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Article
Publication date: 21 December 2020

Garrison Hongyu Song and Ajeet Jain

This paper aims to explore the allocation of the exit value of a start-up company in market equilibrium between an angel investor and an entrepreneur in the very…

Abstract

Purpose

This paper aims to explore the allocation of the exit value of a start-up company in market equilibrium between an angel investor and an entrepreneur in the very early-stage financing market.

Design/methodology/approach

The theoretical model is established based on the two-sided random search theory and the model’s ability to match the empirical data is evaluated via simulation.

Findings

The model indicates that the allocation of the final investment outcome is not proportional to the initial investments by the angel investor and the entrepreneur. The simulation results show that the continued investment by the entrepreneur and the private benefit acquired by the angel investor have a more profoundly negative influence on the angel investor’s share of the exit value of the start-up company. Moreover, the market search structure represented by the matching probability of an angel investor to an entrepreneur has a more significant impact on the angel investor’s share than the other model parameters.

Originality/value

The importance of market search friction in the very early-stage financing market is emphasized. The concepts of continued investments and private benefits are introduced and quantified for the first time under the framework of angel investment. The impacts of such model parameters as the matching probability of an angel investor to an entrepreneur, the success rate of a start-up company, the bargaining power of an angel investor and the discount rate on the allocation of the exit value of the start-up company are investigated as well.

Details

Studies in Economics and Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 20 March 2017

Jaume Argerich and Claudio Cruz-Cázares

The lack of a standard definition and data sources makes it hard to compare findings and advance our knowledge in the business angel’s domain. The purpose of this paper is…

Abstract

Purpose

The lack of a standard definition and data sources makes it hard to compare findings and advance our knowledge in the business angel’s domain. The purpose of this paper is to tackle this problem by presenting a proposal of a potential definition of business angels that it based on ten issues identified in 30 years of business angels’ research.

Design/methodology/approach

The paper reviews 24 studies on business angels and classifies definition inconsistencies found in ten different issues. Those differences are compared with methodological choices on sampling and with subsequent results.

Findings

The authors observe a connection between definitional and sampling choices, and the results obtained. Inconsistent definitions can lead to results that are more than 400 times higher in terms of investment per project, for example.

Research limitations/implications

The authors believe that the main implication of proposing a standard definition of business angles could help the academia in decreasing the great observed diversity which is actually leading to inconsistent and incomparable results that limit our understanding of this phenomenon.

Originality/value

This paper differs from previous studies as it tackles the problem by identifying the definitional issues and presents a framework in order to build a consensus definition, rather than just comparing definitions.

Details

Management Decision, vol. 55 no. 2
Type: Research Article
ISSN: 0025-1747

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Book part
Publication date: 23 July 2020

Bryan Cataldi and Tom Downen

Private company investors operate in unique environments. Seed equity investors, which generally include venture capitalists and angel investors, often have the…

Abstract

Private company investors operate in unique environments. Seed equity investors, which generally include venture capitalists and angel investors, often have the particularly unusual role of becoming involved in the oversight of the investee company. This continuing involvement with the investee firm introduces conflicting interests: the desire to maximize the profit from the investment, but also the desire to maintain a positive relationship with the entrepreneur(s) (consistent with the theory of upper echelons/strategic management). We discuss in detail this unusual investment context and the role that accounting disclosures can have in this environment. We predict that accounting disclosures can influence the tradeoff between the profit motive and the relationship motive. Using 64 experienced angel investors as participants in a realistic experimental setting, we find that disclosures indicating conservatively biased accounting choice and lower account risk (variance) lead to angels increasing the valuation of the target firm and forgoing higher profits. Increasing the valuation serves to foster the relationship with the entrepreneur(s). Our findings have implications for entrepreneurs making choices about discretionary disclosures and for standard setters; we also inform theory related to overcoming anchoring.

Details

Advances in Accounting Behavioral Research
Type: Book
ISBN: 978-1-83867-402-1

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Article
Publication date: 3 October 2016

Michael B. McDonald and Ramon P. DeGennaro

The purpose of this paper is to examine the literature on angel investors. Research on angel investors is sparse because data are sparse. Most comprehensive studies of…

Abstract

Purpose

The purpose of this paper is to examine the literature on angel investors. Research on angel investors is sparse because data are sparse. Most comprehensive studies of angel investors have focused on the USA and UK. In these studies, definitions of angel investors and estimates of returns on angel investments vary dramatically. What can one make of this wide range of reported returns?

Design/methodology/approach

The authors examine the literature and find that the calculations of reported results are vague.

Findings

Most researchers do not explicitly report if their estimates are equal-weighted or value-weighted, nor do they say whether the results are weighted by the duration of the investment. The authors show that the unit of analysis – investment, project or angel – affects interpretations.

Practical implications

Limitations on the comparability between various studies of angel investing returns leave the current literature incomplete. They also offer opportunities for future study in the area.

Originality/value

The authors are the first to examine the angel investing literature in a comprehensive fashion, comparing between various returns found across all major studies of the subject done to date.

Details

Studies in Economics and Finance, vol. 33 no. 4
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 5 March 2018

Gianni Romaní, Miguel Atienza, Felipe Campos, Pablo Bahamondes and Rodrigo Hernández

The purpose of this paper is to identify and analyse the characteristics of high net worth individuals (HNWI) as potential angel investor in Antofagasta, the main mining…

Abstract

Purpose

The purpose of this paper is to identify and analyse the characteristics of high net worth individuals (HNWI) as potential angel investor in Antofagasta, the main mining resource periphery in Chile.

Design/methodology/approach

Using the resource periphery approach and angel investing, the authors apply a survey to a sample of 37 HNWI in this region. The data collected were analysed using descriptive statistics.

Findings

Descriptive results show that the characteristics of these individuals do not significantly differ from those exhibited by angel investors in developed countries and that HNWI show a relative high willingness to become angels and to form a network.

Research limitations/implications

This paper has some limitations regarding the size and scope of the sample. It is a relatively short sample that does not allow to make more sophisticated analysis and it is only regional and, therefore, it is not possible to make a comparison at a national level.

Practical implications

From the perspective the design of policies and programmes oriented towards the promotion of a high potential start-ups in resources peripheries, it is essential to know what the characteristics of HNWI are and their propensity to become angel investors.

Originality/value

Research on angel investment has been traditionally based on the experience of core regions in developed countries. This type of funding source, however, can play a significant role in the promotion of development and diversification in resource peripheries due to the limited access that these areas have to traditional capital funds and the orientation of angel investment towards innovative ventures, but studies from this perspective are very scarce. In this sense, this paper is pioneer in this topic in peripheral regions.

Propósito

El objetivo de este artículo es identificar y analizar las características de las personas con alto patrimonio neto como potenciales inversionistas ángeles en Antofagasta, la principal fuente de recursos minerales en la periferia de Chile.

Diseño/metodología/enfoque

A través del enfoque de las periferias de los recursos naturales y la inversión ángel, se aplicó una encuesta a una muestra de 37 personas con alto patrimonio neto en esta región. La información recogida fue analizada usando estadística descriptiva.

Hallazgos

Los resultados muestran que las características de estas personas no difieren significativamente de los inversionistas ángeles en países desarrollados y muestran un fuerte deseo de ser inversionistas ángeles y formar una red.

Limitaciones/implicaciones

Este artículo presenta algunas limitaciones en relación al tamaño y el alcance de la muestra. Es una muestra relativamente pequeña y no permite realizar análisis más sofisticados y es solo a nivel regional y, por lo tanto, no es posible comparar a nivel nacional.

Implicaciones prácticas

Desde la perspectiva del diseño de políticas públicas y programas orientadas a la promoción de empresas de alto potencial de crecimiento en las periferias de recursos naturales, es esencial conocer las características de las personas con alto patrimonio neto y su propensión a convertirse en inversionistas ángeles.

Originalidad/valor

La investigación sobre inversión ángel ha estado tradicionalmente enfocada en la experiencia de las regiones centrales de los países desarrollados. Sin embargo, esta alternativa de financiamiento puede jugar un rol preponderante en la promoción del desarrollo y la diversificación en las periferias de recursos naturales debido al limitado acceso a fuentes de capital tradicionales y la orientación de la inversión ángel hacia emprendimientos innovadores en estas regiones. Los estudios desde esta perspectiva son muy escasos. En este sentido, este artículo es pionero en la investigación de la inversión ángel en las regiones periféricas de recursos naturales.

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Book part
Publication date: 26 December 2016

Raiyomand Nariman

Abstract

Details

Angel Financing in Asia Pacific
Type: Book
ISBN: 978-1-78635-128-9

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Article
Publication date: 1 June 2005

Roger Sørheim

The main aim of this article is to widen one's understanding of the value‐added contributions of business angels and, more specifically, their role as facilitators for…

Abstract

Purpose

The main aim of this article is to widen one's understanding of the value‐added contributions of business angels and, more specifically, their role as facilitators for further finance.

Design/methodology/approach

This article is based on in‐depth case studies of five experienced business angels. Data were collected by using a loosely structured interview guide which focused on the investment process.

Findings

Business angels add value besides the initial financial capital offered, typically in the form of strategic advice and networking. However, previous research has to a small extent examined the role of business angels as facilitators for further finance. The empirical findings in this study indicate that experienced business angels play a key role in order to facilitate further finance. Furthermore, entrepreneurs should bear in mind that the previous track record of the business angel strongly affects if and how they can facilitate further finance. Thus, active business angels can be viewed as a part of the entrepreneurial team, hence reducing the “liability of newness” for the entrepreneurial firm.

Research limitations/implications

Future research should continue to examine business angels by using insight from social capital theory. Moreover, by using larger samples the findings from this exploratory study can be tested, thus getting more reliable results to extend one's knowledge about how business angels act as facilitators for further finance.

Originality/value

This study suggests that concepts from social capital theory seem to be viable when examining how business angels work when they are securing further finance for their portfolio firms.

Details

Journal of Small Business and Enterprise Development, vol. 12 no. 2
Type: Research Article
ISSN: 1462-6004

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Article
Publication date: 7 August 2017

Philip Roundy, Hunter Holzhauer and Ye Dai

The growing prevalence of social entrepreneurship has been coupled with an increasing number of so-called “impact investors”. However, much remains to be learned about…

Abstract

Purpose

The growing prevalence of social entrepreneurship has been coupled with an increasing number of so-called “impact investors”. However, much remains to be learned about this nascent class of investors. To address the dearth of scholarly attention to impact investing, this study seeks to answer four questions that are central to understanding the phenomenon. What are the defining characteristics of impact investing? Do impact investors differ from traditional classes of investors and, if so, how? What are the motivations that drive impact investment? And, what criteria do impact investors use when evaluating potential investments?

Design/methodology/approach

A partially inductive study based on semi-structured interviews with 31 investors and ethnographic observation was conducted to explore how impact investors differ from other classes of investors in their motivations and unique criteria used to evaluate ventures seeking investment.

Findings

This study reveals that impact investors represent a unique class of investors that differs from socially responsible investing, from other types of for-profit investors, such as venture capitalists and angel investors, and from traditional philanthropists. The varied motivations of impact investors and the criteria they use to evaluate investments are identified.

Originality/value

Despite the growing practitioner and media attention to impact investing, several foundational issues remain unaddressed. This study takes the first steps toward shedding light on this new realm of early-stage venture investing and clarifying its role in larger efforts of social responsibility.

Details

Social Responsibility Journal, vol. 13 no. 3
Type: Research Article
ISSN: 1747-1117

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Book part
Publication date: 26 December 2016

Suse Reynolds

Abstract

Details

Angel Financing in Asia Pacific
Type: Book
ISBN: 978-1-78635-128-9

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Article
Publication date: 12 October 2015

Michael Crum and Thomas E. Nelson

– This paper aims to examine the relationship between aspects of a country’s institutional environment and entrepreneurial investors’ overall rate of return.

Abstract

Purpose

This paper aims to examine the relationship between aspects of a country’s institutional environment and entrepreneurial investors’ overall rate of return.

Design/methodology/approach

Specifically, monetary stability and property rights are tested against both entrepreneurs’ and angel investors’ expected financial returns and payback periods, respectively. Data from the Global Entrepreneurship Monitor survey including years 2004 through 2006 and encompassing 50 countries are aggregated and examined using random coefficient multilevel modeling.

Findings

We find that strong property rights encourage both angel investors and entrepreneurs to invest in new ventures with longer payback periods and encourage angel investors to invest in ventures with lower expected financial returns.

Practical implications

This suggests that one key to increasing entrepreneurial investment in a country is to guarantee strong property rights. Therefore, both entrepreneurs seeking funding and countries seeking entrepreneurs should incorporate property rights issues into their decision-making.

Originality/value

This finding moves the “attracting entrepreneurs” conversation beyond the typical tax-abatement, infrastructure building, business cluster recommendations prevalent in academic and professional literature and points to one of the more fundamental reasons entrepreneurial “cultures” develop some places, but not others.

Details

Journal of Enterprising Communities: People and Places in the Global Economy, vol. 9 no. 4
Type: Research Article
ISSN: 1750-6204

Keywords

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