IDEAS home Printed from https://ideas.repec.org/a/eee/jobuve/v17y2022ics2352673422000099.html
   My bibliography  Save this article

“Pennies from heaven”? Market failure, circuits of capital and policy support for business angels: The case of cross-border angel investment

Author

Listed:
  • Harrison, Richard T.

Abstract

Angel investment is widely associated with economic development through entrepreneurial activities, and has attracted the attention of policy makers internationally, nationally and regionally, resulting in a range of measures to support the development of the market. In this paper we challenge this policy orientation and identify three key flawed assumptions on which it rests: the presence of market failure in the early stage risk capital market, the complementarity of angel and other sources of early stage finance, and the integration between the angel and venture capital circuits of capital. We develop a framework for the identification of market failure as both a supply-side and a demand-side phenomenon, demonstrate that venture capital and angel finance are substitutes not complementary funding sources and draw out the association between angel investment and venture underperformance, and build on the ‘circuits of capital’ literature to identify the increasing structural independence of the VC and angel investment markets which has implications for the link between angel financing and local and regional economic development. These issues are discussed in the context that stimulation of cross-border (international) investments by angel investors has emerged as an important topic of academic analysis and policy debate in Europe, not least on the basis that such investment will support the otherwise constrained growth and scale-up of entrepreneurial ventures. The paper concludes by outlining, in the policy mix concept, a basis for the systemic analysis of the development, implementation and impact of entrepreneurial finance policy.

Suggested Citation

  • Harrison, Richard T., 2022. "“Pennies from heaven”? Market failure, circuits of capital and policy support for business angels: The case of cross-border angel investment," Journal of Business Venturing Insights, Elsevier, vol. 17(C).
    • Handle: RePEc:eee:jobuve:v:17:y:2022:i:c:s2352673422000099
    DOI: 10.1016/j.jbvi.2022.e00311
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S2352673422000099
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jbvi.2022.e00311?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Richard T Harrison & Babangida Yohanna & Yannis Pierrakis, 2020. "Internationalisation and localisation: Foreign venture capital investments in the United Kingdom," Local Economy, London South Bank University, vol. 35(3), pages 230-256, May.
    2. William C. Johnson & Jeffrey Sohl, 2012. "Angels and venture capitalists in the initial public offering market," Venture Capital, Taylor & Francis Journals, vol. 14(1), pages 27-42, January.
    3. Schertler, Andrea & Tykvová, Tereza, 2011. "Venture capital and internationalization," International Business Review, Elsevier, vol. 20(4), pages 423-439, August.
    4. Richard Harrison & William Scheela & P. C. Lai & Sivapalan Vivekarajah, 2018. "Beyond institutional voids and the middle-income trap: The emerging business angel market in Malaysia," Asia Pacific Journal of Management, Springer, vol. 35(4), pages 965-991, December.
    5. David North & Robert Baldock & Farid Ullah, 2013. "Funding the growth of UK technology-based small firms since the financial crash: are there breakages in the finance escalator?," Venture Capital, Taylor & Francis Journals, vol. 15(3), pages 237-260, July.
    6. José Corpataux & Olivier Crevoisier & Thierry Theurillat, 2017. "The territorial governance of the financial industry," Chapters, in: Ron Martin & Jane Pollard (ed.), Handbook on the Geographies of Money and Finance, chapter 4, pages 69-85, Edward Elgar Publishing.
    7. Zoltan J. Acs & Erik Stam & David B. Audretsch & Allan O’Connor, 2017. "The lineages of the entrepreneurial ecosystem approach," Small Business Economics, Springer, vol. 49(1), pages 1-10, June.
    8. Dick Bryan & Michael Rafferty & Duncan Wigan, 2017. "The map and the territory: exploring capital’s new financialized spatialities," Chapters, in: Ron Martin & Jane Pollard (ed.), Handbook on the Geographies of Money and Finance, chapter 5, pages 86-104, Edward Elgar Publishing.
    9. Mia Gray & Bryan Zhang, 2017. "Crowdfunding: understanding diversity," Chapters, in: Ron Martin & Jane Pollard (ed.), Handbook on the Geographies of Money and Finance, chapter 25, pages 580-609, Edward Elgar Publishing.
    10. Hellmann, Thomas & Thiele, Veikko, 2015. "Friends or foes? The interrelationship between angel and venture capital markets," Journal of Financial Economics, Elsevier, vol. 115(3), pages 639-653.
    11. Antretter, Torben & Sirén, Charlotta & Grichnik, Dietmar & Wincent, Joakim, 2020. "Should business angels diversify their investment portfolios to achieve higher performance? The role of knowledge access through co-investment networks," Journal of Business Venturing, Elsevier, vol. 35(5).
    12. Richard T. Harrison, 2017. "The internationalisation of business angel investment activity: a review and research agenda," Venture Capital, Taylor & Francis Journals, vol. 19(1-2), pages 119-127, January.
    13. Josh Lerner, 2002. "When Bureaucrats Meet Entrepreneurs: The Design of Effective "Public Venture Capital" Programmes," Economic Journal, Royal Economic Society, vol. 112(477), pages 73-84, February.
    14. Joshua Aizenman & Jake Kendall, 2012. "The internationalization of venture capital," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 39(5), pages 488-511, September.
    15. Richard T. Harrison & Rob Baldock, 2015. "Financing SME growth in the UK: meeting the challenges after the global financial crisis," Venture Capital, Taylor & Francis Journals, vol. 17(1-2), pages 1-6, April.
    16. Peter Wirtz, 2011. "Beyond Agency Theory: Value Creation and the Role of Cognition in the Relationship Between Entrepreneurs and Venture Capitalists," Springer Books, in: Advances in Entrepreneurial Finance, chapter 0, pages 31-43, Springer.
    17. Guerini, Massimiliano & Quas, Anita, 2016. "Governmental venture capital in Europe: Screening and certification," Journal of Business Venturing, Elsevier, vol. 31(2), pages 175-195.
    18. Douglas Cumming & Minjie Zhang, 2019. "Angel investors around the world," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 50(5), pages 692-719, July.
    19. 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.
    20. Volker Zimmermann, 2020. "Innovation and Investment Finance in Comparison," FGF Studies in Small Business and Entrepreneurship, in: Alexandra Moritz & Joern H. Block & Stephan Golla & Arndt Werner (ed.), Contemporary Developments in Entrepreneurial Finance, pages 59-79, Springer.
    21. Kanger, Laur & Sovacool, Benjamin K. & Noorkõiv, Martin, 2020. "Six policy intervention points for sustainability transitions: A conceptual framework and a systematic literature review," Research Policy, Elsevier, vol. 49(7).
    22. Bańkowska, Katarzyna & Ferrando, Annalisa & García, Juan Angel, 2020. "The COVID-19 pandemic and access to finance for small and medium-sized enterprises: evidence from survey data," Economic Bulletin Boxes, European Central Bank, vol. 4.
    23. Richard T. Harrison & Colin M. Mason, 2000. "Venture capital market complementarities: The links between business angels and venture capital funds in the United Kingdom," Venture Capital, Taylor & Francis Journals, vol. 2(3), pages 223-242, July.
    24. Rotger, Gabriel Pons & Gørtz, Mette & Storey, David J., 2012. "Assessing the effectiveness of guided preparation for new venture creation and performance: Theory and practice," Journal of Business Venturing, Elsevier, vol. 27(4), pages 506-521.
    25. Norris Krueger & Francisco Liñán & Ghulam Nabi, 2013. "Cultural values and entrepreneurship," Entrepreneurship & Regional Development, Taylor & Francis Journals, vol. 25(9-10), pages 703-707, December.
    26. Jan Jacob Vogelaar & Erik Stam, 2021. "Beyond market failure: rationales for regional governmental venture capital," Venture Capital, Taylor & Francis Journals, vol. 23(3), pages 257-290, July.
    27. Samir Patel & Khanjan Mehta, 2017. "Systems, Design, and Entrepreneurial Thinking: Comparative Frameworks," Systemic Practice and Action Research, Springer, vol. 30(5), pages 515-533, October.
    28. Richard T. Harrison & Mark R. Dibben & Colin M. Mason, 1997. "The Role of Trust in the Informal Investor's Investment Decision: An Exploratory Analysis," Entrepreneurship Theory and Practice, , vol. 21(4), pages 63-81, July.
    29. Karen E. Wilson, 2014. "New Investment Approaches for Addressing Social and Economic Challenges," OECD Science, Technology and Industry Policy Papers 15, OECD Publishing.
    30. Anders Lundström & Peter Vikström & Matthias Fink & Miguel Meuleman* & Paweł Głodek & David Storey & Andreas Kroksgård, 2014. "Measuring the Costs and Coverage of SME and Entrepreneurship Policy: A Pioneering Study," Entrepreneurship Theory and Practice, , vol. 38(4), pages 941-957, July.
    31. Colin Mason & Richard Harrison, 2001. "'Investment Readiness': A Critique of Government Proposals to Increase the Demand for Venture Capital," Regional Studies, Taylor & Francis Journals, vol. 35(7), pages 663-668.
    32. Jong-Wook Kwon, 2012. "Does China have more than one culture?," Asia Pacific Journal of Management, Springer, vol. 29(1), pages 79-102, March.
    33. Francesca Ricciardi & Cecilia Rossignoli & Alessandro Zardini, 2021. "Grand challenges and entrepreneurship: Emerging issues, research streams, and theoretical landscape," International Entrepreneurship and Management Journal, Springer, vol. 17(4), pages 1673-1705, December.
    34. Tom Lahti & Henrik Keinonen, 2016. "Business angel networks: a review and assessment of their value to entrepreneurship," Chapters, in: Hans Landström & Colin Mason (ed.), Handbook of Research on Business Angels, chapter 14, pages 354-378, Edward Elgar Publishing.
    35. Bradley L Kirkman & Kevin B Lowe & Cristina B Gibson, 2017. "A retrospective on Culture’s Consequences: The 35-year journey," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 48(1), pages 12-29, January.
    36. Olivier Crevoisier & Frédéric Quiquerez, 2005. "Inter-regional corporate ownership and regional autonomy: the case of Switzerland," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 39(4), pages 663-689, December.
    37. Andrew Ellul & Isil Erel & Uday Rajan, 2020. "The COVID-19 Pandemic Crisis and Corporate Finance," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 9(3), pages 421-429.
    38. Maryann Feldman & Nichola Lowe, 2018. "Policy and collective action in place," Cambridge Journal of Regions, Economy and Society, Cambridge Political Economy Society, vol. 11(2), pages 335-351.
    39. Brown, Ross & Rocha, Augusto, 2020. "Entrepreneurial uncertainty during the Covid-19 crisis: Mapping the temporal dynamics of entrepreneurial finance," Journal of Business Venturing Insights, Elsevier, vol. 14(C).
    40. Ron Martin & Jane Pollard (ed.), 2017. "Handbook on the Geographies of Money and Finance," Books, Edward Elgar Publishing, number 16607.
    41. Massimo Colombo & Douglas Cumming & Silvio Vismara, 2016. "Governmental venture capital for innovative young firms," The Journal of Technology Transfer, Springer, vol. 41(1), pages 10-24, February.
    42. Ewa Karwowski & Mimoza Shabani & Engelbert Stockhammer, 2020. "Dimensions and Determinants of Financialisation: Comparing OECD Countries since 1997," New Political Economy, Taylor & Francis Journals, vol. 25(6), pages 957-977, September.
    43. Meuleman, Miguel & De Maeseneire, Wouter, 2012. "Do R&D subsidies affect SMEs’ access to external financing?," Research Policy, Elsevier, vol. 41(3), pages 580-591.
    44. Wendy A. Bradley & Gilles Duruflé & Thomas F. Hellmann & Karen E. Wilson, 2019. "Cross-Border Venture Capital Investments: What Is the Role of Public Policy?," JRFM, MDPI, vol. 12(3), pages 1-22, July.
    45. Brett A. White & John Dumay, 2017. "Business angels: a research review and new agenda," Venture Capital, Taylor & Francis Journals, vol. 19(3), pages 183-216, July.
    46. Viral V Acharya & Sascha Steffen, 2020. "The Risk of Being a Fallen Angel and the Corporate Dash for Cash in the Midst of COVID," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 9(3), pages 430-471.
    47. Geoff Gregson & Sacha Mann & Richard Harrison, 2013. "Business Angel Syndication and the Evolution of Risk Capital in a Small Market Economy: Evidence from Scotland," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 34(2), pages 95-107, March.
    48. Edelman, Linda F. & Manolova, Tatiana S. & Brush, Candida G., 2017. "Angel Investing: A Literature Review," Foundations and Trends(R) in Entrepreneurship, now publishers, vol. 13(4-5), pages 265-439, September.
    49. 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.
    50. Cécile Carpentier & Jean-Marc Suret, 2016. "The effectiveness of tax incentives for business angels," Chapters, in: Hans Landström & Colin Mason (ed.), Handbook of Research on Business Angels, chapter 13, pages 327-353, Edward Elgar Publishing.
    51. Nils Karlson & Christian Sandström & Karl Wennberg, 2021. "Bureaucrats or Markets in Innovation Policy? – a critique of the entrepreneurial state," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 34(1), pages 81-95, March.
    52. Cumming, Douglas & Li, Dan, 2013. "Public policy, entrepreneurship, and venture capital in the United States," Journal of Corporate Finance, Elsevier, vol. 23(C), pages 345-367.
    53. Juan Florin & Richard Dino & M. Nesij Huvaj, 2013. "Research on angel investing: a multilevel framework for an emerging domain of inquiry," Venture Capital, Taylor & Francis Journals, vol. 15(1), pages 1-27, January.
    54. Rogge, Karoline S. & Reichardt, Kristin, 2016. "Policy mixes for sustainability transitions: An extended concept and framework for analysis," Research Policy, Elsevier, vol. 45(8), pages 1620-1635.
    55. 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).
    56. Luca Grilli, 2019. "There must be an angel? Local financial markets, business angels and the financing of innovative start-ups," Regional Studies, Taylor & Francis Journals, vol. 53(5), pages 620-629, May.
    57. Colin Mason & Tiago Botelho, 2021. "Business angel investing during the covid-19 economic crisis: evidence from Scotland," Venture Capital, Taylor & Francis Journals, vol. 23(4), pages 321-343, October.
    58. Ron Martin & Jane Pollard, 2017. "The geography of money and finance," Chapters, in: Ron Martin & Jane Pollard (ed.), Handbook on the Geographies of Money and Finance, chapter 1, pages 1-26, Edward Elgar Publishing.
    59. Hyytinen, Ari, 2021. "Shared problem solving and design thinking in entrepreneurship research," Journal of Business Venturing Insights, Elsevier, vol. 16(C).
    60. Ron Martin & Christian Berndt & Britta Klagge & Peter Sunley, 2005. "Spatial Proximity Effects and Regional Equity Gaps in the Venture Capital Market: Evidence from Germany and the United Kingdom," Environment and Planning A, , vol. 37(7), pages 1207-1231, July.
    61. Wilson, Nick & Wright, Mike & Kacer, Marek, 2018. "The equity gap and knowledge-based firms," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 626-649.
    62. Wolfgang Breuer & Andreas Pinkwart, 2018. "Venture capital and private equity finance as key determinants of economic development," Journal of Business Economics, Springer, vol. 88(3), pages 319-324, May.
    63. William C. Johnson & Jeffrey E. Sohl, 2012. "Initial Public Offerings And Pre-Ipo Shareholders: Angels Versus Venture Capitalists," Journal of Developmental Entrepreneurship (JDE), World Scientific Publishing Co. Pte. Ltd., vol. 17(04), pages 1-23.
    64. David Devigne & Sophie Manigart & Tom Vanacker & Klaas Mulier, 2018. "Venture Capital Internationalization: Synthesis And Future Research Directions," Journal of Economic Surveys, Wiley Blackwell, vol. 32(5), pages 1414-1445, December.
    65. Colin Mason & Tiago Botelho & Richard Harrison, 2019. "The changing nature of angel investing: some research implications," Venture Capital, Taylor & Francis Journals, vol. 21(2-3), pages 177-194, July.
    66. Hadi S. Alhorr & Curt B. Moore & G. Tyge Payne, 2008. "The Impact of Economic Integration on Cross–Border Venture Capital Investments: Evidence from the European Union," Entrepreneurship Theory and Practice, , vol. 32(5), pages 897-917, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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).
    2. Richard T Harrison & Babangida Yohanna & Yannis Pierrakis, 2020. "Internationalisation and localisation: Foreign venture capital investments in the United Kingdom," Local Economy, London South Bank University, vol. 35(3), pages 230-256, May.
    3. Butticè, Vincenzo & Croce, Annalisa & Ughetto, Elisa, 2021. "Network dynamics in business angel group investment decisions," Journal of Corporate Finance, Elsevier, vol. 66(C).
    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. Croce, Annalisa & Schwienbacher, Armin & Ughetto, Elisa, 2023. "Internationalization of business angel investments: The role of investor experience," International Business Review, Elsevier, vol. 32(1).
    6. Marc Cowling & Ross Brown & Neil Lee, 2021. "The geography of business angel investments in the UK: Does local bias (still) matter?," Environment and Planning A, , vol. 53(5), pages 1180-1200, August.
    7. Murray, Gordon, 2020. "Ten Meditations on (Public) Venture Capital – Revisited," MPRA Paper 104389, University Library of Munich, Germany.
    8. Alperovych, Yan & Groh, Alexander & Quas, Anita, 2020. "Bridging the equity gap for young innovative companies: The design of effective government venture capital fund programs," Research Policy, Elsevier, vol. 49(10).
    9. Moro, Andrea & Maresch, Daniela & Fink, Matthias & Ferrando, Annalisa & Piga, Claudio, 2020. "Spillover effects of government initiatives fostering entrepreneurship on the access to bank credit for entrepreneurial firms in Europe," Journal of Corporate Finance, Elsevier, vol. 62(C).
    10. Berger, Marius & Hottenrott, Hanna, 2021. "Start-up subsidies and the sources of venture capital," Journal of Business Venturing Insights, Elsevier, vol. 16(C).
    11. Johannes Wallmeroth & Peter Wirtz & Alexander Peter Groh, 2017. "Institutional Seed Financing, Angel Financing, and Crowdfunding of Entrepreneurial Ventures: A Literature Review," Working Papers hal-01527999, HAL.
    12. Bonini, Stefano & Capizzi, Vincenzo & Valletta, Mario & Zocchi, Paola, 2018. "Angel network affiliation and business angels' investment practices," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 592-608.
    13. Douglas Cumming & Minjie Zhang, 2019. "Angel investors around the world," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 50(5), pages 692-719, July.
    14. Bertoni, Fabio & Martí, Jose & Reverte, Carmelo, 2019. "The impact of government-supported participative loans on the growth of entrepreneurial ventures," Research Policy, Elsevier, vol. 48(1), pages 371-384.
    15. Hongqi Wang & Tianyi Zhao & Sarah Y. Cooper & Shanshan Wang & Richard T. Harrison & Zhongji Yang, 2023. "Effective policy mixes in entrepreneurial ecosystems: a configurational analysis in China," Small Business Economics, Springer, vol. 60(4), pages 1509-1542, April.
    16. HONJO Yuji & IKEUCHI Kenta & NAKAMURA Hiroki, 2022. "Does risk aversion affect individuals’ actions and interests in angel investing? Empirical evidence from Japan," Discussion papers 22040, Research Institute of Economy, Trade and Industry (RIETI).
    17. Soleimani Dahaj, Arash & Cozzarin, Brian Paul, 2019. "Government venture capital and cross-border investment," Global Finance Journal, Elsevier, vol. 41(C), pages 113-127.
    18. Ahmed Tolba & Ayman Ismail & Thomas Schøtt, 2021. "People Financing Entrepreneurs within and outside the Family: Pandemic Decline and Resilience in Cultures around the World," JRFM, MDPI, vol. 14(12), pages 1-18, December.
    19. Tiago Botelho & Richard Harrison & Colin Mason, 2021. "Business angel exits: a theory of planned behaviour perspective," Small Business Economics, Springer, vol. 57(1), pages 583-602, June.
    20. Laura Abrardi & Annalisa Croce & Elisa Ughetto, 2019. "The dynamics of switching between governmental and independent venture capitalists: theory and evidence," Small Business Economics, Springer, vol. 53(1), pages 165-188, June.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jobuve:v:17:y:2022:i:c:s2352673422000099. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: https://www.journals.elsevier.com/journal-of-business-venturing-insights .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.