Technology entrepreneurs that get funded by venture capitalist go public sooner and have more impactful innovations than start-ups that partner with angel investors, shows research from the University at Buffalo.
Tracking external investments in 350 technology ventures, 137 by angel investors and 213 by venture capitalists, the University at Buffalo finds that start-ups funded by venture capitalists could find a buyer or issue stock sooner than those backed by angel investors. Furthermore, patents by venture capital-funded firms had a greater reach.
According to the research published in the Journal of Business Venturing, the limited control that angel investors have on start-ups may undermine their ability to influence innovations. Besides having a patented innovation, start-ups also require a strong network to shape the impact of the innovation, which venture capitalist are more likely to provide.
However, angel investors do also bring some benefits. While VC’s control rights may drive start-ups towards their success, they may also create conflicts with founders. Angel investors, on the other hand, seem more flexible and rather focused on long-term experimentation that immediate financial returns.