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How does Entrepreneurial Activity Affect the Supply of Business Angels?

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  • André van Stel
  • Kashifa Suddle
  • Andrew Burke
  • Chantal Hartog

Abstract

This paper examines the prevalence and the determinants of informal entrepreneurial investment activity (i.e. the 3 FFFs –friends, fools and family– and business angels), using a data set of more than 175,000 individuals – including some 4000 informal investors – in a large number of highly developed countries over the period 2002-2004. We distinguish between micro-level and macro-level determinants. The results uncover a positive virtuous circle where the demand for business angel finance tends to generate its own supply as a result of micro and macro factors. Our results also suggest that higher levels of entrepreneurial activity at the country level increase the probability that venture capital and business angel finance work in tandem with one another as complements rather than substitutes. Overall, the results uncover some important new relationships that perhaps provide some good news that market forces to some extent appear to naturally ameliorate equity gaps faced by entrepreneurs.

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Bibliographic Info

Paper provided by EIM Business and Policy Research in its series Scales Research Reports with number H200813.

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Length: 33 pages
Date of creation: 30 Sep 2008
Date of revision:
Handle: RePEc:eim:papers:h200813

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References

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  1. Laszlo Szerb & Siri Terjesen & Gabor Rappai, 2007. "Seeding new ventures - green thumbs and fertile fields: individual and environmental drivers of informal investment," Jena Economic Research Papers 2007-030, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  2. Stuart Fraser & Francis J. Greene, 2006. "The Effects of Experience on Entrepreneurial Optimism and Uncertainty," Economica, London School of Economics and Political Science, vol. 73(290), pages 169-192, 05.
  3. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
  4. Burke, Andrew E & FitzRoy, Felix R & Nolan, Michael A, 2000. " When Less Is More: Distinguishing between Entrepreneurial Choice and Performance," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 62(5), pages 565-87, December.
  5. William Bygrave & Michael Hay & Emily Ng & Paul Reynolds, 2003. "Executive forum: A study of informal investing in 29 nations composing the Global Entrepreneurship Monitor," Venture Capital, Taylor & Francis Journals, vol. 5(2), pages 101-116, April.
  6. Blanchflower, David G & Oswald, Andrew J, 1998. "What Makes an Entrepreneur?," Journal of Labor Economics, University of Chicago Press, vol. 16(1), pages 26-60, January.
  7. Allen N. Berger & Gregory F. Udell, 1988. "Collateral, loan quality, and bank risk," Finance and Economics Discussion Series 51, Board of Governors of the Federal Reserve System (U.S.).
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  9. de Meza, David & Southey, Clive, 1996. "The Borrower's Curse: Optimism, Finance and Entrepreneurship," Economic Journal, Royal Economic Society, vol. 106(435), pages 375-86, March.
  10. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-27, August.
  11. Andrew E. Burke & Aoife Hanley, 2003. "How Do Banks Pick Safer Ventures? A Theory Relating the Importance of Risk Aversion and Collateral to Interest Margins and Credit Rationing," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 8(2), pages 13-24, Summer.
  12. Kevin Hindle & Robert Wenban, 1999. "Australia's informal venture capitalists: An exploratory profile," Venture Capital, Taylor & Francis Journals, vol. 1(2), pages 169-186, April.
  13. Andrew Burke & Aoife Hanley, 2006. "Bank Interest Margins And Business Start-Up Collateral: Testing For Convexity," Scottish Journal of Political Economy, Scottish Economic Society, vol. 53(3), pages 319-334, 07.
  14. de Meza, David & Webb, David C, 1987. "Too Much Investment: A Problem of Asymmetric Information," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 281-92, May.
  15. Audretsch, David B. & Feldman, Maryann P., 2004. "Knowledge spillovers and the geography of innovation," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 61, pages 2713-2739 Elsevier.
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Citations

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Cited by:
  1. André van Stel & Sander Wennekers & Jolanda Hessels & Chantal Hartog, 2011. "Global Entrepreneurship Monitor 2010 The Netherlands," Scales Research Reports A201108, EIM Business and Policy Research.
  2. Sander Wennekers & Jolanda Hessels & Chantal Hartog, 2009. "Global Entrepreneurship Monitor 2008 The Netherlands," Scales Research Reports A200914, EIM Business and Policy Research.
  3. Pete, Stefan & Nagy, Agnes & Matis, Dumitru & Gyorfy, Lehel Zoltan & Benyovszki, Annamaria & Petru, Tunde Petra, 2011. "Early-stage entrepreneurial aspirations in efficiency-driven economies," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 5-18, June.

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