| Chapter one examines angel financing. Angel financing is one of the most common, but least studied methods, to finance new ventures. In this paper, I propose a model to explain angel behavior. I use a unique dataset of angel-backed firms to test the predictions of the model and examine the characteristics of angel financing. Although they are exposed to greater uncertainty by investing earlier in the life of a firm compared to venture capital, angel investors do not rely on traditional control mechanisms such as board control, staging, or contractual provisions to protect against expropriation. Instead, angels reduce expected agency costs by forcing entrepreneurs to hold a larger stake in the firm, thereby aligning the interests of the entrepreneur with the outcome of the firm. In addition, angels use more informal methods such as investing in close geographic proximity and syndicating investments with other angels to mitigate risks.; The second chapter investigates the role of venture capital in IPO withdrawals. Previous authors have identified the many roles, both indirect and direct, venture capital plays in the development of young companies. Among their activities include certification in a public offering and locating exit strategies for their portfolio companies. In this paper, I analyze the role of venture capital in an IPO filing. In particular, I examine whether venture capital incentives influence the decision to withdraw a public offering and the subsequent outcome of a withdrawn offering. I conclude venture backing increases the likelihood of offering withdrawal. This supports the idea that VCs may have brought portfolio companies to the market too early. I do not find evidence of reputational concerns of the venture capital firm affecting the withdrawal decision. Less established VCs, who have greater incentive to bring riskier firms to the market, do not systematically do so. Lastly, I find that the post-withdrawal outcomes of venture backed firms are more successful than the outcomes for non-venture backed firms. This suggests that VCs are willing to take larger risks by bringing less mature companies to the market because the downside to this strategy is limited. |
