Indulgent Angels or Stingy Venture Capitalists: The Entrepreneurs' Choice

Topics:
Angel Investment,
Venture Capital
Tags:
Angel,
Entrepreneurship,
Finance,
Financial Accounting,
Financing Startups,
Groupe HEC,
Investment,
Management,
Venture Capital
Source:
Groupe HEC

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Overview: This paper studies entrepreneur's choice of investors, who must provide financial capital and effort for projects with externalities. Venture capitalists (VCs) and individual investors (angels) compete to finance the projects. VCs seek to invest into a portfolio of projects, while angels have more slack in how much they invest into one project. In the presence of externalities between projects, VCs can potentially increase the total value of their investment portfolio through better coordination of investment, while some angels behave indulgently and give more financial investment than necessary, earning zero profits in equilibrium.

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Format: PDF | Size: 341KB | Date: Nov 2002 | Pages: 37

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