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- Title
The (Not So) Puzzling Behavior of Angel Investors.
- Authors
Ibrahim, Darian M.
- Abstract
Angel investors fund start-ups in their earliest stages, which creates a contracting environment rife with uncertainty, information asymmetry, and agency costs in the form of potential opportunism by entrepreneurs. Venture capitalists also encounter these problems in slightly later-stage funding, and use a combination of staged financing, preferred stock, board seats, negative covenants, and specific exit rights to respond to them. Curiously, however, traditional angel investment contracts employ none of these measures, which appears inconsistent with what financial contracting theory would predict. This Article explains this (not so) puzzling behavior on the part of angel investors, and also explains the recent move toward venture capital-like contracts as angel investing becomes more of a professional endeavor.
- Subjects
ENTREPRENEURSHIP; VENTURE capital; FINANCE; INVESTMENTS; INVESTMENT banking; CAPITAL stock; PREFERRED stocks; SMALL business finance; SMALL business investment companies
- Publication
Vanderbilt Law Review, 2008, Vol 61, Issue 5, p1405
- ISSN
0042-2533
- Publication type
Article