Abstract

Before conducting an initial public offering (IPO), the equity of a private firm is typically held by a combination of investors including venture capitalists, managers of the firm, and angels. There has been little research conducted looking at the influence of angels on the initial public offering of a firm, despite the importance of angel investors. This paper fills this void in the literature, examining the role of angel investors in the process of bringing firms into the public market. We examine the determinants of angel versus venture backing for IPO firms. In addition, we examine the incentives of venture capitalists to underprice offerings more heavily relative to angel investors, allowing venture capitalists to raise more funds in the future (grandstanding).

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