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Business angels and love money investors: segments of the informal market for risk capital

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  • Allan L. Riding

Abstract

This empirical study reports that returns on informal investments made by business angels are significantly higher than those made by non-angels. However, rates of return on informal investments made by friends and family members of business founders are, on average, dismal. This finding reinforces warnings that it may be counterproductive for public policy to encourage ‘amateur’ informal investors, yet stimulation of value-adding business angel investment seems well advised. The relative sizes, in terms of the annual flow of investment funds, in the main segments comprising the informal market were estimated. Love money accounts for more than three times as much annual investment as business angels, who in turn invest more than twice as much annually -- and in many more firms -- as institutional venture capitalists.

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  • Allan L. Riding, 2008. "Business angels and love money investors: segments of the informal market for risk capital," Venture Capital, Taylor & Francis Journals, vol. 10(4), pages 355-369, June.
    • Handle: RePEc:taf:veecee:v:10:y:2008:i:4:p:355-369
    DOI: 10.1080/13691060802351222
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    Cited by:

    1. Suret, Jean-Marc, 2010. "Le financement des entreprises en démarrage et en croissance : le point de la situation," L'Actualité Economique, Société Canadienne de Science Economique, vol. 86(3), pages 385-411, septembre.
    2. Nadine Levratto & Luc Tessier & Cecile Fonrouge, 2018. "Business performance and angels presence: a fresh look from France 2008–2011," Small Business Economics, Springer, vol. 50(2), pages 339-356, February.
    3. Ross Brown & Suzanne Mawson & Neil Lee & Lauren Peterson, 2019. "Start-up factories, transnational entrepreneurs and entrepreneurial ecosystems: unpacking the lure of start-up accelerator programmes," European Planning Studies, Taylor & Francis Journals, vol. 27(5), pages 885-904, May.
    4. Szerb, László & Bugár, Gyöngyi, 2015. "Informális befektetési hajlandóság és döntéshozatal a magyar lakosság körében [The propensity for informal investment and investment decision-making in Hungary]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(4), pages 356-378.
    5. Sebastian Schmidt & David Bendig & Malte Brettel, 2018. "Building an equity story: the impact of effectuation on business angel investments," Journal of Business Economics, Springer, vol. 88(3), pages 471-501, May.
    6. Fei Qin & Tomasz Mickiewicz & Saul Estrin, 2022. "Homophily and peer influence in early-stage new venture informal investment," Small Business Economics, Springer, vol. 59(1), pages 93-116, June.
    7. Lars Hornuf & Matthias Schmitt & Eliza Stenzhorn, 2022. "The local bias in equity crowdfunding: Behavioral anomaly or rational preference?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(3), pages 693-733, August.
    8. Györfy Lehel & Madaras Szilárd, 2020. "Influencing Factors of the Informal Investment in Central Europe," Economics and Business, Sciendo, vol. 34(1), pages 78-91, February.
    9. Sylvain Dejean, 2020. "The role of distance and social networks in the geography of crowdfunding: evidence from France," Regional Studies, Taylor & Francis Journals, vol. 54(3), pages 329-339, March.
    10. Solodoha, Eliran & Rosenzweig, Stav & Harel, Shai, 2023. "Incentivizing angels to invest in start-ups: Evidence from a natural experiment," Research Policy, Elsevier, vol. 52(1).
    11. Maxwell, Andrew L. & Jeffrey, Scott A. & Lévesque, Moren, 2011. "Business angel early stage decision making," Journal of Business Venturing, Elsevier, vol. 26(2), pages 212-225, March.
    12. Butticè, Vincenzo & Croce, Annalisa & Ughetto, Elisa, 2021. "Network dynamics in business angel group investment decisions," Journal of Corporate Finance, Elsevier, vol. 66(C).
    13. Zhujun Ding & Sunny Sun & Kevin Au, 2014. "Angel investors’ selection criteria: A comparative institutional perspective," Asia Pacific Journal of Management, Springer, vol. 31(3), pages 705-731, September.
    14. Peter Wirtz & Christophe Bonnet & Laurence Cohen & Christophe Haon, 2020. "Investing Human Capital: Angel Cognition and Active Involvement in Business Angel Groups," Grenoble Ecole de Management (Post-Print) halshs-02374570, HAL.
    15. Valérie Revest & Alessandro Sapio, 2012. "Financing technology-based small firms in Europe: what do we know?," Small Business Economics, Springer, vol. 39(1), pages 179-205, July.
    16. Polzin, Friedemann & Sanders, Mark & Stavlöt, Ulrika, 2018. "Do investors and entrepreneurs match? – Evidence from The Netherlands and Sweden," Technological Forecasting and Social Change, Elsevier, vol. 127(C), pages 112-126.
    17. Engineer, Merwan H. & Schure, Paul & Vo, Dan H., 2019. "Hide and seek search: Why angels hide and entrepreneurs seek," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 523-540.
    18. Antretter, Torben & Sirén, Charlotta & Grichnik, Dietmar & Wincent, Joakim, 2020. "Should business angels diversify their investment portfolios to achieve higher performance? The role of knowledge access through co-investment networks," Journal of Business Venturing, Elsevier, vol. 35(5).
    19. Marc Cowling & Ross Brown & Neil Lee, 2021. "The geography of business angel investments in the UK: Does local bias (still) matter?," Environment and Planning A, , vol. 53(5), pages 1180-1200, August.

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