Angel Finance: The Other Venture Capital

Topics:
Angel Investment,
Venture Capital
Tags:
Angel,
Angel Financing,
Finance,
Financial Accounting,
Financing Startups,
Investment,
University Of Chicago,
Venture Capital
Source:
University of Chicago

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Overview: Angel financing is one of the most common, but least studied methods, to finance new ventures. This paper proposes a model to explain angel behavior. It uses a unique dataset of angel-backed firms to test the predictions of the model and examines 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.

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Format: PDF | Size: 144KB | Date: Jan 2002 | Pages: 66

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