The transformation of the business angel market: empirical evidence and research implications

Abstract

Business angel investing -a key source of finance for entrepreneurial businesses -is rapidly evolving from a fragmented and largely anonymous activity dominated by individuals investing on their own to one that is increasingly characterised by groups of investors investing together through managed angel groups. The implications of this change have been largely ignored by scholars. The paper examines the investment activity and operation of angel groups in Scotland to highlight the implications of this change for the nature of angel investing. It goes on to argue that this transformation challenges both the ongoing relevance of prior research on business angels and current methodological practices, and raises a set of new research questions.

Institutional Seed Financing, Angel Financing, and Crowdfunding of Entrepreneurial Ventures: A Literature Review

“…Bonini et al, 2016;Brander et al, 2002;Capizzi et al, 2016;Goldfarb et al, 2014; to investing alongside one another (see e.g. Chahine et al, 2007;Goldfarb et al, 2014;Hellman and Thiele, 2015;Mason et al, 2016;. The more recent literature also identifies business angels as providers of capital for crowdfunding .…”

“…In other words, the behavior of informal venture capitalists, whether acting individually or together, remains underexplored in the preinvestment stage, partly due to the heterogeneity of these investors. Further, literature notes that this differentiation between individual and co-investments is vital as the processes applied by individuals is distinct from those of groups and networks Mason et al, 2016). In this section, we provide an overview of this research and identify research gaps.…”

“…Differences between business angels and venture capitalists Mason et al (2016) note that due to their differences, it is not easy for business angels to coinvest with institutional seed investors because of conflicting objectives. Venture capitalists seek to determine the right time to exit, which can pose a problem with co-investors (also see , specifically the findings on exit strategies and return expectations).…”

“…Business angels can also be former entrepreneurs or at least have had a career in management (Aernoudt 1999;De Clercq et al 2006;Politis, 2008; who contribute their contacts as well as know-how related to entrepreneurship and management De Clercq et al 2006;Mason 2006;Politis, 2008;. Angel investors, however, are found to be a highly heterogeneous community and also pursue varied processes when investing into start-ups Freear et al, 1994;Mason et al, 2016;Wetzel and Seymour, 1981). notes that the informal venture capital market is not transparent and yields numerous unanswered questions.…”

Crowdfunding: an introduction

“…Some suggest that receiving equity crowdfunding and along with it a 'crowd of shareholders' might deter subsequent investment from accredited investors (Babich et al, 2018). However, it also seems likely that crowdfunding enables entrepreneurs to raise smaller sums at earlier stages of their development, especially when venture capitalists, business angels and banks show decreasing interest in screening smaller deals and funding nascent ventures (Clark, 2014;Mason et al, 2016;Schwienbacher and Larralde, 2012;Tomczak and Brem, 2013). Some anecdotal evidence and empirical work suggest that reward-based crowdfunding campaigns might be used by entrepreneurs to demonstrate their market potential, and that a successful crowdfunding campaign may help to attract venture capital funding (Belleflamme et al, 2015;Roma et al, 2017).…”