ANGEL INVESTORS AND THE MARKET FOR ANGEL INVESTMENTS

The market for angel capital - where individuals provide risk capital directly to small, private, often start-up firms - operates in almost total obscurity. Very little is known about the market's size, scope, the type of firms that raise angel capital, and the types of individua ls that provide it. In this paper I present evidence on the angel mark et gathered from my field research which has involved interviews with more than a dozen angel investors in the Dallas/Fort Worth area. The a ngel market appears to be a very heterogeneous and localized market. W ith that qualification in mind, I present some common characteristics of the angels I interviewed, and how they select and monitor their inv estments. I pay particular attention to how they address adverse selec tion and moral hazard problems. I compare their behavior with venture capital limited partnerships in the more formal market for venture cap ital. (C) 1998 Elsevier Science B.V. All rights reserved.