Angels and venture capitalists in the initial public offering market

In this article, we examine angel investors and venture capital investors to determine how they interact in the market for small firm equity investment. We first generate a novel dataset of firms going through their initial public offerings and using the disclosures required by the Securities and Exchange Commission, classify firms having angel investors, venture capital investors, or both angel and venture capital investors. We find that the location, industry, and timing of firms backed by these different investor groups are strikingly different. We then compare the post-IPO operating performance of the firms in our sample for backed versus unbacked firms and find a significant difference for venture-backed firms, but not for angel-backed firms. For a subset of firms with angel and venture capital backing, we find some complementarities in the investment of angel and venture capital investors. However, on the whole, our results suggest that angel investors and venture capital investors serve different sets of firms who need to obtain outside equity financing.