Angels and Informal Risk Capital

Posted: 17 Nov 2009

Date Written: 1983


Business angel investors are a significant source of funding for technology-based inventors hoping to finance development ideas and for technology-based firms in search of startup and growth capital. However, it is both difficult to raise risk capital and to identify informal risk capital investors. In an effort to learn more about available risk capital sources, determine the characteristics of business angels, provide suggestions to entrepreneurs seeking investors, and recommend steps to improve the efficiency of the informal risk capital market, 133 business angel investors in New England were interviewed. The study focused on the role of informal investors as a source of funds for (1) technology based inventors; (2) startup and emerging firms; and (3) small established firms growing faster than retained earnings can support. Factors that influenced the investment decisions of these angels included life-cycle preferences, geography, industry, exit strategies, and expectations of risk and reward. Additional observations which may be of interest to entrepreneurs: (1) informal risk capital investors are often motivated by non-financial rewards; (2) informal investors most often learn of investment opportunities through a network of friends and business associates; and (3) a written business plan is desirable. Efforts to support the financing of technology startups must include the capability to identify opportunities and profile the characteristics of these potential investments; identify and profile informal investors and their objectives; provide a referral/linking mechanism; and strengthen referral networks. (SFL)

Keywords: Startups, Seed capital, Angel investors, Firm growth, Venture capital, Venture financing, Early stage capital, Technology based firms, Investment criteria, High-technology firms

Suggested Citation

Wetzel, William E., Jr., Angels and Informal Risk Capital (1983). University of Illinois at Urbana-Champaign's Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship, Available at SSRN:

William E., Jr. Wetzel (Contact Author)

affiliation not provided to SSRN

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