June 8, 2005--Many venture capitalists feel that the involvement of angel investors in a start-up makes the company less attractive, suggests a new survey from the Center on Entrepreneurial Tech Transfer and Commercialization at George Washington University.

The survey, given to both venture capitalists and angel investors, found that even though 94% of venture capital respondents recognize the importance of angel investors in early stage financing, 52% said that angel involvement "sometimes" made a company unattractive.

The most common reason, according to 78% of venture capital respondents, was "unrealistic company valuation." Sixty-five percent also felt that angels made negotiation with a start-up more complicated, while 56% felt that angel investors were "unsophisticated" and did not understand what a company needed to attract institutional capital.

The results of the survey, especially with respect to valuation, are "not terribly surprising," according to Jeffrey Sohl, director of the Center for Venture Research at the University of New Hampshire. Angel investors have a greater incentive to value a start-up higher, in order to avoid share dilution, while venture capitalists prefer a lower valuation, in order to get more equity, he explains.

However, Sohl disagrees with the survey's findings that angel investors tend to be unsophisticated. He believes that many are "well, informed, cashed-out entrepreneurs."

The venture capitalists who responded to the survey at greater length threw up a plethora of other problems, such as angels did not provide sufficient funds to work through critical problems, or that angels could be so personally involved in the start-up that they had trouble handing over the company to venture capitalists.

Meanwhile, 58% of the angel respondents reported a negative experience with venture capitalists, with the most common complaint being that venture firms seldom considered the exit strategy or return on investment to angel investors.