Absent Agency Problems, Can Conflict Emerge between a Pre-Existing Angel Investor, and an Entering Venture Capitalist?

Suppose absence of agency problems in interactions between a representative angel investor who already is invested in a project (a 'pre-existing' angel investor), and a representative `entering' venture capitalist who provides a new infusion of capital into the same project. This study finds that there exist conditions in context of which conflict emerges, and this with possibility of nigh certainty, between the angel investor, and the venture capitalist (VC). Let the 'conditional relative skewness' for a project be evident in the specific location of the project in the distribution of conditional skewness accruing to all projects that are located in the investment opportunity set of the pre-existing angel investor. Conditional on transformation of a project to a higher risk project by an entering VC, the probability of emergence of legitimate conflict is a decreasing function of conditional relative skewness. Refer to this probability as the 'risk-induced probability of conflict'. The risk-induced probability of conflict increases with the extent to which the entering VC is characterized by either of preference for lotteries, or 'information myopia', and asymptotically approaches one. The general equilibrium model shows maintenance of the risk profile that was established prior to participation of the VC ensures non-emergence of conflict between the entering VC, and the pre-existing angel investor.