Handbook of Research on Venture Capital: Volume 2

Handbook of Research on Venture Capital: Volume 2

A Globalizing Industry

Handbooks in Venture Capital series

Edited by Hans Landström and Colin Mason

This Handbook charts the development of venture capital research in light of the global financial crisis, starting with an analysis of the current venture capital market and the changing nature of the business angel market. Looking at governance structures; the performance of venture capitalists in terms of investments, economic impact and human capital; geographical organization of business angels and venture capital global ‘hotspots’; this book also analyses the current state of venture capital research and offers a roadmap for the future.

Chapter 2: The changing nature of the angel market

Jeffrey Sohl

Subjects: business and management, entrepreneurship, economics and finance, corporate governance, economics of innovation, financial economics and regulation, innovation and technology, economics of innovation


It could be said that when Christopher Columbus set sail in 1492 for the trade route to the West Indies, he began not an epic journey, but rather launched the first angelbacked venture in the world. Certainly Queen Isabella and King Ferdinand represented wealthy individuals with an interest in financing a high-risk venture, they were seeking a financial return and without their financial backing the voyage would not have taken place. Fast forward 400 years to 1874, when the young Alexander Graham Bell needed money to complete his early experiments on the telephone. Bank officers thought that the idea of a telephone was a foolish one and the prevailing opinion was summarized in an editorial in the Boston Post: ‘well-informed people know it is impossible to transmit the voice over wires and that were it possible to do so, the thing would be of no practical value’. Besides, Mr Bell did not have a company with any tangible assets to provide collateral. Recognizing an opportunity, Boston attorney Gardiner Greene Hubbard and leather merchant Thomas Sanders of Salem, Massachusetts put up the equity capital to start the Bell Telephone Company of Boston (Sohl, 2003b). While still not identified as angel investors, a term that was not initiated until William Wetzel’s seminal article on angel investing in 1983 (Wetzel, 1983), wealthy individuals continued their search for investment opportunities when in 1878 Thomas Edison was in need of capital to commercialize the electric light bulb. J.P. Morgan and Spencer Trask spotted an opportunity and invested in Edison despite the view of Erasmus Wilson of Oxford that ‘when the Paris exhibition closes, electric light will close with it and no more will be heard of it’.

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