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The Importance of Angel Investing in Financing the Growth of Entrepreneurial Ventures

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  • Scott Shane

    (Weatherhead School of Management, Case Western Reserve University, 11119 Bellflower Road, Cleveland, OH 44106, USA)

Abstract

Investigation of the role of angel investing in financing private businesses in the US is important. Many observers consider angel investments to be one of the key drivers behind the startup and growth of new businesses (Council on Competitiveness, 2007), despite a paucity of information to confirm whether or not this is true. Unlike venture capital investments, angel investments are made by individual investors who do not make up a known population. Therefore, much of what is reported about angel investing comes from anecdotes and surveys of convenience samples, which are prone to biases and inaccuracies. Moreover, research on this topic is plagued by definitional confusion, in which different investigators confound informal investors, friends and family who invest in startups, accredited and unaccredited angel investors, and individual and group investing; this confusion makes it difficult to compare findings across studies. This report seeks to provide an accurate understanding of the role of angel investing in the entrepreneurial finance system. It defines angel investing and reviews the current state of understanding of the phenomenon, focusing on answering four questions: (1) How large is the angel capital market? (2) How much demand is there for angel capital? (3) What are the primary characteristics of angel investments? (4) What do the companies that receive angel financing look like? It answers these questions by reviewing the literature, providing a statistical evaluation of data sources drawn from representative samples of known populations, examining new non-representative surveys of angel investors, and comparing the results of these new analyses to previous studies of non-representative samples of business angels.

Suggested Citation

  • Scott Shane, 2012. "The Importance of Angel Investing in Financing the Growth of Entrepreneurial Ventures," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 2(02), pages 1-42.
    • Handle: RePEc:wsi:qjfxxx:v:02:y:2012:i:02:n:s2010139212500097
    DOI: 10.1142/S2010139212500097
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    References listed on IDEAS

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    1. Paul Davidson Reynolds, 2007. "Entrepreneurship in The United States," International Studies in Entrepreneurship, Springer, number 978-0-387-45671-3, December.
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    1. Michael E. Cummings & Alan Gamlen, 2019. "Diaspora engagement institutions and venture investment activity in developing countries," Journal of International Business Policy, Palgrave Macmillan, vol. 2(4), pages 289-313, December.
    2. Massimo Colombo & Annalisa Croce & Samuele Murtinu, 2014. "Ownership structure, horizontal agency costs and the performance of high-tech entrepreneurial firms," Small Business Economics, Springer, vol. 42(2), pages 265-282, February.
    3. Lele Cao & Vilhelm von Ehrenheim & Sebastian Krakowski & Xiaoxue Li & Alexandra Lutz, 2022. "Using Deep Learning to Find the Next Unicorn: A Practical Synthesis," Papers 2210.14195, arXiv.org, revised Jun 2024.
    4. Esho, Ebes & Verhoef, Grietjie, 2018. "The Funding Gap and the Financing of Small and Medium Businesses: An Integrated Literature Review and an Agenda," MPRA Paper 90153, University Library of Munich, Germany, revised 21 Nov 2018.
    5. repec:zbw:rwirep:0450 is not listed on IDEAS
    6. Edamisan Stephen Ikuemonisan & Taiwo Ejiola Mafimisebi & Igbekele Amos Ajibefun & Adeyose Emmanuel Akinbola & Olanrewaju Peter Oladoyin, 2022. "Analysis of Youth’s Willingness to Exploit Agribusiness Opportunities in Nigeria with Entrepreneurship as a Moderating Variable," Businesses, MDPI, vol. 2(2), pages 1-20, April.
    7. Fisher, Greg & Kuratko, Donald F. & Bloodgood, James M. & Hornsby, Jeffrey S., 2017. "Legitimate to whom? The challenge of audience diversity and new venture legitimacy," Journal of Business Venturing, Elsevier, vol. 32(1), pages 52-71.
    8. Galina Shirokova & Nailya Galieva & Joshua V. White & Diana Doktorova, 2024. "Narcissism, workaholism, family support and new venture performance: a moderated mediation model," Small Business Economics, Springer, vol. 63(1), pages 379-419, June.
    9. Anil Arya & Brian Mittendorf & Thomas Pfeiffer, 2021. "Incentive Provision in Light of Expertise and Operational Involvement of Angel Investors," Production and Operations Management, Production and Operations Management Society, vol. 30(9), pages 2890-2909, September.
    10. Vismara, Silvio, 2019. "Sustainability in equity crowdfunding," Technological Forecasting and Social Change, Elsevier, vol. 141(C), pages 98-106.
    11. Ünal, Cemre & Ceasu, Ioana, 2019. "A Machine Learning Approach Towards Startup Success Prediction," IRTG 1792 Discussion Papers 2019-022, Humboldt University of Berlin, International Research Training Group 1792 "High Dimensional Nonstationary Time Series".
    12. Massimo G. Colombo & Annalisa Croce & Massimiliano Guerini, 2014. "Does informal risk capital relax the financial constraints of high-tech entrepreneurial ventures?," Applied Economics Letters, Taylor & Francis Journals, vol. 21(5), pages 335-339, March.
    13. Anna Klabunde, 2013. "How Much Should an Investor Trust the Startup Entrepreneur? - A Network Model," Ruhr Economic Papers 0450, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    14. Wood, Matthew S. & Long, Anna & Artz, Kendall, 2020. "Angel investor network pitch meetings: The pull and push of peer opinion," Business Horizons, Elsevier, vol. 63(4), pages 507-518.
    15. Klabunde, Anna, 2013. "How Much Should an Investor Trust the Startup Entrepreneur? - A Network Model," Ruhr Economic Papers 450, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    16. Douglas Cumming & Minjie Zhang, 2019. "Angel investors around the world," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 50(5), pages 692-719, July.
    17. Sharon Poczter & Melanie Shapsis, 2018. "Gender disparity in angel financing," Small Business Economics, Springer, vol. 51(1), pages 31-55, June.
    18. Harrison, Richard T. & Bock, Adam J. & Gregson, Geoff, 2020. "Stairway to heaven? rethinking angel investment policy and practice," Journal of Business Venturing Insights, Elsevier, vol. 14(C).

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