Business Angels’ Limited Exposure

Business Angels (BAs) are the major providers of investment capital at seed, early-stage and startup stage (Harrison and Mason, 2000). Having such an influential role, those that are officially recognized as such are usually well known in entrepreneurial environment. They are part of BANs and other associations that foster networking and attract investment opportunities. Money being a scarce resource, BAs are also few compared to the number of entrepreneurs. This is in line with the popular view that there is lack of “adventure” capital, since most high-net-worth people are reluctant to new businesses and innovation (Harrison and Mason, 2002).

This also explains why most of the governmental interventions were aimed at facilitating the supply side of startup investments.However such supposition is rejected by both empirical evidence (Harrison and Mason, 1994, 1999; Van Osnabrugge and Robinson, 2000) and the views of informed participants in the marketplace. As Nicholson (2000) cites David Grahame, the Managing Director of LINC Scotland (a BAN), who observed that there are “companies out there saying that they cannot find money, and our angels are saying that they can only place 10% of what they want to invest. On the other hand, the researches by Harrison and Mason (1994, 1999) and Van Osnabrugge and Robinson (2000) conclude that most active business angels are unable to invest as frequently as they would wish because of a lack of suitable investment opportunities.

Investment Limitations

Although it may seem unrealistic, these papers provide evidence that the limitations of startup investment is not determined by a lack of funds but rather by a lack of investable ideas. Still, this lack of business projects can be considered in two different ways: on one hand it may really imply a lack of opportunities, while on the other a failure of the interaction between the two parties. The latter points suggest that the market inefficiency stems from the scope of most of the offline marketplaces to be too narrow. In other word,  the overall informal capital market is fragmented in several centers each of them unable to attract a critical mass of valuable ideas.

There is basically lack of a common meeting point and as a consequence an informational gap occurs.This conclusion is in line with the researches by Wetzel (1986,1987). The author claims that the inefficiency in the market is indeed determined not by an absolute limited availability of entrepreneurial projects, but rather by a reduced exposure of the business angels to such market. In other terms, the inability of investors to conclude as many deals as they wish is generated by an information problem which strongly affect the informal venture capital market, impeding the flow of finance from supply of capital to demand.

The consequence is a high search cost for both sides that in turn generates a discouragement effect that incentive the drop-out from the market.The innovation inherent in crowdfunding is that it is born online and can thus more easily attract participants from both entrepreneurs and investors. The affiliation process is immediate and in the reach of everybody, thus providing the key-drivers  to a faster growth of the network.

Therefore, crowdfunding seems the perfect tool to business angels in order to improve their degree of exposure to interesting projects. However,  what makes crowdfunding a superior tool compared to other online platforms? For example those run by Business Angel Networks? What is the key innovation feature of this new form of entrepreneurial finance?


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  2. Harrison, R., T., and Mason, C., M., 1999. “Public policy and the development of the informal venture capital market: UK experience and lessons for Europe”. Industrial Policy in Europe (London: Routledge) pp. 199 -223.
  3. Harrison, R., T., and Mason, C., M., 2000. “The size of the informal venture capital market in the UK”. Small Business Economic s, 15, pp. 137 – 148.
  4. Harrison, R., T., and Mason, C., M., 2002. “Barriers to investment in the informal venture capital sector”. Entrepreneurship & Regional Development: An International Journal, 14:3, pp. 271-287.
  5. Nicholson, M., 2000. “Scotland survey: angels venture further afield”. Financial Times , 6 September, 3.
  6. Van Osnabrugge, M., and Robinson, R ., 2000. Angel Investing (San Francisco: Jossey Bass).
  7. Wetzel, W., E. Jr., 1986. “Entrepreneurs, angels and economic renaissance”, in Hisrich, R., D., (ed.), Entrepreneurship, Intrapreneurship and Venture Capital (Lexington, MA: Lexington Books) pp. 119 – 139.
  8. Wetzel, W., E. Jr., 1987. “The informal risk capital market: aspects of scale and efficiency”. Journal of Business Venturing, 2: pp. 299 – 313.