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Business angel early stage decision making

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  • Maxwell, Andrew L.
  • Jeffrey, Scott A.
  • Lévesque, Moren

Abstract

Using 150 interactions between entrepreneurs and potential investors, we study early stage business angel decision making. We show that contrary to the majority of past research that suggests they should, angel investors do not use a fully compensatory decision model wherein they weight and score a large number of attributes. Rather, they use a shortcut decision making heuristic known as elimination-by-aspects to reduce the available investment opportunities to a more manageable size. If an opportunity is diagnosed with a fatal flaw, it is rejected in the first stage of the decision making process, but all opportunities with no fatal flaws do progress beyond that stage.

Suggested Citation

  • Maxwell, Andrew L. & Jeffrey, Scott A. & Lévesque, Moren, 2011. "Business angel early stage decision making," Journal of Business Venturing, Elsevier, vol. 26(2), pages 212-225, March.
  • Handle: RePEc:eee:jbvent:v:26:y:2011:i:2:p:212-225
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    References listed on IDEAS

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    Cited by:

    1. Carpentier, Cécile & Suret, Jean-Marc, 2015. "Angel group members' decision process and rejection criteria: A longitudinal analysis," Journal of Business Venturing, Elsevier, vol. 30(6), pages 808-821.
    2. repec:spr:jbecon:v:88:y:2018:i:3:d:10.1007_s11573-017-0868-2 is not listed on IDEAS
    3. repec:eee:jbvent:v:33:y:2018:i:3:p:315-332 is not listed on IDEAS
    4. Hoyos Iruarrizaga, Jon & Saiz Santos, María, 2013. "The informal investment context: specific issues concerned with business angels," INVESTIGACIONES REGIONALES - Journal of REGIONAL RESEARCH, Asociación Española de Ciencia Regional, issue 26, pages 179-198.
    5. Li, Changhong & Shi, Yulin & Wu, Cong & Wu, Zhenyu & Zheng, Li, 2016. "Policies of promoting entrepreneurship and Angel Investment: Evidence from China," Emerging Markets Review, Elsevier, vol. 29(C), pages 154-167.
    6. Mircea Epure & Martí Guasch, 2015. "Information asymmetry reduction in opaque contexts: Evidence from debt and outside equity financing in early stage firms," Economics Working Papers 1546, Department of Economics and Business, Universitat Pompeu Fabra, revised May 2017.
    7. repec:spr:elmark:v:28:y:2018:i:3:d:10.1007_s12525-017-0269-y is not listed on IDEAS
    8. Chan, Chien Sheng Richard & Park, Haemin Dennis, 2013. "The influence of dispositional affect and cognition on venture investment portfolio concentration," Journal of Business Venturing, Elsevier, vol. 28(3), pages 397-412.
    9. Wu Zhenyu & Yuan Wenlong & Wei Xueqi, 2012. "The Effects of New Ventures' Resource Strategies on Angels' Investing Outcomes: Big Gains and Big Losses in Angel Investments," Entrepreneurship Research Journal, De Gruyter, vol. 2(3), pages 1-27, July.
    10. Parhankangas, Annaleena & Renko, Maija, 2017. "Linguistic style and crowdfunding success among social and commercial entrepreneurs," Journal of Business Venturing, Elsevier, vol. 32(2), pages 215-236.
    11. Zhujun Ding & Sunny Sun & Kevin Au, 2014. "Angel investors’ selection criteria: A comparative institutional perspective," Asia Pacific Journal of Management, Springer, vol. 31(3), pages 705-731, September.
    12. repec:kap:sbusec:v:51:y:2018:i:1:d:10.1007_s11187-017-9922-2 is not listed on IDEAS
    13. Hearn, Bruce, 2014. "The impact of institutions, ownership structure, business angels, venture capital and lead managers on IPO firm underpricing across North Africa," Journal of Multinational Financial Management, Elsevier, vol. 24(C), pages 19-42.
    14. Steven Grenadier & Andrey Malenko & Ilya A. Strebulaev, 2012. "Investment Busts, Reputation, and the Temptation to Blend in with the Crowd," NBER Working Papers 17945, National Bureau of Economic Research, Inc.
    15. Lerner, Daniel A., 2016. "Behavioral disinhibition and nascent venturing: Relevance and initial effects on potential resource providers," Journal of Business Venturing, Elsevier, vol. 31(2), pages 234-252.
    16. Mădălina Gabriela ANGHEL & Constantin ANGHELACHE & Daniel DUMITRESCU, 2016. "Investment funds and portfolio of loan guarantees as financial steps proposals to support innovative Small and Medium Enterprises," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(3(608), A), pages 119-126, Autumn.
    17. Mădălina Gabriela ANGHEL & Constantin ANGHELACHE & Daniel DUMITRESCU, 2016. "Investment funds and portfolio of loan guarantees as financial steps proposals to support innovative Small and Medium Enterprises," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(3(608), A), pages 119-126, Autumn.
    18. repec:eee:jobuve:v:7:y:2017:i:c:p:68-76 is not listed on IDEAS
    19. Constantin ANGHELACHE & Emilia STANCIU & Marius POPOVIC & Alexandru URSACHE, 2016. "Aspects regarding macro-prudential Instruments ensuring financial stability," Romanian Statistical Review Supplement, Romanian Statistical Review, vol. 64(5), pages 83-85, May.
    20. Parhankangas, Annaleena & Ehrlich, Michael, 2014. "How entrepreneurs seduce business angels: An impression management approach," Journal of Business Venturing, Elsevier, vol. 29(4), pages 543-564.
    21. Davis, Blakley C. & Hmieleski, Keith M. & Webb, Justin W. & Coombs, Joseph E., 2017. "Funders' positive affective reactions to entrepreneurs' crowdfunding pitches: The influence of perceived product creativity and entrepreneurial passion," Journal of Business Venturing, Elsevier, vol. 32(1), pages 90-106.
    22. Glòria Estapé Dubreuil & Arvind Ashta & Jean-Pierre Hédou, 2013. "Studying the Micro-Angels Approach to Micro-Investment Decisions," Working Papers 1301, Departament Empresa, Universitat Autònoma de Barcelona, revised Jan 2013.
    23. Ding, Zhujun & Au, Kevin & Chiang, Flora, 2015. "Social trust and angel investors' decisions: A multilevel analysis across nations," Journal of Business Venturing, Elsevier, vol. 30(2), pages 307-321.
    24. Murnieks, Charles Y. & Cardon, Melissa S. & Sudek, Richard & White, T. Daniel & Brooks, Wade T., 2016. "Drawn to the fire: The role of passion, tenacity and inspirational leadership in angel investing," Journal of Business Venturing, Elsevier, vol. 31(4), pages 468-484.
    25. Kevin Au & Flora F. T. Chiang & Thomas A. Birtch & Ho Kwong Kwan, 2016. "Entrepreneurial financing in new business ventures: a help-seeking behavior perspective," International Entrepreneurship and Management Journal, Springer, vol. 12(1), pages 199-213, March.

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