We analyze an entrepreneur’s choice between angel and venture capital (VC) financing in a competitive investment market, where the entrepreneur seeks to maintain his ownership share as well as equity value. The key to our analysis is the idea that a negative signal is inferred by the market if an inside investor chooses not to follow on a subsequent investment. We first show that when ventures are ex-ante identical, entrepreneurs retain higher ownership shares by financing with angel investors who commit to not participate in a future round. When entrepreneurs are ex-ante heterogeneous, there is a separating equilibrium where entrepreneurs with higher (lower) likelihoods of success choose VC financing (angel financing) in the first round.

We study the information-gathering role of a startup accelerator and consider the accelerator's incentives to choose a portfolio size and disclose information about participating ventures. We show that in a rational-expectations equilibrium, the resultant portfolio size is smaller than the first-best (efficient) level, consistent with some real-world observations. We further show that when some signals are uninformative and the portfolio consists of mostly high-quality ventures, the accelerator may choose to disclose only positive signals (and conceal negative signals) about its portfolio firms — a strategy we refer to as partial disclosure. Moreover, coupled with pursuing this strategy of partial disclosure, we demonstrate that the accelerator may possess incentives to exit its portfolio firms early.