Roger Sørheim

The pre-investment behaviour of business angels: a social capital approach

Using insights from social capital theory, this paper examines the pre-investment behaviour of experienced business angels in Norway. Previous research indicates there are considerable inefficiencies in the informal venture capital market, notably information inefficiencies related to the identification of investment opportunities, and problems associated with the screening or evaluation of new investment proposals. The empirical findings show that an investors previous track record, to a great extent, determines how they can operate in the informal venture capital market. It is quite rational for individuals who have acquired most of their experience in one specific region to make the overwhelming majority of their investments in the same region. It is this regional track record that gives them a competitive advantage in the informal venture capital market. This reasoning also seems to be valid with regard to individuals with industry specific experience, where the regional track record is ‘replaced’ by an industry specific record. Moreover, these industry specific investors take care of the initial screening themselves, whereas regional investors are predominately generalists who rely more on information provided by their regional networks. The business angels in this study are very concerned with establishing common ground with entrepreneurs and potential co-investors. This establishment of common ground can be viewed as a necessary antecedent for long-term trustworthy relationships.

The informal venture capital market in Norway ? investor characteristics, behaviour and investment preferences

There is widespread recognition in Norway that the reliance of SMEs on debt financing must be reduced while equity finance sources need to be increased. One of the main sources of equity capital is the informal venture capital market. This paper is a response to the lack of knowledge of the informal venture capital market in Norway. The findings reported in this paper are based on a large survey comprising 6618 persons. Out of all the respondents, 425 are classified as informal investors and comprise the data material that this paper is based upon. This paper describes the Norwegian informal investors in terms of their demographics, investment activity, behaviour and investment preferences. A comparison is made between the results from the Norwegian survey and findings from the UK and Sweden.

Business angels as facilitators for further finance: an exploratory study

Purpose – The main aim of this article is to widen ones understanding of the value‐added contributions of business angels and, more specifically, their role as facilitators for further finance.Design/methodology/approach – This article is based on in‐depth case studies of five experienced business angels. Data were collected by using a loosely structured interview guide which focused on the investment process.Findings – Business angels add value besides the initial financial capital offered, typically in the form of strategic advice and networking. However, previous research has to a small extent examined the role of business angels as facilitators for further finance. The empirical findings in this study indicate that experienced business angels play a key role in order to facilitate further finance. Furthermore, entrepreneurs should bear in mind that the previous track record of the business angel strongly affects if and how they can facilitate further finance. Thus, active business angels can be viewe...

Born Global Firms and Informal Investors: Examining Investor Characteristics

A “Born Global” is a new venture with a global niche market focus from day one. Many of these firms experience high growth rates, but also, a considerable need for funding. This study contrasts informal investors involved in born global firms (“Born Global Investors”) with other informal investors. The underlying thesis is that the behavior of these investors reflects their investment philosophy, at least on a differential basis. The results suggest that born global investors differ from other informal investors in terms of deal origin, investment size, and exit preferences. Their experience as managers of large firms seems to be a particularly important factor, increasing investment capacity (income and fortune), while personal and professional networks influence the access to information about investment opportunities. The importance of these results for the development of born global firms is discussed.

How governments seek to bridge the financing gap for university spin-offs: proof-of-concept, pre-seed, and seed funding

University spin-offs often develop early-stage technologies characterised by long development paths and uncertain commercial potential. Private financiers, such as banks, informal investors, and venture capital firms, are reluctant to invest in these ventures at an early stage. To bridge this financing gap, governments have set up specialised programmes, but few studies have examined the rationale and organisation of different types of programmes. We analyse government schemes in six countries and identify three main categories of funding initiatives. Proof-of-concept (PoC) schemes aim to reduce the technological uncertainty. Pre-seed schemes aim to reduce the organisational uncertainty and make the nascent venture attractive to investors. Seed funding schemes provide early-stage equity financing. The seed funding initiatives seek to improve the supply of funding, while there seems to be an increasing number of pre-seed and PoC schemes seeking to bridge the financing gap from the demand-side by increasing the attractiveness of the spin-offs towards investors.

Family Angels vs. Other Informal Investors

This study investigates the differences between family angels and other informal investors in Norway. We employ a portfolio framework as the vehicle for comparison, along with an ad hoc component of involvement. The underlying thesis is that the actual behavior of the investors in Norway should reflect their investment philosophy—at least on a differential basis. The results suggest that family angels differ from other informal investors on several grounds. Family angels have different investment behaviors than other informal investors and they differ somewhat in their exit preferences.

Obtaining early-stage financing for technology entrepreneurship: reassessing the demand-side perspective

New technology-based firms face particular challenges in obtaining early-stage financing to develop and grow their business. Seen from the supply-side, high levels of uncertainty make investors reluctant and create a liability related to the supply of financing to these ventures. This introductory article reassesses the demand-side perspective to financing of technology entrepreneurship by considering how entrepreneurs can improve their chances of obtaining external financing. We propose that the perceptions and preferences of the entrepreneurs, the content and presentation of the business case, the networks and the relationships of the entrepreneurs, and the process of obtaining financing are issues of key importance for understanding how entrepreneurs can enhance the ‘investment readiness’ of their ventures. We synthesize the papers in this special issue and their contributions to research from the demand-side perspective. Moreover, we outline prospective areas for future research and implications for practice.

Funding of university spin‐off companies: a conceptual approach to financing challenges

Purpose – During the last decade, there has been an increasing focus on commercialization of knowledge and technology from universities. However, universities report financing as being the main impediment to successful university spin‐off companies (USOs) creation, leaving valuable inventions un‐commercialized. The purpose of this paper is to develop a conceptual model in order to explain financing challenges experienced by USOs.Design/methodology/approach – This paper presents a conceptual model illustrating financing challenges met by USOs, and provides an explanation why TTOs report that obtaining financing is their biggest impediment to spin‐off creation. Two different theoretical perspectives back this conceptual development: Knightian uncertainty and agency theory.Findings – This theoretical examination suggests that increasing levels of uncertainty affect the investors willingness to fund new companies in a negative way. Through the literature review, clear indications were also found for the incr...

The Hybrid Structures of International New Ventures A Social Capital Approach and Research Agenda

This paper gives a social capital perspective on the internationalization process of new firms. The point of departure is international new ventures (INVs) and their frequent use of hybrid structures for government of international activities. The purpose is to shed new light on the INV phenomenon by studying the role of social relationships in the establishment, management and performance of international governance structures and access to resources for international market expansion. By combining knowledge from the international entrepreneurship literature with social capital theory, the authors construct several propositions on the relationship between properties of social capital embedded in the new firm and their ability to form effective international market channels and deliver high long-term performance. This conceptual study suggests that social capital is indeed conducive to the overall performance of INVs. However, empirical research is desirable – and, based on the propositions from this study, the authors propose a research agenda emphasizing the need for a longitudinal study of INV organizations with regard to the role of social capital in attracting and controlling international market resources.

International New Ventures and the Development of Partnerships: A Social Capital Approach

International New Ventures (INVs) are firms which from inception seek to establish themselves in the international marketplace (McDougall, Shane and Oviatt, 1994). The frequency of INV establishments has increased rapidly during the last few decades(Aspelund and Moen,2001) andnow constitutes a significant part of the economy in most developed economies (Aspelund, Madsen and Moen, 2007). Studies have found that INVs differ from traditional exporters in several ways (McDougall et al., 1994; Madsen, Rasmussen and Servais, 2000; Rialp, Rialp and Knight, 2005; Aspelund and Moen, 2005) and that they follow a different path to success than traditional exporters.