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Heuristics, learning and the business angel investment decision-making process

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  • Richard T. Harrison
  • Colin Mason
  • Donald Smith

Abstract

This paper extends the literature on the investment decision-making of business angels.Using insights from the emerging body of research on entrepreneurial learning processes, particularly the use of heuristics and the nature of learning from meagre experience, we explore whether angels learn from experience, how they learn and what they learn. These issues are addressed using verbal protocol analysis, a methodology for examining decision-making in real time, with three groups of business angels with differing levels of investment experience, and with follow-up debriefing interviews with these angels. This reveals some differences in the speed of decision making and the emphasis given to various investment criteria. There is some evidence for the use of heuristics in the decision making process, and for the critical role played by vicarious learning from the experience of others. Learning in the individual angel decision making process is a social as well as an individual phenomenon.

Suggested Citation

  • Richard T. Harrison & Colin Mason & Donald Smith, 2015. "Heuristics, learning and the business angel investment decision-making process," Entrepreneurship & Regional Development, Taylor & Francis Journals, vol. 27(9-10), pages 527-554, October.
    • Handle: RePEc:taf:entreg:v:27:y:2015:i:9-10:p:527-554
    DOI: 10.1080/08985626.2015.1066875
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    References listed on IDEAS

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    1. Sorensen, Morten, 2007. "Learning by Investing: Evidence from Venture Capital," SIFR Research Report Series 53, Institute for Financial Research.
    2. Joël Ludvigsen, 2009. "Decision time in Belgium: an experiment as to how business angels evaluate investment opportunities," Working Papers CEB 09-037.RS, ULB -- Universite Libre de Bruxelles.
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    Cited by:

    1. Edelman, Linda F. & Manolova, Tatiana S. & Brush, Candida G. & Chow, Clifton M., 2021. "Signal configurations: Exploring set-theoretic relationships in angel investing," Journal of Business Venturing, Elsevier, vol. 36(2).
    2. Ishrat Ali & Griffin W. Cottle, 2021. "Reconceptualizing Entrepreneurial Performance: The Creation and Destruction of Value from a Stakeholder Capabilities Perspective," Journal of Business Ethics, Springer, vol. 170(4), pages 781-796, May.
    3. Kazem Mochkabadi & Christine K. Volkmann, 2020. "Equity crowdfunding: a systematic review of the literature," Small Business Economics, Springer, vol. 54(1), pages 75-118, January.
    4. Lefebvre, Vincent & Certhoux, Gilles & Radu-Lefebvre, Miruna, 2022. "Sustaining trust to cross the Valley of Death: A retrospective study of business angels’ investment and reinvestment decisions," Technovation, Elsevier, vol. 109(C).
    5. Dunne, Timothy C. & Clark, Brent B. & Berns, John P. & McDowell, William C., 2019. "The technology bias in entrepreneur-investor negotiations," Journal of Business Research, Elsevier, vol. 105(C), pages 258-269.
    6. 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).
    7. Wales William & Cox Kevin C. & Lortie Jason & Sproul Curtis R., 2019. "Blowing Smoke? How Early-Stage Investors Interpret Hopeful Discourse within Entrepreneurially Oriented Business Plans," Entrepreneurship Research Journal, De Gruyter, vol. 9(3), pages 1-16, July.
    8. Indu Khurana & Daniel J. Lee, 2023. "Gender bias in high stakes pitching: an NLP approach," Small Business Economics, Springer, vol. 60(2), pages 485-502, February.
    9. Thomas A. Birtch & Kevin Yuk-fai Au & Flora F. T. Chiang & Peter S. Hofman, 2018. "How perceived risk and return interacts with familism to influence individuals’ investment strategies: The case of capital seeking and capital providing behavior in new venture financing," Asia Pacific Journal of Management, Springer, vol. 35(2), pages 471-500, June.
    10. 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.
    11. Scott A. Jeffrey & Moren Lévesque & Andrew L. Maxwell, 2016. "The non-compensatory relationship between risk and return in business angel investment decision making," Venture Capital, Taylor & Francis Journals, vol. 18(3), pages 189-209, July.
    12. Voitkane, Aija & Johansson, Jeaneth & Malmström, Malin & Wincent, Joakim, 2019. "How much does the “same-gender effect” matter in VCs' assessments of entrepreneurs?," Journal of Business Venturing Insights, Elsevier, vol. 12(C).

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