Angel Financing and the Performance of High-Tech Start-Ups

Abstract

In this paper, we investigate what drives the performance of high-tech start-ups receiving angel financing, while taking a closer look at the capabilities (i.e., experience) and investment behavior of business angels (BAs). We exploit a new data set (extracted from Crunchbase), which consists of 1,933 high-tech start-ups that received at least one financing round from a BA. The results indicate that the experience of BAs in early stage investments is positively associated with additional receipt of follow-on rounds of financing and sequential capital injections from venture capitalists (VCs). Later-stage experience is positively associated with the start-up's success (i.e., probability to be listed or acquired), but reduces the need for new VCs to invest in the start-up. Furthermore, we find consistent evidence that start-ups that combine BA and VC financing experience higher levels of funding amounts, additional VC financing, and an improved likelihood of success. Finally, we find that the co-localization of BA investors and start-ups in the same area facilitates the attraction of VC financing.

The Capital Gains Tax: A Curse but Also a Blessing for Venture Capital Investment

“…Further, we also have to code the variable as one when the start‐up was acquired or taken public in order not to classify these events as failures. This classification is insofar reasonable as an acquisition or an IPO signify as well positive investment decisions of investors and is in line with other studies in entrepreneurial finance such as that of Croce, Guerini, and Ughetto () who describe both follow‐on investments and successful exits as events of a start‐up's interim and ultimate performance. However, in the robustness section, we also show the results when follow‐up investment comprises only further funding rounds and does not take exit events into account.…”

“… Gompers et al () and Brander, Du, and Hellmann () also consider the determinants of success probability of venture capital investments as outcome variables. Other recent studies referring to similar dependent variables are those of Giot and Schwienbacher (), Das, Jo, and Kim (), Wang and Wang (), Munari and Toschi (), and Croce, Guerini, and Ughetto ().…”

The transformation of the business angel market: empirical evidence and research implications

“…However, much of the research continues to take a single angel perspective which seeks, for example, to explore the relationship between business angel characteristics and firm performance (Croce, Guerini and Ughetto 2016) or how the human capital of angels influences valuation (Collewaert and Maingart 2016) based on data from just a single investor in each business. The growth in investing by angel groups undermines the appropriateness of this type of analyses based on a single angel investor in a company.…”

New players in entrepreneurial finance and why they are there

“…Angel networks are networks of BAs who invest together in early-stage high growth ventures (see e.g., Croce et al (2016) for a recent review). They provide equity and offer management support and network access.…”