Does angel participation matter? An analysis of early venture financing. Unpublished working paper

We examine the role of angel investors in early venture financing using a new sample of 182 Series A preferred stock rounds. Our sample includes deals where angels invest on their own and those where they co-invest with venture capitalists (VCs), as well as VC-only deals. We find that angels invest on their own in younger and smaller firms, where the founder retains more ownership. Control rights in these deals are also more entrepreneur-friendly. However, these firms are as likely as the VC-backed firms to have successful liquidity events, and more likely to survive, though many of the surviving firms are inactive, indicating that angels may have little incentive or limited ability to liquidate such firms. In contrast, when deals are large, we find that companies that obtain Series A financing entirely from VCs have better outcomes than those in which VCs and angels co-invest. One interpretation is that larger deal size adds power to VC syndicates, and these powerful syndicates might attempt to block other investors from higher quality deals, resulting in adverse selection for angels in larger mixed deals. Alternatively, experienced founders and VCs may prefer VC-onl