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  • Series: Handbooks in Venture Capital series x
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Colin Mason

The chapter reviews the definition of business angels, stressing that love money and angel investing are conceptually different. It emphasises the key features of business angels: they are investing their own money, investing in private unquoted companies, investing directly and are motivated by commercial returns. However, the emergence of managed angel groups has challenged the continued validity of some aspects of this definition. The author then reviews the various ways in which researchers have sought to identify business angels, either for sampling purposes or to estimate the size of the market. Each of the sources reviewed has significant deficiencies. The author is therefore of the same view as Wetzel that the population of business angels ‘is unknown and probably unknowable’. However, he does see the emergence of angel groups as an important development, comprising a significant investment category in their own right and which is visible, in contrast to solo angels who operate informally and so remain largely invisible. He therefore advocates that efforts should be made to collect investment information from such groups on a regular basis.

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Sofia Avdeitchikova and Hans Landström

In the chapter the authors revisit one of the original topics in business angel research: to measure the scope of the business angel market and evaluate its impact on the economy, especially the financial contributions of business angels at the macro (market) level. This is an issue that has considerable policy relevance. Most policy initiatives to support business angel activities have been introduced without any strong empirical justification nor evidence to inform on the appropriateness of different types of policy measures. In this chapter, the authors summarize our knowledge about the size of the business angel market in different countries. The authors then turn their attention from the size of the market to its ‘significance’; in other words, shifting from a concern with measuring the size of the market to a concern with the relative importance of business angels for funding new and growing ventures in the economy. The authors propose two sets of indicators to evaluate the significance of the business angel market – one that focuses on the supply perspective, that is, the relative importance of business angel finance compared to other sources, and the other that focuses on the demand perspective, that is, the extent to which business angel finance is available in relation to the demand for capital in the small and medium-sized entrepreneur sector.

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Roger Sørheim and Tiago Botelho

Previous studies of business angels have shown that the population is very heterogeneous, with various studies developing typologies to describe different categories of investor. This chapter provides a critical review of previous research on business angel categorisations to highlight the key contributions. The authors note that previous studies have categorised business angels using a wide range of variables, mostly grouping investors according to investors’ characteristics and often derived from data rather than theory. The main contribution of these studies has been to develop a more sophisticated and nuanced view of the definition and behaviour of business angels – which breaks free from an oversimplified stereotypical view of business angels. However, in many cases the categorisations are fragmented, lacking a theoretical anchor, supply-side driven and rather static. The authors conclude that these studies have not significantly influenced policymakers and policies to target different categories of business angel.

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Frances M. Amatucci

Business angel investing has traditionally been a male-dominated activity. However, over time, there has been an increase in the total number of women business angels worldwide. The chapter provides a gender-based review of the changes occurring in the business angel market. Recent reports from the USA show a significant growth of the number of women business angels who are now estimated to represent 15–20 percent of the business angel market in the USA, but comprise a significantly lower proportion in other countries. The author argues that there are several barriers that can prevent women becoming business angel investors. For example, women are more conservative and less experienced investors, less likely to be ‘cashed-out’ entrepreneurs, with different social networks than men, and have different types of family responsibilities. When women become business angels they invest sectors that have often been overlooked by male business angels, and they tend to invest in women-led ventures. The author identifies a number of favorable trends that will continue to drive the growth in the number and proportion of women business angels. These include an increase in the number of high net worth women, an increase in the number of women-led angel investment funds and the proliferation of programs to train women business angels.

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Andrew Maxwell

From the entrepreneur’s perspective, attracting investment from a business angel (BA) is not an easy task. Of course, there are many reasons for this. The chapter argues that entrepreneurs need to understand what drives BAs and how they make investment decisions. Such understanding will improve their prospects of raising finance. Thus, the aim of the chapter is to summarize and synthesize the research on the BA’s investment decisions. In particular, the author focuses on recent research that has explored the critical stage of the investment decision process when the entrepreneur and business angel first meet.

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Diamanto Politis

Business angels are regarded as ‘smart’ investors who make added value contributions to their investee businesses that go beyond their financial investments. Most studies of the value added process provide empirical descriptions of the hands-on support provided by business angels. Consequently, a more comprehensive and theoretical overview of the process is lacking and theoretical progress remains slow. In the chapter the author provides a review and synthesis of the available research evidence on the hands-on involvement of business angels after they have made their investment. The analysis is based on a framework that comprises four interrelated dimensions of the value added process: behaviour, context, reception and impact. This results in three main themes that provide insights into the process of adding value. The first theme addresses the involvement of business angels in the ventures in which they invest and how this involvement translates into a set of potential value adding benefits. The second theme addresses how and to what extent the set of potential benefits that portfolio ventures receive may translate into benefits in the venture development process. The third theme addresses how situational contingencies may influence the value added of business angels.

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Veroniek Collewaert

Business angels are active investors who create long-term relationships with the entrepreneurs in the ventures in which they invest. However, in-depth knowledge on how business angels and entrepreneurs work together to create an effective investment relationship is lacking. Nevertheless, we know that the business angel–entrepreneur relationship is not always ‘rosy’ – there is also a dark side of the relationship in which various kinds of conflicts can arise. The chapter elaborates on this issue by providing a review on our knowledge about the conditions, triggers, contingencies and outcomes of conflicts in the business angel–entrepreneur relationship. The author shows that both extremes – the absence of conflict and extremely high levels of conflict – are rare in the business angel–entrepreneur relationship. When conflicts do occur, the causes have many roots, from scarce resources, personal differences, to goal incompatibilities. The impact of a conflict could have performance-related outcomes as well as individual affect- and attitude-related outcomes. The author recognizes that not all conflicts are equally good or bad – rather, it depends on the type of conflicts that occur and various moderating influences such as team and task characteristics.

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Jiani Wang, Yi Tan and Manhong Liu

The chapter elaborates on the business angel (BA) market in China, which has developed significantly since its emergence at the end of the 1990s. The increasing numbers of successful cashed-out entrepreneurs emerging from the Internet and high-tech has resulted in the emergence of angel investment. Currently, there are numerous angel groups and matchmaking services that have served to enhance the market. The authors show that the investment behavior of Chinese BAs is very similar to that in western countries, but Chinese BAs are younger, invest more infrequently and lack an understanding of BA investing. The authors also emphasize the need to understand the role of the government in the BA market in improving the regulation and environment of BA investments.

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William Scheela

Southeast Asia, which includes the emerging economies of Brunei, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, the Philippines, Thailand and Vietnam as well as the developed economy of Singapore, represents one of the most rapidly growing regions globally. Entrepreneurship has played a major role in this impressive growth. According to the Global Entrepreneurship Monitor, the population of these countries shows an above average intention to become entrepreneurs. But in spite of impressive economic growth and entrepreneurial activity, there have been very few studies on the impact of business angel (BA) financing. This lack of research arises because many BAs operate in the informal economy and hence prefer a low profile, making them even more invisible compared to their Western counterparts. In the chapter the author reviews the studies that have been conducted on the BA markets in Southeast Asia. He argues that BAs in Southeast Asia exhibit differences as well as similarities to their counterparts in Western economies. There are apparent similarities as most BAs are experienced and hands-on investors, actively use their networks and co-invest with other BAs. However, there are obvious differences, notably in terms of the absence of a fully developed institutional framework to support BA investing. Singapore is the exception in this respect with a business environment supported by well-developed institutions. The response of many BAs is to focus more strongly on family relationships, and be more socially focused in their investment strategy. An additional issue raised by the author is the definition of BAs. The traditional way of defining a BA seems to fit, except in Thailand and for the Chinese Filipinos who make what are more family-like investments. This raises concerns about the definition of a BA in studies that are conduced outside Western countries.

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David Lingelbach

Definitional concerns are an issue when researching business angels in sub-Saharan Africa. In the chapter the author focuses on this subject in his review of our knowledge of business angels in sub-Saharan Africa. He emphasizes the need to consider the institutional context and the heterogeneity between countries as well as the differences from Western countries. He argues that the recent increase in gross domestic product growth in several African economies, combined with a slow reduction in the level of violence, has contributed to an increase in entrepreneurial activity and, as a consequence, we can expect an increase in business angel investments. However, these activities will not mimic the behavior of BAs in developed economies, but will evolve a practice that is suited to local conditions. National levels of business angel investing activity are likely to continue to vary, influenced by formal and informal institutions.