Venture capital market complementarities: the links between business angels and venture capital funds

The nature and extent of complementarities between the informal and formal venture capital markets has been the subject of limited research. In the United States, complementarity has been demonstrated in terms of both size of investment and stage of business development: angel investors dominate in financing rounds of less than $500,000 and at seed and start-up stages. More recent research questions the generalisability of the findings: in the UK a small scale study found no evidence of complementarity for technology based firms, and a more recent US study concluded that the relationships between business angels and venture capital firms appeared to be weaker in the 1990s. In this paper we explore systematically complementarities between the formal and informal venture capital markets, and identify, where possible, the opportunities for additional collaboration. Five types of complementarities are identified: co-investing in deals; sequential investing in ventures; business angels as investors in venture capital funds; deal referring; and fund raising by business angels for ventures in which they have invested.