In September Pitchbook published an insightful research on the role of angel investments in the startup ecosystem. It is quite clear from the research that not only business angels are essential for early stage financing, but they also make a positive contribution to the long-term startup success. The probability to raise follow-on rounds appears to be materially higher for companies whose first investment came from angels.

Probability of raising a follow-on round or reaching M&A/IPO

Such a significant difference is impressive but might be not intuitively obvious. I have two hypotheses somehow explaining this fact:

• At early stages a syndicate of strong business angels could be more helpful. Angels usually have a strong professional background and can help startup with necessary first customer introductions.
• Startups that decide to skip business angel round and raise more funding from VCs at the start, usually end up with higher post money valuation.