Informal investors - A categorization, with policy implications

Abstract

A number of studies concerning informal investors have been carried out over the last two decades. One main conclusion from previous research has been that the informal venture capital market is very heterogeneous, and that classi® cations for informal investors are needed in order to more accurately depict the informal venture capital market. In this paper we propose that the market could be divided in accordance with the informal investors' investment activity and competence. The study is based on a sample of 425 active informal investors, divided into four diÚ erent categories: (1) Lotto investors; (2) Traders; (3) Analytical investors; and (4) Business angels. The empirical ® ndings show that there are considerable diÚ erences between the four categories of informal investors; diÚ erences regarding the information sources used, the level of ® rm involvement, co-investing, investment horizons, and geographic preferences, to name some examples. As a consequence, each of the various informal investor types responds diÚ erently to private and public prospects or motivators. It is suggested, therefore, that the informal venture capital market could be more eÚ ectively analysed and depicted by using the proposed classi® cations and applying diÚ ering measures to each informal investor category.

Business angel post-investment activities: a multi-level review

“…Still, they are a rather heterogeneous group in terms of investment activity and investment involvement (Sörheim and Landström 2001) as well as in their individual motivations for investing (Baty and Sommer 2002;Sullivan and Miller 1996).…”

Seeding new ventures – green thumbs and fertile fields: Individual and environmental drivers of informal investment

“…Visser and Williams, 2001) or some combination of the above (e.g. Freear et al, 1994, Stevenson andCoveney, 1994;Sørheim and Landström, 2001). We also build on previous research by utilizing a 31 country dataset.…”

“…Informal investors tend to identify investment opportunities through business and personal networks (Wetzel, 1981) and entrepreneurs seek investors who can provide access to social networks (Saetre, 2003). In contrast, individuals who have limited entrepreneurship and ownership experience have been termed "lotto investors" and tend to use the media to identify information (Sørheim and Landström, 2001). …”

“…The ability to perceive opportunities in the environment is linked to the propensity to become an entrepreneur (Reynolds et al, 2004) and an informal investor (Mason and Harrison, 2002a;Sørheim and Landström, 2001;Maula et al, 2005.…”

Free Enterprise and Entrepreneurship in Serbia: An Analysis of Motivations, Financing and Obstacles

“…From a global perspective, the overarching concern is that the majority of nations around the world have a reduction or shortage of risk capital; thus, limiting the development of new ventures in the economy (Sorheim and Landstrom, 2001;Brainard and LaFleur, 2005). Until recently, Serbia was under the strict control of the government.…”