NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Friends or Foes: The Interrelationship between Angel and Venture Capital Markets

Thomas F. Hellmann, Veikko Thiele

NBER Working Paper No. 20147
Issued in May 2014
NBER Program(s):   CF

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 levels, and exit rates. We discuss how the model generates alternative testable hypotheses for the recent rise of angel investing.

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Document Object Identifier (DOI): 10.3386/w20147

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