Business angels are widely recognized as a significant source of entrepreneurial finance, particularly for early-stage businesses. However, rigorous investigation on angel investment performance has been limited. This paper examines investment returns of business angels in addressing the question of whether angel investing generates attractive returns. We review the few published studies which report on more than 100 investment exits to establish baseline returns expectations and clarify returns measurement limitations. We then use data from one of the largest studies of angel returns to populate a Monte Carlo simulation of returns profiles to explore the link between portfolio size and the probability of the desired level of returns. The study reveals that angel deal returns are highly skewed; smaller portfolios have higher average returns but dramatically lower median returns. In contrast with prior studies, our study shows that portfolios with more than 50 investments are required to significantly minimize risk of poor returns and that similar scale is required to maximize returns potential, as smaller portfolios have a lower average internal rate of return (IRR). We show that reinvestment rate is a critical element in measuring angel returns, and we demonstrate the limitations of IRR as a returns metric through the simulation.

We explore the influence of company name on pre-venture and post-success financing outcomes of new ventures. A company name could be linguistically fluent, that is whether a name appears to be realistic and familiar, or phonetically fluent, that is whether a name is pronounceable. These variations could lead to varying financing outcomes. We argue that pre-venture investors favor ventures with low linguistically fluent names because of their preference in investing in unique ventures and with high phonetically fluent names as such names could automatically elicit favorable impressions. In contrast, post-success investors may still favor investing in ventures with high phonetically fluent names, but are less influenced by linguistic fluency because they are less concerned about a venture’s uniqueness. Our predictions are supported by two studies.

Venture capital (VC) is a key catalyst for nurturing start-up firms with high-growth potential to undertake innovative endeavors that contribute to national wealth. Existing literature concentrates on the impact of venture capital on firm-level performance. Unlike much of the earlier work, we conduct a macro study examining short-term and long-term relationships between VC investment, the state of the financial sector, and economic growth in 20 European single market countries between 1989 and 2015. We show that major transformations (political, economic, financial and institutional) over the sample period in the Eurozone region have resulted in the data series used in the study (economic growth, financial sector development, and VC investment) to be non-stationary. As such, the vector error-correction model (VECM) and Granger-Causality test are used to examine short-term and long-term relationships between VC investment, financial development, and economic growth for the sample countries. The findings suggest that economic growth strategies and financial sector reforms are critical for a vibrant venture capital industry. In the short term, there are bi-directional relationships between some of the variables. These results suggest that plans to create a vibrant venture capital industry will reinforce financial sector development and economic development, creating a more sustainable economic development model for countries in the Eurozone region.

We open up the black box of business angel risk mitigation within investments, exploring triggers that force angels to shift strategies to overcome performance and relationship risks. Primary data were collected from 32 interviews with four matched business angel–entrepreneur dyads. Extensive iterative theory and cross-case comparisons reveal that business angels often shift strategies over the course of an investment cycle due to internal or external context-specific triggers, rather than factors associated with a particular investor, entrepreneur, or investment-related characteristic. Moreover, entrepreneur responses significantly impact business angels’ subsequent risk mitigation strategies. Two triggers emerging particularly strongly from the data were: (i) a shift in the angel’s perception of the entrepreneur’s ability and (ii) the entrance of new investors. We theorize on these findings and derive four novel propositions.

Venture capitalists contribute financially as well as non-financially to new venture development. Their non-financial support consists of both direct strategic advice and indirect advice via networking. But the effectiveness of this advice is more dependent on its acceptance than on its nature. The acceptance of the advice of a venture capitalist by the entrepreneurs has been demonstrated to depend on the latter’s perception of fairness in their relationship with the venture capitalist. In this study, we demonstrate that more dimensions of relational fit than only the perception of fairness of entrepreneurs in their relationship with a venture capitalist play an important role in their relational fit, i.e. goal congruence and complementarity of competences and cognitions. Additionally, this study shows that venture capitalists can improve their relational fit to entrepreneurs and thereby the new venture development by taking some fit improving measures like bonding, avoiding forced decisions and a too large overlap of knowledge, adherence to shared norms of conduct and heterogeneity of the knowledge exchanged.

Cross-border venture capital investment has grown dramatically. Drawing upon observations about the liability of foreignness, previous research has shown that foreign venture capitalists (VCs) tend to partner with local VCs in order to offset information asymmetry and the liabilities of foreignness. Much of the literature has suggested that local VCs should help reduce operational uncertainty. This paper examines syndication partner choice in China, which today is likely the most uncertain environment in which foreign VCs operate on a large scale. This provides an ideal environment for understanding partner selection under uncertainty. Our results show that foreign investors are more likely to choose Chinese investors in later rounds and in more mature portfolio firms. While foreign firms with more Chinese experience are more likely to co-invest with Chinese VCs, the older foreign VC firms are less likely to do so. Remarkably, having a Chinese office made foreign VCs less likely to co-invest. In seed-stage investments, when uncertainty is the greatest, foreign firms are least likely to co-invest with Chinese VCs, and this was not affected by the maturation of the market, while at the later stage, when uncertainty is lowest, they are most likely to co-invest.

Gaps in the provision of funding for growth-potential firms in the UK are both cyclical and structural. The dynamic nature of the gaps means that their characteristics vary over time, and quantification remains problematic, but recent evidence suggest shortages are most acute in the £2M–£10M range. Government intervention has become increasingly sophisticated, notably in the design and targeting of hybrid public–private funds, such as Enterprise Capital Funds. But mismatches between supply and demand persist, with substantial opportunity costs to the UK economy. The recent creation of the British Business Bank (whose formation was announced in September 2012 and which received EU state-aid clearance in October 2014) opens up an exceptional opportunity to apply government lessons learned in early-stage risk capital. In addition to leveraging further financial resources, the Business Bank has unique convening power to assist in rebuilding the venture market through example and leadership. The structured risk venture activity of the Business Bank (for which precedent exists in Israel and elsewhere) needs to take account of sector and cluster issues. Timing is opportune as Business Bank activity can harness developments in alternative financing, including crowd funding. To ensure that investment remains profitably focused on ‘the gap’, funds supported must: be of sufficient scale, be structured for the long term, contribute to rebuilding the UK's venture expertise, and be restrained from mutating into mainstream private equity vehicles. The experience of regional funds over the previous decade was largely disappointing, but the emerging divide between the venture markets of the South East and the rest of the UK cannot be ignored. Centralized technical and industry expertise can make localized investment more cost-effective, enabling the UK to replace (but improve on) 3i as it was in the 1970s and 1980s.

This article refers to:What is the role of public feeder markets in developing technology-based small firms? An exploration of the motivations for listing on AIM since the GFC