Allan L. Riding

Informal Investment in Canada: Financing Small Business Growth

Abstract This paper reports an empirical study of Canadian informal “angel” investors. A key contribution is the development of a portrait of the decision making of these angels as well as a framework which was successful in structuring this decision making. Angels are well educated and experienced as investors. They tend to hold other full time jobs. They invest in new growth-oriented businesses, usually at the earliest stages of business development. They report a shortage of investment-ready businesses in which the principals are willing to partner with experienced investor-mentors. Investors learn about opportunities mostly from business associates. Evaluation tends to be informal, although some investors have extensive sets of due diligence materials. The key dimensions of investable business opportunities are the market potential of the business, the capability of the principals to commercialize the service or product, and the opportunity for investors to make substantive non-financial contributions to the firm.

Investment Decision Making by Business Angels

This Handbook provides an excellent overview of our knowledge on the various facets of managerial venture capital research. The book opens with a thorough survey of venture capital as a research field; conceptual, theoretical and geographic aspects are explored, and its pioneers revisited. The focus then shifts to the specific environs of venture capital.

Promoting Enterprise Development or Subsidizing Tradition? The Japan Credit Supplementation System

Governments and trade associations have often intervened in credit markets to guarantee loans made by financial institutions to small and medium-sized enterprises (SMEs). The most active loan guarantee program in the world is the Japanese Credit Supplementation System yet the level of entrepreneurial activity in Japan is extremely low. This paradox suggests that lack of available capital may not be the only constraint on entrepreneurial activity. This empirical article examines the Japanese loan guarantee system. It reports on its strengths and weakness, finding that the Japanese Credit Supplementation System emphasizes the salvage of firms facing distress: financial support for new businesses appears to be a lower priority. This focus reflects cultural and social realities of the Japanese context. However, it arguably discourages entrepreneurial activity by both reducing the intensity of Schumpeter’s ‘creative destruction’ and also by artificially maintaining non-viable firms that then compete with unsupported firms.

Informal investors in the Ottawa-Carleton region: experiences and expectations

This research reports on the investment experience of a sample of informal investors in the Ottawa-Carleton area who have made 156 investments involving

Exporting as a Means of Growth for Women-owned Canadian SMEs

16 million between 1981 and 1986. In addition, the expectations and requirements of these investors with respect to future investments are presented. It is found that investors surveyed seemed to hold realistic expectations regarding the outcome of their risk capital investments. It is also found that the informal marketplace for risk capital is both a local and a personal marketplace. Whereas our knowledge of the characteristics and motivations of informal investors remains incomplete, questions are raised regarding the impact of various public policy incentives that seem to have been targeted at informal investors. An agenda for future research is specified.

ON THE ESTIMATION OF THE INVESTMENT POTENTIAL OF INFORMAL INVESTORS: A CAPTURE/RECAPTURE APPROACH

Abstract This study presents a profile of Canadian women-owned SME exporters and explores motives, challenges, export strategies and gender-related export issues that face women business owners. The results suggest that a majority of women exporters believe that gender plays a role in the operation and/or internationalization of their firm. Gender-specific barriers that may impede export activity included cultural and personal factors such as perceived lack of respect by male business owners, bravado, chauvinism, not being taken seriously, businessmen who refuse to do business with a woman, and verification of decisions through male employees. The findings form the basis of recommendations for further research and program review for government policy makers and practitioners.

Women Entrepreneurs: Debt Financing and Banking Relationships

ABSTRACT The potential amount of informal risk capital available in a particular geographic region depends on the amount of capital which individual investors plan to commit and on the number of investors in that region. The first of these aspects is evaluated by means of structured direct interviews; the population size is estimated by using a capture/recapture statistical methodology.

Small business bank shopping in Canada

Abstract Women-owned businesses are integral to accomplishing national and regional goals of economic welfare and job creation. Since a key concern for women entrepreneurs continues to be access to capital, this paper reported on research designed to investigate women entrepreneurs and their access to debt financing from commercial lenders. The research utilized the Surveys of Financing of Small- and Medium-sized Enterprises administered across Canada during the fall of 2001 and 2002. The research showed that the gender of the SME ownership team does not affect either loan turndown rates or rates of loan application. The research does show a significant gender difference in the length of lender-borrower relationships. Even when controlling for age of the firm, the study showed that male SME owners have significantly longer relationships with lenders—suggesting that male entrepreneurs may benefit more from relationships with their lenders than do female entrepreneurs.

THE VENTURE CAPITALIST/ENTREPRENEUR INTERFACE: EXPECTATIONS, CONFLICTS, AND CONTRACTS

Abstract This paper describes the findings of empirical research directed toward identifying factors associated with decisions made by Canadian small businesses to seek new banking relationships. Data were obtained from a large sample of small businesses in order to estimate the parameters of a logistic regression model of the shopping process. It was found that decisions to shop for a new bank were more likely when business owners perceived an increase in the degree of competition among banking institutions. In addition, the frequency of shopping for a new bank was increased when the existing bank did not approve the full amount of a loan (or line of credit) application. Finally, shopping occurred with greater frequency when business owners perceived a change for the worse in non-financial aspects of the banking relationship. The predictive accuracy of a logistic regression model which incorporates these variables was found to be extremely high.

Banking on Technology: The Environment for Bank Borrowing by Small Canadian Technology-Based Firms

ABSTRACT This research addresses the salient characteristics of the post-investment activities of the venture-capital investment process: the contracting and monitoring steps. It uses questionnaire-based empirical findings from a survey of venture-capital investors to characterize the expectations of the venture capitalist, the sources of conflicts and the provisions of the contractual relationship. Conflicts are identified across a number of dimensions. Growth expectations which differ between venture capitalists and entrepreneurs form a significant basis for conflicts. A high level of standardization of contractual provisions was noted among investors.