IPO’s and Angels
Bill Warner Tuesday, July 28, 2009
Not much has been reported on the role that angel investors have been playing in IPO’s. Keeping in mind that venture back IPO’s are pretty rare today, there has been a history that provides some additional perspective. Take a look at the working report by William C. Johnson and Jeffrey E. Sohl entitled Initial Public Offerings and Pre-IPO Shareholders: Angels Versus Venture Capitalists.
The role of angels
It is interesting to note that angels have had a substantial participation in IPO’s and that 13.4 percent have angels investors as their only outside shareholders. It is not surprising to see that geography and industry are the primary factors that influence these angels, and that the vast majority of them are located in California and Massachusetts, where a large number of venture capital firms are located.
This is a very attractive situation for angels in that they can exit their investments without having been impacted by subsequent venture capital investments that dilute their participation. Venture firms have to consider many things during an exit event that angels are less concerned with. It’s a much easy IPO to execute.
Venture firms are likely to under price the IPO, where angels are much more aligned with insider and other non-venture capital shareholders to maximize the value of the IPO. This should be a strong consideration by management when they make the decision whether or not to go with venture capital investment.
Of course there are major differences in the investment criteria between angels and VC’s. Of note is that angel-backed firms are quite interested in companies that are able to take on high levels of debt.
Both angel and venture investment accelerate IPO’s
Whether a company is backed by angels or venture capitalists, the speed to an IPO is faster than those that are not backed by angels or venture capitalists. It says that these equity partners do add value to the companies they invest in.
Filed Under: Angel Investment, Financing a Company, Managing Business Financials
Bill Warner is the Managing Partner of Paladin and Associates, a business consulting firm in the Research Triangle Park area of central North Carolina, and is the Chairman of the Triangle Accredited Capital Forum, an angel investor network with over one hundred members throughout the southeast.
Bill Warner is the Managing Partner of Paladin and Associates, a business consulting firm in the Research Triangle Park area of central North Carolina, and is the Chairman of the Triangle Accredited Capital Forum, an angel investor network with over one hundred members throughout the southeast.
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