Article

Value Added by Angel Investors through Postinvestment Involvement: Exploratory Evidence and Ownership Implications

Jess Chua and Zhenyu Wu

in The Oxford Handbook of Venture Capital

Published in print April 2012 | ISBN: 9780195391596
Published online September 2012 | | DOI: http://dx.doi.org/10.1093/oxfordhb/9780195391596.013.0025

Series: Oxford Handbooks

 Value Added by Angel Investors through Postinvestment Involvement: Exploratory Evidence and Ownership Implications

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This article uses data from The Performance Project: Group Angel Investor, released by the Kauffman Foundation and the Angel Capital Education Foundation in 2007 to investigate the value added by angels through their postinvestment involvement (PII) with ventures. In contrast with findings showing that venture capitalist PII may not significantly affect venture performance, the results show that the PII of angels contributes significantly to value creation. The value added is due to involvement related to mentoring rather than monitoring. This resultant value added has a very important implication for the ownership share that angel investors deserve or, conversely, the share that the entrepreneurship retains. It is an important factor missing in current discussions about the ownership share that entrepreneurs must surrender in exchange for equity capital. The article discusses the implication conceptually and proposes an adjustment to the model proposed in the literature to determine the theoretical ownership share that entrepreneurs deserve to retain.

Keywords: venture capital; postinvestment involvement; angel investors; value creation; mentoring; ownership share; entrepreneurs

Article.  10941 words. 

Subjects: Economics ; Financial Markets

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