Angel finance: the other venture capital

Abstract

The procurement of capital is an important consideration for an entity transforming from an entrepreneurial idea to a revenue generating company. Angel financing is one of the most common, but least studied methods, to finance new ventures. The term “Angel Investor” generally refers to a high net‐worth individual who typically invests in small, private firms on his or her own account. Using a unique dataset of firms financed by angels between 1994 and 2001, our research provides some insight into the role of angels in funding, monitoring and guiding their investments. Although exposed to greater uncertainty by investing earlier in the life of a firm compared to venture capital investors, angel investors do not rely on traditional control mechanisms such as board control, staging, or contractual provisions to protect against expropriation. Angels may use more informal methods of control such as investing in close geographic proximity and syndicating investments with other angels to mitigate risks. The results of the study indicate that angels have a complementary role to venture capital in the financing of new ventures. Copyright © 2009 John Wiley & Sons, Ltd.

Micro‐equity and social entrepreneurship from a venture capital perspective

“…Theoretically, venture capital and business angels make money by selecting appropriate firms after examining business plans, aligning incentives, guiding the entrepreneur to achieve this scale, and exiting. However, the literature differentiates the informal procedures adopted by business angels who are in an earlier‐stage investment position than venture capital funds: often angels may finance before the firm starts selling (Sohl, 1999; Wong et al ., 2009). Although business angels provide lower investments individually than venture capital, the total size of the business angel investment market is considered to be much larger (Hindle and Wenban, 1999; Sohl, 1999; Wong et al ., 2009).…”

“…However, the literature differentiates the informal procedures adopted by business angels who are in an earlier‐stage investment position than venture capital funds: often angels may finance before the firm starts selling (Sohl, 1999; Wong et al ., 2009). Although business angels provide lower investments individually than venture capital, the total size of the business angel investment market is considered to be much larger (Hindle and Wenban, 1999; Sohl, 1999; Wong et al ., 2009). A number of studies look at the profile of business angels in terms of gender, education, wealth, previous start‐up experience, previous management experience, percentage of capital invested in ventures (Hindle and Wenban, 1999; Wong et al ., 2009).…”

“…Although business angels provide lower investments individually than venture capital, the total size of the business angel investment market is considered to be much larger (Hindle and Wenban, 1999; Sohl, 1999; Wong et al ., 2009). A number of studies look at the profile of business angels in terms of gender, education, wealth, previous start‐up experience, previous management experience, percentage of capital invested in ventures (Hindle and Wenban, 1999; Wong et al ., 2009). Although some studies divide angels into categories such as big ($200,000) or small ($20,000) (Hindle and Wenban, 1999), no one seems to have studied micro (as low as $10 per month pooled together to invest $1,000 after a few months).…”

Guidelines for e-Startup Promotion Strategy

“…There are several reasons new companies find it difficult just staying in business, with the ability to raise capital cited as the primary cause of failure, followed by bureaucracy and strong competition (Schwienbacher & Larralde, 2010;Wong, Bhatia, & Freeman, 2010;Kortum & Lerner, 2000;Sohl & Rosenberg, 2003;Magri, 2009). In fact company's growth (and survival) is highly correlated with the ability to raise new funds, but only startups with a large potential market and remarkable KPIs (e.g.…”

“…In fact company's growth (and survival) is highly correlated with the ability to raise new funds, but only startups with a large potential market and remarkable KPIs (e.g. number of daily users, transactions) are attractive for investors (Wong, Bhatia, & Freeman, 2010;Schwienbacher & Larralde, 2010). Furthermore many other aspects impact on the fund rising capabilities: intellectual capital (Alberghini, Cricelli, & Grimaldi, 2013;Steenkamp & Kashyap, 2010;Tan, Plowman, & Hancock, 2008;Zerenler, Hasiloglu, & Sezgin, 2008), entrepreneur experiences (Lasch, Le Roy, & Yami, 2007;Song, Bijl van der, & Halman, 2008) and innovation (Groenewegen & de Langen, 2012;Maldonado, Dias, & Varvakis, 2009) are all key drivers as well as their promotion capabilities (Magri, 2009).…”