Abstract
Business angels are informal investors who collectively make-up the informal venture capital market (IVCM). Business angels represent the oldest and largest source of seed and start up equity capital for new entrepreneurial ventures in the US. An increasing role in the development of the US informal venture capital market is currently played by “angel groups”. These groups are increasing the professional level of the informal venture capital market as they establish and adopt clear routines and criteria for their operational activity. However, despite its importance and recent evolution, the informal venture capital market (both in US and in UK) is still far from be fully efficient. One of the most powerful 39 factors which fuels the inefficiency of the informal venture capital market is poor deal flow. Apart from the low quality of business plans, poor deal flow is fuelled by the fact that business angels do not see enough business plans that meet their investment criteria. The mismatch between the profile of investors and the nature of business plan lowers probability of matching between demand and supply and, in turn, fuels market inefficiency. Recent studies indicate that this mismatch is affecting not only individual investors but also angel groups. The present paper investigates the “mismatch problem” which affect US angel groups. Based on a content analysis of a sample of 28 US angel group Websites, the paper proposes an original framework which maps the main angel groups’ features by taking into account few behavioural dimensions. The output of a categorical principal component analysis is mapped on two dimensions that largely explain the main angel groups’ similarities and differences: the professional level, and the ethical mission of the angel groups’ members. One main implication for practice is that the map could be used as a useful tool for entrepreneurs looking for funding in order to meet the business angels’ investment criteria. In fact the map can help an entrepreneur to rapidly select the “right” angel group, taking into account a limited number of investors’ behavioural dimensions.References
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Sohl J., and Sommer B. 2002, “Angel Investment Activity: Bracing for the Downdraft”, Frontiers of Entrepreneurship Research.
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Stemler S. 2001, An overview of content analysis. Practical Assessment, Research &Evaluation, Vol. 7, N.17
Weber R. 1990, Basic Content Analysis, Sage.
Wetzel, W.E. jr., 1986, Entrepreneurs, angels, and economic renaissance. In R.D. Hisrich (ed.) Entrepreneurship, Intrapreneurship and Venture Capital (Lexington, MA: Lexington Books) 119-139.
Wetzel, W.E. jr., 1987, The informal risk capital market: aspects of scale and efficiency. Journal of Business Venturing, 2, 299-313.
Aernoudt R., 2005, Executive forum: seven ways to stimulate business angels’ investments. Venture Capital, 7: 359-371.
Bartholomew D. 1980, Factor Analysis for Categorical Data, Journal of the Royal Statistical Society, Series B (Methodological), Vol. 42, No. 3
Benjamin G.A. and Margulis J. 1996, Finding Your Wings: How to Locate Private Investors to Fund Your Business, New York, Wiley.
Berelson B. 1952, Content Analysis in Communication Research, Free Press.
Blatt, R. and Riding, A., 1996, Where angels fear to tread? Some lessons from the Canada Opportunities Investment Network. In R. T. Harrison and C. M. Mason (eds) Informal Venture Capital: Evaluating the Impact of Business Introduction Services (Prentice Hall, Hemel Hempstead) 75-88.
Cerullo, B. and Sommer, B., 2002, Helping Healthcare Entrepreneurs: A Case Study of Angel Healthcare Investors, LLC. Venture Capital, 4: 325-330.
Coveney, P. and Moore, K., 1998, Business Angels: Securing Start-Up Finance. Wiley, Chichester.
CVR, 2007, Full Year 2006 Angel Market Analysis Repost, Center Venture Research, available on http://wsbe2.unh.edu/analysis-reports-0.
Eban 2005, European Business Angel Network, Statistic Compendium, November, in www.eban.com.
Esposito, A. 2005, The Angel Investor Organizations and the Evolution of the Informal Venture Capital Market, Doctoral Thesis, Second University of Naples, Italy.
Esposito A. and Pratts J., 2004, La dinamica de la information en el mercado informal de capital riesco. Què sabemos Sobre Europa y Estados Unidos?, Iniziativa Emprendedora,
Numero 42, EdicionesDeusto, Barcelona.
EVCA, 2007, European Venture Capital Association, EVCA Barometer, issue 53, available on www.evca.com.
Feeney, L., Haines, G. H. and Riding A. L., 1999, Private investors’ investment criteria: insights from qualitative data. Venture Capital, 1: 121-145.
Fiet, J. 1995. Reliance upon informants in the venture capital industry. Journal of Business Venturing 10:195-223.
Freear, J., Sohl., J. and Wetzel, W.E. 1994. The private investor market for venture capital. The Financier 1:7-15.
Harding, R. 2000, Venture capital and regional development: towards a venture capital ‘system’, Venture Capital: An international journal of entrepreneurial finance 2(3):223-242.
Harrison, R.T., and Mason, C.M., 2000. Venture capital market complementarities: the links between business angels and venture capital funds in the UK. Venture Capital: An in-
ternational journal of entrepreneurial finance 2(3):223-242.
Kotler P., Kartajaya H., and Young S.D., 2004, Attracting Investors. A Marketing Approach to Finding Funds for Your Business (New Jersey: Wiley).
Krippendorff K. 1980, Content Analysis: An Introduction to Its Methodology, Sage.
Investor Pulse, 2003, UK Angel Attitude Survey. London, C2Ventures Ltd., www.c2ventures.com
Lange, J., Leleux, B. and Surlemont, B., 2003, Angel networks for the 21st century : an examination of practices of leading networks in Europe and the U.S.. The Journal of Private Equity, Spring, 18-28.
Mason, C. 2001. Report on Business Angel Investment Activity 1999/2000. London, UK: British Venture Capital Association.
Mason, C.M. 2006, Informal sources of venture finance, in S. Parker (ed) The Life Cycle of Entrepreneurial Ventures (Kluwer).
Mason, C. M. and Harrison, R. T., 1994, Informal venture capital market in the UK. In Finance and the Small Firm, (eds.) A. Hughes and D.J. Storey, Routledge, London, 64-111.
Mason, C. M. and Harrison, R.T., 1999, Public policy and the development of the informal venture capital market, in K.
Cowling (ed.) Industrial Policy in Europe: Theoretical
Perspectives and Practical Proposition (London: Routledge).
Mason, C. M. and Harrison, R. T., 2000, The Size Of The Informal Venture Capital Market in The United Kingdom. Small Business Economics, 15: 137-148.
Mason, C. M. and Harrison, R. T., 2002a, Barriers To Investment In The Informal Venture Capital Sector. Entrepreneurship and Regional Development, 14: 271-287
Mason, C.M. and Harrison, R.T., 2002, Barriers to investment in the informal venture capital sector. Entrepreneurship & Regional Development, 14, 271-287.
Mason, C. M. and Harrison, R. T., 2003, ‘Auditioning for money’: what do technology investors look for at the initial screening stage? Journal of Private Equity, 6 (2): 29-42.
Mason, C. M. and Harrison, R. T., 2004, Improving access to early stage venture capital in regional economies: A new approach to investment readiness. Local economy, 19 (2): 159-
173.
Mason, C. and Rogers, A. 1997, The business angel’s investment decision: an exploratory analysis, in D. Deakins, P. Jennings and C. Mason (eds) Entrepreneurship in the 1990s (London: Paul Chapman) 29-46.
May, J., 2002, Structured angel groups in the USA: The Dinner Club experience. Venture Capital, 4: 337-342.
McMillan S. 2000, The Microscope and the Moving Target: The Challenge of Applying Content Analysis to the World Wide Web, Journalism and Mass Communication Quarterly, Vol. 77, N.1.
MIT Entrepreneurship, 2000, Venture Support Systems Project: Angel Investors, Mit Entrepreneurship Center, Release 1.1, February.
NVCA, 2007, National Venture Capital Association, Industry Stats and News, available on www.nvca.org.
Paul, S., Whittam, G. and Johnston, J.B. 2003, The operation of the informal venture capital market in Scotland, Venture Capital: An international journal of entrepreneurial finance 5: 313-335.
Payne, W. H. and Mccarty, M. J., 2002, The anatomy of an angel investing network: Tech Coast Angels. Venture Capital, 4: 31-336.
Preston, S.L., 2004, Angel Investment Groups, Networks and Funds: A Guidebook to Developing the Right Angel Organization for Your Community, Kauffman Foundation, Kansas City.
Saetre, A.S., 2003, Entrepreneurial perspectives on informal venture capital. Venture Capital, 2, 71-94.
San Josè, A., Roure J. and Aernoudt, R., 2005, Business angel academies: unleashing the potential for business angel investment, Venture Capital, 7, 149-165.
Sohl, J. 1999. The early-stage equity market in the USA. Venture Capital: An international journal of entrepreneurial finance 1(2):101-120.
Sohl, J. 2003, The private equity market in the USA: lessons from volatility. Venture Capital: An international journal of entrepreneurial finance, 5 (1), 29-46.
Sohl, J. 2007, The Organization of the Informal Venture Capital Market, in (Ed.) H. Landström (Ed.), Handbook of research on venture capital, Edward Elgar Publishing, forthco-
ming.
Sohl J., and Sommer B. 2002, “Angel Investment Activity: Bracing for the Downdraft”, Frontiers of Entrepreneurship Research.
Sohl J., and Sommer B., 2003, Angel investing: changing strategies during volatile times, Working Paper, available at http://www.angelcapitalassociation.org/.
Sohl, J., Van Osnabrugge, M. and Robinson, R., 2000, Models of angel investing: portals to the early stage market, Frontiers of Entrepreneurship Research, Babson College.
Sorheim R., Landstrom H. 2001, Informal investors - A categorization, with policy implications, Entrepreneurship & Regional Development, 13, 351-370.
Sorrentino M. 2006, Venture capital informale e imprenditorialità innovativa, in Sinergie, n. 71.
Sorrentino M. 2008, Entrepreneurial issues in competitive strategy research, in G.B. Dagnino (ed.)., Handbook of Research on Competitive Strategy, Elgar, forthcoming.
Stemler S. 2001, An overview of content analysis. Practical Assessment, Research &Evaluation, Vol. 7, N.17
Weber R. 1990, Basic Content Analysis, Sage.
Wetzel, W.E. jr., 1986, Entrepreneurs, angels, and economic renaissance. In R.D. Hisrich (ed.) Entrepreneurship, Intrapreneurship and Venture Capital (Lexington, MA: Lexington Books) 119-139.
Wetzel, W.E. jr., 1987, The informal risk capital market: aspects of scale and efficiency. Journal of Business Venturing, 2, 299-313.
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