The role of the exit in the initial screening of investment opportunities: The case of business angel syndicate gatekeepers

Abstract

Mason, C., and Botelho, T. (2016) ABSTRACT. The exit process has been largely ignored in business angel research.. The practitioner community identifies the difficulty in achieving exits as the most pressing problem for investors. This has been attributed to the failure of investors to adopt an exitcentric approach to investing. The validity of this claim is examined via a study of the investment approach of 21 'gatekeepers' (managers) of angel groups in Scotland and Northern Ireland. Most gatekeepers say that they do consider the exit when they invest. However, this is contradicted by a verbal protocol analysis which indicates that the exit is not a significant consideration in their initial screening process. The small number of exits achieved by the groups is consistent with the general lack of an exit-centric approach to investing. Only three groups exhibit evidence of a strong exit-centric approach to investing. The lack of exits may have a negative impact on the level of future angel investment activity.

Factors That Determine the Closure or Jeopardize the Continuity of a Micro and Small Enterprise

“…Those of us who have had the opportunity to open an MSE are filled with the dream of being successful and prosperous but what factors impact on the development of an enterprise (Mir & Feitelson, 2007)? What leads us to make the decision to close it (Mason & Botelho, 2016)? The purpose of this study is to analyze the factors that determine the closure or that jeopardize the continuity of MSEs, and to compare the enterprises that do not see themselves at any risk of closure with enterprises that are active and have a high risk of closing and those that have already closed.…”

Using the business model canvas to improve investment processes

“…The business angels were invited according to their interest in the industry within which the entrepreneurs were operating or planned to operate. This would ensure a preliminary fit and interest between the investor and investee, as found in normal investment network contexts (e.g., Mason and Botelho, 2016). In this way, each investment meeting had between one and five business angels and one to three entrepreneurs presenting at each meeting.…”

Fostering markets for SME finance: Matching business and investor needs

“…The practitioner community has indeed identified the difficulty in achieving exits as among the most pressing problems for investors. Angel investors notably state that there is now a major problem in achieving timely exits, with the length of time to exit having risen considerably in recent years, reportedly from three years in 2005 to about ten years or more in 2013 (Mason and Botelho, 2014). Such long time horizons hold back angels from re-investing in new companies and are also likely to be a source of concern for existing and potential new angels.…”

“…Programmes aimed to boost the availability and uptake of certain alternative sources of finance for SMEs will probably continue to struggle with raising interest from investors as long as there are few ways to realise a profit and sell the investment. Timely exits with positive returns on the other hand are likely to attract new potential investors and generate liquidities for further investments; they are thus a major determinant of a vibrant entrepreneurial ecosystem (Mason and Botelho, 2014).…”

“…Instead, the limited overall selection effect coupled with the prevalent equity style behaviour, where firms are mostly funded above a given threshold; suggest that there is a fragmented market with respect to the supply of critical resources. Regarding finance, this results in constraints on funding usually being at higher levels (mostly at EUR 300 000 or more), while for smaller investments there even seems to be an overlap between different instruments and overall few suitable firms to invest in (Mason and Botelho, 2014). These critical resources extend beyond finance, however, and also include, for instance, managerial expertise (in both recipient firms and VC funds), as well as sufficient availability of high-quality, investment-ready firms and projects.…”