Survey: The Relationship between Angels and Venture Capitalists in the Venture Industry

This analysis presents the questions, responses, andconclusions of a survey examining the relationship between angel investors andvesture capital firms. A two-part survey containing twelve questions for angelinvestors and nine questions for venture capitalists was conducted by e-mail inFebruary and May 2005. Of 2,156 surveys, the response rate was approximately 14percent. Reported are both quantitative results and written comments. The results show that angels and venture capitalists both play key roles inthe venture industry. Angel investors and venture capitalists do not competebut are viewed as complementary players. Angels rarely fund a company to exit,so firms need institutional money for that purpose, whereas venture capitalistsrarely provide needed capital and time during the early stages ofdevelopment. Angels are seen as the early-stage seed investors whofeed deals to the venture capitalists. Thus, there is a conveyorbelt effect that takes startups from creation to ongoing existence andexit. Among other findings: venture capitalists believe that angel fundersneed to better understand valuation of investment opportunities, andappropriate deal structures that will not impede further VC funding. Theventure industry and the business community would benefit from an angel-venturecapitalist framework that fosters better understanding and amoreefficient working relationship between the two. (TNM)