Angel investing in an austerity economy – the take-up of government policies in Portugal

Abstract

Business angels (BAs) are recognized as playing a significant role in stimulating entrepreneurial activity. With the decline in both bank lending and venture capital investment since the onset of the global economic crisis, government efforts to stimulate BA activity have become a more significant component in strategies to increase the level of entrepreneurial activity. This paper examines the responsiveness of angels to such initiatives in so-called austerity economies – countries that were hardest hit by the financial crisis of 2008 and subsequent global recession and, as a consequence, had to take extreme economic and fiscal measures to reduce their budget deficits. We examine this question in Portugal which experienced one of the deepest recessions in the European Union following the implementation of severe austerity measures. This study confirms that government intervention to support angel investing can have a positive impact. However, the different types of intervention have varied in take-up rates. Other countries can learn from the Portuguese experience in three ways: the types of interventions that have the highest and lowest levels of take-up, the link between the design and the take-up of incentives, and types of intervention that should be considered but have not been implemented in Portugal

Venture capital and government involvement from a qualitative systematic literature review perspective

“…A group of articles analyzed the governmental response to the crisis by various countries. Bilau et al (2017) analyzed the governmental response in Portugal to the 2008 crisis focusing on the support of business angels, Baldock -Mason (2015) and Wray (2015) dealt with the UK response. The EU VC programmes provided the relevance to the articles of Karsai (2018) and Grilli -Murtinu (2014).…”

“…There are papers which investigated specific problems in a particular European country. Bilau et al (2017) aimed to uncover whether business angels continue to invest during an economic crisis and how successful were policies of Portugal in promoting angel investing in the 3.4.4. Australia.…”

“…The government provides business angels with funding that can be spent through a co-investment scheme. The business angels in Portugal expressed that they prefer this type of governmental intervention (Bilau et al 2017). Avnimelech et al (2007) found that the venture capital backed companies, which priorly received support from governmental incubators, had significantly improved results over those, which did not.…”

“…Long-term governmental financial support is in demand worldwide: Tucker (2011) in Canada; Gill (2015) in the UK, Wonglimpiyarat (2011) in Thailand and Cohen et al (2012) in Israel. Governments need to apply incentives such as tax incentives and positive policy initiatives, comprehensive innovation financing programmes (Wonglimpiyarat 2011), fiscal incentives to encourage investments by reinvestment and tax relief (Bilau et al 2017;Grilli -Murtinu 2014).…”

“…The government should focus on improving the efficiency of the investments. Bilau et al (2017) based on their survey in Portugal suggested that the government should focus on educating the entrepreneurs rather than on organizing workshops and forums where financers and young companies can meet. Cohen et al (2012) found the Israeli high-tech industry's dependence on foreign investors (mainly US) problematic therefore the government should try to remove the obstacles between Israeli institutional investors and the high-tech sector.…”