How do investor characteristics of business angels and venture capitalists predict the occurrence of co-investments?

Business angels (BAs) and venture capitalists (VCs) play major roles in the early funding stages of a venture. Although a significant proportion of venture funding rounds results from multiple investor types, most existing research takes an isolated view of either BAs or VCs. Research on the conditions and reasons for the formation of co-investments by BAs and VCs remains scarce. This study closes this gap by considering the impact of investor characteristics of BAs and VCs on the likelihood of co-investment. We focus on investor reputation, prior investment ties, and geographic proximity between the new venture and the investor. We address the questions of how these investor characteristics predict the probability of a co-investment between BAs and VCs in the first funding round of a new venture. Relying on the resource-based view and agency theory, we examine conditions that are in place when the two types of investors co-invest. Using a large-scale dataset with more than 7300 funding rounds of US-based ventures between the years 2005 and 2017, we find support for our hypotheses that investor reputation, prior investment ties, and geographical proximity impact the likelihood of co-investment and that these associations differ depending on the investor type.