Angels and Venture Capitalists: Complements or Substitutes?

Hellmann, Thomas, Schure, Paul and Vo, Dan (2015) Angels and Venture Capitalists: Complements or Substitutes? Said Business School Working Paper 2015-2.

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Abstract

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.
Overall the evidence from the entrepreneurial finance ecosystem in British Columbia suggests that ecosystems may contain parallel streams with relatively few transitions across streams.

Item Type: Oxford Saïd Research Paper
Keywords: angel financing; entrepreneurship; venture capital; finance
Subject(s): Finance
Date Deposited: 05 Mar 2015 17:33
Last Modified: 10 Aug 2017 13:42
URI: http://eureka.sbs.ox.ac.uk/id/eprint/5264

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