Vijay Anand | The Startup Guy.

Angels + VCs = Bad?

Posted on: March 22, 2008

There is a paper that is published by the Social Science Research Network (SSRN) which reads the outcomes of close to 150+ startups in various investment scenarios. Apparently, companies that just took Angel investment or those that took money from VC firms exclusively did very well. Companies that did a mix did not fare by much. Here’s the gist:

“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 liquidity event. We find that companies financed exclusively by VC investors also perform well, particularly when deals are large. Companies financed by both angels and VCs experience inferior outcomes. Our results suggest that entrepreneurs consider business angels to be preferred investors and VCs investing in small deals face adverse selection. For larger deals, where deeper-pocket VC participation is required, these roles reverse and angels face adverse selection when investing alongside powerful VC syndicates.”

ofcourse this is for a scenario in the valley. I wonder if its any different here in India.


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