Why business angels reject investment opportunities: Is it personal?

Abstract

A major focus of research on business angels has examined their decision-making processes and investment criteria. As business angels reject most of the opportunities that they receive, this article explores the reasons informing such decisions. In view of angel heterogeneity, investment opportunities might be expected to be rejected for differing reasons. Two sources of data are used to examine this issue. Face-to-face interviews with 30 business angels in Scotland and Northern Ireland provided information on typical 'deal killers' This was complemented by an internet survey of UK that attracted responses from 238 UK business angels. The findings confirm that the main reason for rejection relates to the entrepreneur/management team. However, angel characteristics do not explain the number of reasons given for opportunity rejection nor do they predict the reasons for rejecting investment opportunities. This could be related to the increasing trend for business angels to join organized groups which, in turn, leads to the development of a shared repertoire of investment approaches. We suggest the concept of 'communities-of-practice' as an explanation for this finding.

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

“…Moreover, there is evidence (Mason and Botelho 2014;Botelho, Mason, and Tagg 2015a) that members of angel groups are likely to be influenced in their investment decision either by the gatekeeper or other group members. Given evidence that business angels learn from the experience of others (Harrison, Smith, and Mason 2015) and consequently may change the way they invest (Botelho, Mason, and Tagg 2015b) it may be, as suggested by Mason, Botelho, and Zygmunt (2016), that the emergence of angel groups is creating a unique opportunity for situated learning, potentially resulting in the emergence of a 'community of practice' (lave and Wenger 1991) with a shared repertoire of approaches to investing, resulting in a growing standardisation of investment assessment.…”

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

“…However, management-related factors, specifically the quality of the entrepreneur, appear to play a major part in the investment decision (MacMillan et al 1985). Furthermore, concern about the entrepreneur is the overwhelming reason why angels reject investment opportunities (Mason et al, 2016). For a number of commentators this has prompted the use of a racing analogy: 'there is no question that irrespective of the horse (product), horse race (market), or odds (financial criteria), it is the jockey (entrepreneur) who fundamentally determines whether the venture capitalist will place a bet at all ' (Macmillan et al 1985, 119).…”

“…The second step can be considered as the most critical since there are no objective independent techniques to analyse the data (Bainbridge and Sanderson, 2015). To ensure validity and reliability of the coding the thought units were categorised using an elaboration of an established coding scheme (Zacharakis and Meyer 1995;Harrison et al 2015;Mason and Botelho, 2016). All the transcriptions were independently coded by two authors.…”

Limitations on the Activity of Business Angels in Financing Startups

“…The lack of faith and trust in the founder or board of the enterprise as well as lack of motivation and faith in the success of the enterprise, in the management team, or a weak entrepreneurial spirit are also a limitation of the activity of business angels [Maxwell and Lévesque 2014, Murnieks et al 2016, Warnicki et al 2018. Croce et al [2016] and Mason et al [2017] indicate that, among the limitations on investment activity of business angels, is a lack of experience and business competences of founders or startups in raising funds from business angels, including lack of knowledge of so-called investment readiness, which is the capacity of an enterprise to understand and meet the specific needs and expectations of investors [Aminoff 2018]. According to Carpentier [2015], if a startup is not managed by a management team with industry-related competence, it will not get financing by business angels.…”