Do Business Angels’ Investments Make It Easier to Raise Follow‐on Venture Capital Financing? An Analysis of the Relevance of Business Angels’ Investment Practices

Capizzi, Vincenzo; Croce, Annalisa; Tenca, Francesca

doi:10.1111/1467-8551.12526

Cited by 23 publications

(8 citation statements)

References 101 publications

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“…We report a positive statistically significant effect only for those firms that have previous experience in collecting funds through alternative channels. This increases the confidence of the investor (Capizzi, Croce and Tenca, 2020 and references cited therein) and thus facilitates the funding process in turbulent times, such as the aftermath of a natural disaster. Regarding the control variables, it appears that when the state of the economy is good, there is a reduction in the amount collected by firms participating for the first time in an alternative finance funding round.…”

Section: Resultsmentioning

confidence: 99%

Alternative Finance after Natural Disasters

Baltas

Fiordelisi

Mare

2021

British J of Management

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In this paper, we show that alternative finance (e.g. private equity, crowdfunding and venture capital) is a key source of funding for firms that are affected by natural disasters. Using data on a large sample of US companies from 2010 to 2019, we provide robust empirical evidence that private funding increases within 3 months after the occurrence of a natural disaster. Panel data analysis at state level shows that extreme events cause at least an average increase of funding from alternative finance by 47% relative to firms in non-affected states. We also find that size, reliance on physical assets and age improve access to alternative finance after adverse natural events. Our empirical evidence highlights the key role of private lenders in providing financial resources to affected firms after extreme exogenous events. Disclaimer: This paper's findings, interpretations and conclusions are entirely those of the authors and do not necessarily represent the views of the World Bank, their Executive Directors or the countries they represent. We thank the editors of the British Journal of Management special issue: Douglas Cumming, Pawan Budhar and Geoffrey Wood. We would also like to thank the two anonymous referees for providing us with very constructive feedback and valuable comments. We thank for useful comments the participants at the conference on 'Entrepreneurial Finance in Honour of Mike Wright' and especially our discussant, Maimuna Akter.

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Section: Resultsmentioning

confidence: 99%

Alternative Finance after Natural Disasters

Baltas

Fiordelisi

Mare

2021

British J of Management

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“…As such financing instruments are less dependent on LP funding from financial institutions, one could expect the effect of the war to be lower. Nevertheless, a typical exit channel of a business angel is a VC investor (Capizzi et al, 2022), which could lead to an indirect cascade or trickle-down effect. Prior research on COVID-19 suggests that early-stage financing can be hit particularly hard in a situation of an exogenous shock (Brown & Rocha, 2020).…”

Section: Differences In the Effects Across Financing Instruments And ...mentioning

confidence: 99%

Entrepreneurial finance in Europe and the Russian war against Ukraine

Kraemer-Eis,

Block,

Botsari

et al. 2024

J Technol Transf

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Prior research has investigated how the prices of stocks and commodities as well as inflation levels have been affected by the Russian war against Ukraine. So far, however, we know little about the impacts of the war on the entrepreneurial finance sector. Prior research on the effects of unexpected exogenous crisis events on entrepreneurial finance suggests a strong negative impact on new and follow-on funding for entrepreneurial ventures. Our study regards the Russian war against Ukraine as an unexpected exogenous crisis event and explores its impact on the entrepreneurial finance sector. It goes beyond a mere sentiment and impact analysis and also explores the underlying reasons and mechanisms as well as potential response and coping strategies employed by entrepreneurial finance investors. Based on two surveys of European venture capital (VC) and private equity (PE) investors, we find that the war had a strong negative impact on the two types of investors and their respective funds. Both VC and PE investors report more risk-aversion of limited partners (LPs) and LPs leaving the market as important challenges resulting in an overall lower willingness of LPs to invest. This applies in particular to banks, insurance funds, and pension funds. On the portfolio firm level, securing equity financing and maintaining liquidity were considered pressing issues. Overall, the situation seems to be more difficult for portfolio companies of VC as compared to PE investors. For the former, the financing- and liquidity-related issues seem to be more existential and survival-threatening. Responding to these challenges, both VC and PE investors altered their industry focus and put more emphasis on entrepreneurial experience. Financial investment selection criteria such as financial valuation, profitability, and cash- as well as revenue-generating capacity also increased in importance. Again, differences between VC and PE investors exist. Our study has implications for entrepreneurial finance theory and practice and concludes with an agenda for research on the impacts of the Russian war against Ukraine on entrepreneurial finance.

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“…In this way, business angels may share their experience, market knowledge and access to networks. Such involvement may generate additional advantages at a later stage, for example, by increasing the ability to attract capital from VC funds [ 20 – 22 ]. Though this may be a general pattern [ 22 ], highlight heterogeneity in the ability to attract VC funding, e.g., related the selectivity, monitoring and affiliations of business angels.…”

Section: A Primer and Literature Reviewmentioning

confidence: 99%

“…Such involvement may generate additional advantages at a later stage, for example, by increasing the ability to attract capital from VC funds [ 20 – 22 ]. Though this may be a general pattern [ 22 ], highlight heterogeneity in the ability to attract VC funding, e.g., related the selectivity, monitoring and affiliations of business angels. Business angel involvement may also promote the survival of firms.…”

Section: A Primer and Literature Reviewmentioning

confidence: 99%

Business angels and firm performance: First evidence from population data

Andersson

Lodefalk

2023

PLoS ONE

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Business angels dominate early-stage investment in firms, but research on their effects on firms is scarce and limited by sample selection. To address sample selection, we propose using population data and we develop an algorithm for identifying business angel investments in such data. We illustrate this novel approach by applying it to detailed and longitudinal total population data for individuals and firms in Sweden. In our application, we focus on a subset of business angels—active business angels who are themselves successful entrepreneurs with a profitable exit. We then study active business angels’ effects on firm performance, using population data. Employing a quasi-experimental estimator, we find that the business angels invest in firms that already perform above par. There is also a positive effect on subsequent growth compared with control firms. However, contrary to previous research on business angels, we cannot find any impact on firm survival. Overall, the paper underlines the need to address sample selection when studying business angels and suggests using population data for identification.

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Do Business Angels’ Investments Make It Easier to Raise Follow‐on Venture Capital Financing? An Analysis of the Relevance of Business Angels’ Investment Practices

Cited by 23 publications

References 101 publications

Alternative Finance after Natural Disasters

Alternative Finance after Natural Disasters

Entrepreneurial finance in Europe and the Russian war against Ukraine

Business angels and firm performance: First evidence from population data

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