mix of business angel and formal venture capital investors (VCs). We find that when only angels participate in a financing round and VCs are absent, control rights are more entrepreneur-friendly, legal expenses are lower, and investors are more geographically proximate to the company. Such angel-backed companies are less likely to fail and are more likely to have a successful ...

Foundations and Trends® in Entrepreneurship, 2017

Even though scholars have amassed a large body of research on angel investors, few systematic and comprehensive reviews are available. The purpose of this monograph is to review this literature and then to offer suggestions for future investigation. To that end, we compiled a set of journal articles on angel investing. We start with Wetzel's (1983) seminal article describing the characteristics of angel investors and end with the work published more recently. In total, we have 152 articles that we review. For parsimony, we chose to focus our review only refereed journal articles, thereby excluding conference proceedings, books and book chapters, industry reports, and dissertations. This implies that there is additional work that has been done on the topic

2011

Research on angel investors is sparse because data are sparse. Definitions of angel investors and estimates of returns on angel investments vary dramatically. What can we make of this wide range of reported returns? We survey the literature and find that the calculations of reported results are quite vague. Most researchers do not explicitly report whether their estimates are equal-weighted or valueweighted, for example, nor do they say whether the results are weighted by the duration of the investment.

SSRN Electronic Journal, 2000

We examine the role of angel investors in early venture financing using a new sample of 182 Series A preferred stock rounds. Our sample includes deals in which angels invest alone, those where they co-invest with venture capitalists (VCs), and deals in which VCs invest alone. We find that investor composition is strongly related to control rights, and deals with more angel investors have weaker control rights. Our broad results regarding outcomes and investor selection are consistent with a constrained matching explanation regarding how firms pair with investor types. Among smaller deals, matching is unconstrained, and outcomes are not correlated with investor composition. Among larger deals, VC participation is generally a necessary condition for raising capital, and firms for which this constraint binds experience inferior outcomes. * All authors are from the Robert H. Smith

Journal of Banking & Finance, 2018

We provide first-time evidence of the post-investment performance and survivorship profile of angel-backed companies. Using a unique database of 111 angel-backed companies that received angel investments between 2008 and 2012 and at least 3 years of post investment financial data, we show that both the performance and the probability of survival of investee companies, are positively affected by the presence of: 1) angel syndicates and 2) by the hands-on involvement of business angels. Differently, the intensity of angel monitoring and the structure of equity provision negatively affect the development of companies. Our results provide insights on the contribution of angel investors to the development of new ventures.

2008

Business angels are high net worth individuals who invest their own money, along with their time and expertise, in unquoted companies in which they have no family connection in the hope of financial gain. They are a distinctive source of finance for entrepreneurial businesses, making significantly more seed, start-up and early stage investments than venture capital funds. Governments are now increasingly targeting business angels as a means of increasing the supply of early stage venture capital. It is therefore puzzling why angel investing has attracted less attention from scholars than its significance deserves. This paper starts by making the case why entrepreneurship scholars should devote more attention to angel investing. It then reviews the research that has been undertaken on business angels and their investment activity since the seminal work of William Wetzel jr. published in 1981. The review covers definitional and measurement issues, angel profiles, the investment process (deal flow, screening and evaluation, negotiating and contracting, and post-investment relationships) and the evolution of the market. The paper concludes by suggesting priority areas for future research on the topic.