A new study finds that high-tech startups that received funding from venture capitalists were able to find a buyer or issue stock sooner than those that received angel investment.
In addition, the research shows that patents issued by venture capital-funded firms had greater reach.
“Angels and venture capitalists are both critical to innovation in business,” says coauthor Supradeep Dutta, assistant professor of operations management and strategy in the University at Buffalo School of Management. “But it’s not enough to just get a patent. You need a strong network to shape the impact of the innovation, and venture capitalists have that network.”
The researchers tracked external investments in 350 technology ventures—137 by angel investors and 213 by venture capitalists—and found that the limited control angel investors have on startups may undermine their ability to influence innovation. Prior research has studied contributions from venture capital investments but has not analyzed the difference between angels and venture capitalists.
The study’s authors say that angel investors bring some benefits of their own, however.
“While the stringent control rights that venture capitalists have can move startups toward success, it can also create conflict with founders,” says Dutta. “Angels, who are investing their own money, tend to be more flexible and less focused on immediate financial returns, allowing longer-term experimentation.”
Dutta collaborated on the project with Timothy Folta of the University of Connecticut School of Business. The findings appear in the Journal of Business Venturing.
Source: University at Buffalo