Backing the horse or the jockey? Due diligence, agency costs, information and the evaluation of risk by business angel investors

This paper explores the argument that business angel investors are more concerned with managing and minimising agency risk than market risk. Based on data on the due diligence process from a survey of business angels in the UK, the paper concludes that business angels do view entrepreneur characteristics and experience as having the greatest impact on the perceived riskiness of an investment opportunity. Further, they emphasise personal and informal over formal sources of information in the due diligence process, and seek information on both the entrepreneur and the venture in determining valuation. Indeed, the reliance of business angels on short-term and subjective information to value investment opportunities leads to the conclusion that their approach to valuation is not a function of the conventional protocols of financial analysis, but of personal relations and assessment

Patient capital in entrepreneurial finance: a reassessment of the role of business angel investors

The debate on patient capital, particularly in the varieties of capitalism literature, concentrates on institutions and public markets. In this paper we take an entrepreneurial finance perspective to examine the investment attitudes and behaviours of business angels. These represent the biggest source of external risk capital for new and young growing companies and therefore play a critical role in entrepreneurial ecosystems. Drawing on both a detailed review of previous research on business angel investment time horizons, investor engagement and exit behaviour and new survey evidence we conclude that only a minority of angels could be defined as being exit-centric investors. It can be concluded that the vast majority of angels are patient investors in terms of investment intentions, engagement and exit behaviour, largely by default rather than intent. Most do not consider the exit at the investment appraisal stage nor the need for patience

Women on the edge of a breakthrough? A stereotype threat theory of women's angel investing

The extent to which women participate in the angel investment market has become an important topic of research and policy interest. Based on UK survey data, we demonstrate that there are systematic but not unequivocal differences between women and men investors on a number of key investor and investment characteristics. We also report indicative evidence that members of women-only networks do differ from women who join mixed networks. Drawing on these results, we develop a stereotype threat theory perspective on women’s angel investing which highlights the cues, consequences, outcomes and responses to stereotype threat. Specifically, we theorise that stereotype threat influences women’s widely reported lower participation in the angel investment market. In addition, stereotype threat theory helps explain both women’s overall active involvement in the angel investment market and their participation in women-only investor networks. We conclude that there is a case for women-only angel networks and training programmes to mitigate the performance and participation consequences of stereotype threat