Strategy Selection in Business-Angel Networks: Venture-capital strategy and Entrepreneurial Business-Angel Strategy

Access to capital is an area of greatest concern for the survival and development of most firms. Although entrepreneurs provide almost two-thirds of the seed and start-up capital for their new ventures (Bygrave and Hunt 2005), individual resources only last so long; by the time a firm is ready for expansion, the need for additional capital is often relatively large. There is a particular need for equity capital (Aernoudt et al. 2007), and research has demonstrated that early-stage equity capital is the scarcest resource for emerging enterprises (Tucker and Lean 2003). Business angels and venture capital have become the institutionalized forms of equity capital available for early-stage financing. In general, business angels invest in earlier phases than do venture capitalists, but both sets of actors have developed investing models, the venture capital one being more formalized and standardized, although the basic principles remain common to both. Furthermore, business angels may have additional motives apart from profit-maximizing for investing, such as altruism (Maula et al. 2005). In recent years, business angels have become somewhat more formalized through the increased use of syndication and business-angel networks. Although there is growing research in the fields of both venture capital and business angels, there is relatively little research into business-angel networks (exceptions include Aernoudt and Erikson 2002; San José et al. 2005; Sörheim 2005). In addition, there is an overall scarcity of studies of business angels focusing on the investing process, so-called second-generation studies (Freear et al. 2002).