ACKNOWLEDGEMENTS

 

First of all, I would like to express my warmest thanks to my advisor for his unfailing support and expert guidance, and for his perceptive advice at critical moments, I am more than grateful.

 

I also express my heartfelt thanks to the faculty members and reviewers of my Master thesis for their benevolence and highly appreciated comments on my humble contribution to the world of business and economics.

 

 

Finally, I am greatly indebted to my family for their patience, support, advice and generosity, for their strength and wisdom when I needed it most.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INDEX

 

 

EXECUTIVE SUMMARY                                                                                                 5

 

 

PART I : INTRODUCTION                                                                                               7

 

1. What is the purpose of this Master Thesis? 7
2. Why choose to deal with this subject matter? 8
3. Who will benefit from this research? 8
4. Research methodology 9

 

PART II : LITERATURE REVIEW                                                                                 12

 

1. Business Angels: literature and theory 12

1.1 Definition and characteristics                                                                   12

1.1.1. Business Angels                                                                        12

1.1.2. Small Business                                                                          15

1.2. Context and data                                                                                      15

1.2.1. Business Angels’ position in the financial landscape               16

1.2.2. Business Angels in Belgium                                                     16

1.2.3. Business Angels in Europe                                                       18

1.2.4. Business Angels Worldwide                                                    19

1.3. Impact on the company funded by angel finance                                    19

1.4. Economic importance of Business Angels funding                                19

1.5. Influence of institutional context                                                 20

 

2. Business Angels and investments decision-making 21

2.1. Investment control, social capital and interpersonal trust                       21

2.2. Business Angels investments characteristics                                           22

2.3. How Business Angels evaluate investment opportunities                       23

2.4. Business Angel investment: active involvement and conflicts between shareholders

3. Investment portfolio allocation of Business Angels 24

3.1. Individuals portfolio allocation                                                                25

3.2. Portfolio theory and investment returns                                                   25

3.3. The financing of small businesses                                                            26

3.3.1. Entrepreneurial motives and control aversion                          27

3.3.2. The business cycle and SME financing                        27

 

4. The financial crisis impact on the activity of Business Angels 28

4.1. Consequences on SME and the VC market                                             28

4.2. Impact of the financial crisis on the activity of Business Angels

and small business                                                                                          30

 

PART III : EMPIRICAL STUDY                                                                                      32

 

1. Methodology 32
   • Sampling 32
   • Case study protocol 33

1.2.1. General questions                                                                     33

1.2.2. Questions related to the main topic                                          34

1. a) Composition investment portfolio : figures about projects       34
2. b) Behavior 34

• Investment scheme
• Investment decision criteria / Selection of investments
• Time commitment

1. c) Financial resource allocation 36
   • Data analysis 36
2. Results                                                                                                 36

2.1. Pierre Rion                                                                                               36

2.2. Anonymous interviewee and a Belgian Business Angels Network

2.3. Charles Delloye                                                                                       44

2.4. Jean-Marc Bricteux                                                                                 47

2.5. Jean-Claude Jungels                                                                                 50

 

3. Analysis of the gathered information 51

 

PART IV : CONCLUSION                                                                                                 54

 

1. What has this Master thesis brought? 54
2. Implications 54

2.1. For Business Angels                                                                                 55

2.2. For SMEs                                                                                                 55

2.3. For policy makers                                                                         56

3. Limitations 58
4. Further research 58

 

 

PART IV : REFERENCE LIST                                                                                         60

 

 

PART V : ABBREVIATIONS AND ACRONYMS                                                          63

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXECUTIVE SUMMARY

 

Definition

Business Angels are usually individuals who invest their own money in an unquoted business with no family connection, who make their own investment decision, usually for financial considerations (they expect a financial return on their investment) or sometimes for non-financial motives (affinity investing). They usually become actively involved in the business they invest in either as an advisor or a member of the Board of Directors. However, they tend to keep their investment private, even “secret”.

 

Context

Following the 2007 subprime crisis in the USA, banks and other capital investors worldwide have been more reluctant to lend money to small business even if many young firms (start-ups) or small and medium enterprises (SMEs) have an innovative approach and a high-growth potential. Nowadays banks are considering such firms as risky investment.

Therefore, Business Angels play a critical role in supporting and financing small business and entrepreneurs. Business Angel investment is often the largest, if not the only form of financing that small business can have access to.

This paper identifies the major characteristics of Business Angels investment profiles since the 2007 financial crisis by examining five Business Angels and a Belgian Business Angels Network in particular.

 

This Master thesis has brought the following positive aspects.

In spite of the 2007 financial crisis the number of proposed projects offered to Business Angels has increased. So have the total amounts invested.

The patterns of investment have slightly changed since 2007. The willingness to invest and continue developing their portfolio is still present among Business Angels. We note however that co-investment is usually preferred to solo investment because the assessed risks are too big. We therefore note the significant emergence of Business Angel syndicates (either formal or informal), especially when the amount of investment in a proposed deal exceeds the funds potentially available to a solo Business Angel.

Business Angels have become a major driving force for the high-growth business of tomorrow, especially for early-stage companies, start-ups and university spin-outs.

Unlike banks, venture capital firms and other sources of financing, Business Angels are known for their active involvement in investee firms where they often act as mentors, coaches, advisors or members of the Board of Directors.

 

 

Nevertheless, this Master thesis underlines the following negative aspects.

There has been a change as to the behavior of Business Angels since the 2007 financial crisis. They are warier and much more cautious before they accept new investment proposals, not because such proposals are less satisfactory than previously, but primarily because Business Angels do not want to run the risk of making the wrong move and losing money. Consequently, most opportunities are often rejected at the initial screening stage.

There is higher competition within the scope of projects proposed to Business Angels so that many entrepreneurs find it difficult to obtain financing.

Most Business Angels are still willing to develop their portfolio, but usually no longer accept more participations than their “ideal” number of companies.

Business Angels’ expected returns on small business investment have decreased since the 2007 financial crisis.

Business Angels have had more difficulties to make exits than before the 2007 financial crisis. The expected time period for an exit now ranges from 5 to 8 years or more.

Business Angels sometimes have a poor understanding of the investee business. This is due to the “evaluation team” in charge of screening small business (filtering out the so- called “losers” and “no hopers”) and assessing the management team and the growth potential of the market.

PART I : INTRODUCTION

 

1. What is the purpose of this Master Thesis?

 

It has been noted that Business Angels are usually enthusiastic about financing small businesses for several reasons. Firstly, because innovative companies are involved in promising areas such as IT and telecommunication, services, industry, health, etc. Secondly, small businesses are usually run at fairly low cost, but sometimes promise a return of major investment[1]. Individuals who invest as Business Angels can be a former manager or business owner who sold his company, which still has a large investment capacity. Members of a family office, for example, are also motivated by the immense willingness to engage in a business venture because the investors will provide advice and funding in a promising sector in order to potentially make future gains. These factors motivate despite the fact that any Business Angel investment, like all other investments, is not risk-free. But those risks are often concealed by benefits and tax exemptions granted by the government to justify financial aid to new small businesses.

It is also clear that the promised gains and the investor’s behavior are all configured according to the state of global economy. Investors’ mindsets are multiplying or slowing their interventions according to the economic environment, as all businesses and all business activities are defined in terms of that economy.

Obviously, it is clear that the financial crisis of 2007 had an impact on the Business Angels’ investments in small business.

Therefore this Master Thesis is set within this context and addresses the issue of the evolution of the investment proportion of Business Angels before and after the crisis in small business[2].

 

 

 

 

2. Why choose to deal with this subject matter?

 

My goal in this Master thesis is essentially to make a comparative study of Business Angels’ investment behavior before and after the financial crisis of 2007.

The major issue of this study is the impact of the crisis on the determination or the behavior of Business Angel investors in the financing of small business.

Indeed, the financial crisis of 2007 caused by the subprime crisis in the United States is the most serious one in the history of stock exchanges. The crisis was mainly marked by a liquidity crisis, taking a credit crunch for businesses, which were the main victims. It took a change in investor behavior, including Business Angels in the financing of small businesses, risks are increasing and the possibilities of a heavy loss of value occurred; so many investors have taken a step back.

In addition, after the analysis of these situations, including the demonstration of the correlation between economic and environmental behavior of investors, this Master thesis will attempt to answer the following questions:

• Did the crisis imply that the proportion of investments in small business made by Business Angels has decreased? Similarly, is there a change in the way they manage their financial asset portfolio in general?
• What was the impact of the financial crisis on the behavior of Business Angel investors regarding small business?
• What was the impact of the 2007 financial crisis on the resource allocation of Business Angel investors regarding small business? To what extent has Business Angel investors’ resource allocation evolved?
• What was the impact of the financial crisis on the dedicated time of Business Angel investors regarding small business?
• What was the impact of the financial crisis on the invested amounts of Business Angel investors regarding small business?
• What was the impact of the financial crisis on the decisions of Business Angel investors regarding small business?
• What was the impact of the financial crisis on the behavior of Business Angel investors in other investments than small business?

 

The question that the Master thesis will try to answer is: what is the Business Angels’ portfolio evolution of the investment in the small business since the subprime crisis?

In fact, small innovative companies can be the leading corporations of tomorrow. However, these companies rarely and hardly find funding from banks so that their funding largely depends on Business Angel investments. Business Angels start from an analysis of the economy to assess the risks they take even before they put money in a project; and it is certain that the unfavorable economic environment caused by the economic crisis of 2007 has strongly affected their willingness to finance start-ups and take risks. Also, the fate of these small (innovative) companies depends most of the time on the Business Angels’ behaviors.

And, in addition, the fate of these innovative companies depends on the fate of an economy because they often represent the future economic development of a country.

Finally, the answer to this question is very interesting because the conclusions could help us determine the future economic shape of a country after recession. The conclusions could even be used to identify the evolution of economic development in most industrialized countries’ economy in an after-crisis scenario. Indeed, industrialized countries use Business Angel investments and small business financing, which is at the basis of this Master Thesis.

 

 

3. Who will benefit from this research?

 

The information gathered in this Master thesis may be interesting to actual and future BAs, as well as to entrepreneurs looking for BA funding. Indeed, our work refers mainly to the reality of Business Angels and deals in particular with the impact of the global economic crisis. It must even lead firms and companies to re-examining their own operating structure. Thus, my thesis is intended for the competent authorities, entrepreneurs and Business Angels themselves; this work is essential insofar as it is part of development between academic journals and reality, but also in recommendations for professionals.

 

 

4. Research methodology

 

The methodology we use in this Master thesis concerns a methodological approach and choice of the subject that we explain in the two following points.

 

Firstly, the choice of the subject is based on the current knowledge about the Business Angels strategic investment evolution for the funding of small business. These days the entrepreneur’s ventures and the small businesses industry are generating employment and economic growth. As a consequence, these future “successful areas » interest the investors. As the funding of small business is now increasingly done through Business Angel investments, it would be interesting to study how these Business Angels fund the creation of small businesses, especially in recent times i.e. after the financial crisis of 2007.

 

Second, the research methodology and development of the thesis is divided into the two following parts.

• The first part is information compilation. Indeed, the Master Thesis could not be developed without extensive research, including reading several documents explaining the two concepts of Business Angel financing and the mode of start-ups searching for funds.

These documents have been gathered from two main sources:

– Online: E-books and analytical reports are nowadays obviously available on the Internet as the system of financing by Business Angels is increasingly practiced and widespread. And it is clear that nowadays online sources are the most updated to base the analysis.

– Bibliography: there are also bibliographic sources and works that are not available online because of the issue of protection of intellectual property.

• The second part deals with contact and interviews with Business Angels investors and entrepreneurs from small business.

Certainly, after the documentary compilations, some knowledge has been acquired and the way the financing of small business by Business Angels works is understood. But this knowledge could be improved through direct contact with operators in the field, in particular entrepreneurs and investors who are small business key actors. Reading and documentary researching only give us purely theoretical views of the behavior of actors, but the practical realities can be seen only through direct contact with operators.

Our interviews of a few key actors were rewarding and made us familiar with the actual practices in the field. Consequently, we were also able to perceive the current reality and it helped us to develop our own assessment. Theoretical knowledge and practical realities associated with the specificities of each interviewee are part of the development of this thesis.

 

Finally, we will conclude and also provide some suggestions, especially to reality, Business Angels having to deal with the 2007 economic crisis that is still going on presently and whose consequences are hard to assess. We have to admit that this Master thesis has its limitations, but at least we sincerely hope it has opened new paths for further research.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PART II : LITERATURE REVIEW

 

1. Business Angels: literature and theory

 

Business Angels are an informal source of finance and thus are not weighed down by bureaucracy. They have flexible features and can make decisions rather quickly, mainly if they want to invest in a business sector they are familiar with. Business Angels prepare themselves to get a lower return to some extent than a private equity firm would obtain even if they expect returns from their investment to match the risks involved; they do so in exchange for the opportunity to become involved in helping to develop the business. Business Angels differ considerably depending on how they wish to become involved in the activities of a business. Two cases may occur: they either want to become ‘sleeping’ partners or they may decide to become involved in the investee together with the management team. Most Business Angels seem to seek a “hands-on” approach instead of a total commitment.

 

 

• Definition and characteristics

 

1.1.1 Business Angels

 

Following the invention of the Business Angels system, individuals can choose to support potentially innovative businesses. The system was introduced in the United States in the 1950s and offers the opportunity for individual investors to provide financial support and to bring their skills and professional experience for the benefit of an innovative company.

 

Indeed, according to Reid and Nichtingale (2011) the system of Business Angels originated in the 1950s, started growing in the United States and then spread throughout Europe. The motivation that led to the invention of the Business Angels system was essentially the finding of an “Equity Gap” or funding gap at business creation[3]. It was noted that when a company wants to go beyond the minimum capital of 100 000 $ research funding, the task still seems difficult; the minimum capital requirement can be easily met by family contributions, the holdings of friends and entourage, but such contributions are severely limited. Innovative companies need an important starting sum to estimate an almost certain return. And in this context the Business Angel “acts” (or investments decisions) were created in order to provide individuals the opportunity to support to start-ups. And the success was obvious despite the risks of starting a business; there was a great enthusiasm among Business Angels in the United States estimated to 500 000 in 1988.

 

Riding et al. (1993) [4] defined the behavioral and personal characteristics of of the people who decide to become Business Angels. According to them, habitual investors are divided into two types:

• Serials: the habitual who exits one investment before engaging in another, and
• Portfolios: the habitual who holds a number of investments at once.

Riding et al. (1993)  studies made about Canadian informal investors can be summarized as follows:

• Business Angels feel that they can have a personal influence on outcomes through their own ability, skills or effort.
• They have a thirst for achievement and dominance i.e. they need to do things better or more efficiently, to solve problems or to master complex tasks. BAs are people who have a high need for achievement and like to use their skills and competence. BAs will take moderate risks in competitive situations and they like to control other people.
• Their high need for affiliation or the desire to establish and maintain good relationships with other people is moderate. Yet, they also require autonomy and the desire to be able to work independently.
• Subjective feelings that result from performing really motivate them. Consequently, they are strongly involved in their work and their investments.
• Finally, Business Angels are more stressed than other people and they tend to manage their stress by working harder.

They also assert that wealthy areas and populations harbor more BAs. These characterizations show Business Angels to be self-sufficient, dominant, eager to maintain relationships, yet prefer to work independently, are motivated by success and engage in enough activities to feel stressed.

 

Business Angels are mainly wealthy individuals who have already taken part in successful business ventures. Most of them are entrepreneurs who made an exit from their former activities while others are usually former senior executives of large corporations.

 

The main goal of Business Angels to invest is to make a financial return, but the BAs’ motivation is usually more than a “return on investment”. Unlike Venture Capital firms that are only focused on capital gain, most BAs enjoy helping start-ups to grow and succeed. In other words, VCs are much more focused on financial return, whereas BAs are more emotionally linked to the investee’s entity. Business Angels often enjoy being involved in growing businesses; they may also have other motives such as wishing to help young entrepreneurs or trying to make a contribution to the local economy.

 

 

The following stages are included in the typical Business Angel investment cycle[5]:

• The Business Angel becomes conscious of the opportunity on his own or sometimes via formal channels (e.g. Business Angels Networks or entrepreneurship events),
• An initial screening is carried out by the Business Angel to evaluate initial interest in the investment and if his/her investment portfolio and area of knowledge/experience area is suitable (screening will be performed by syndicates on a collective basis),
• A meeting with entrepreneurs will take place as well as detailed evaluation of the business plan, review of references and market research,
• Negotiate over valuation and level of participation with entrepreneur,
• After the investment, hands-on support in the form of management advice/mentoring and networking,
• The final stage consists in exiting from the business by selling the shares, usually in trade sale form and rarely via an initial public offering. Most available studies have suggested that Business Angels have a tendency to hold their investments for nearly 3 to 7 years. Yet, exit still constitutes a problematic issue part for Business Angels and especially under the influence of prevailing economic conditions.

 

 

1.1.2 Small Business

 

Business Angels are intended to invest primarily in small businesses. Note that the concept of small business varies considerably across the world, and even within the United States various industries. There are size standards in the classification of the company. According to the Federal Access of the United States of America^[6], a small business is a company that has “500 or fewer employees for most manufacturing and mining industries (some industries allow up to 750, 1000 or 1500 employees), 100 employees or less for all wholesale trade industries, 6 million $ per year in sales revenue for most retail industries and services (with some exceptions), 27.5 million $ per year in sales receipts for most general and heavy construction industries, 11.5 million $ per year in sales receipts for all special trade contractors, 0.5 million $ per year in sales receipts for most agricultural, forestry and fishing industries”.

According to the OECD (2009)[7], “although there is no internationally agreed definition of small and medium sized enterprises (SMEs), the evidence suggests that these firms are being affected by the financial and economic crisis across economies. There is evidence that SMEs in most countries are confronted with a clear downturn in demand for goods and services if not a demand slump in the fourth quarter of 2008. For SMEs there are two related stress factors: (a) increased payment delays on receivables which added – together with an increase in inventories result in an endemic shortage of working capital and  a decrease in liquidity and (b) an increase in reported defaults, insolvencies and bankruptcies.”

 

1.2. Context and data

 

In order to grow and develop, small businesses usually lack availability to financing solutions. BAs are able to provide a potential solution with their financial investments, but also offer their skills, expertise and their network.

 

Therefore, this Master thesis will study this equity gap by addressing the following questions:

• What does the relationship between BAs and investee management team look like?
• How do BAs time involvement impact the companies they are funding?
• Are BA investments encouraged or influenced by governments?

 

 

1.2.1. Business Angels’ position in the financial landscape

 

The “equity gap” is the term used to describe the situation faced by companies looking for funding because of the reluctance of banks and other investors to fund early-stage companies. The role of BAs is to try filling this equity gap. But BAs contribute more than “only” financing capital within the investee companies; consequently the term “smart money” is often used to describe BA investments. BAs often face a lack of interesting investment opportunities and government incentives to enable them to invest more money.

 

A European Commission report (2012)[8] underlines the fact that Business Angels are playing an important role in economies and represent the largest source of external funding, after family and friends, in newly established ventures. Financing and managerial experience are both provided by Business Angels to the investee company, increasing the likelihood of the enterprises’ survival.

 

 

1.2.2. Business Angels in Belgium

 

In Belgium, throughout Europe and even worldwide, it is clear that entrepreneurship is important for economic development.

 

As it is shown in the spreadsheet below[9], we can observe the emergence of Business Angels, Business Angels Networks and the number of deals in Belgium from 1998 to 2007, which is the year of financial crisis. Note that the missing figures were not available on the EBAN website.

 

	1998	1999	2000	2001	2002	2003	2004	2005	2006	2007
Number of BANs	1	4	6	7	7	7	5	5	5	3
Number of Business Angels	0						160		370	335
Number of deals	0	1	19	39	31	37	29	49	46	35
Number of accredited projects	0		260	370	273	229	136	186	189	132
Number of commercial BANs	0	2	2	2	2	2	1	1	1	1
Number of non-commercial BANs	1	2	4	5	5	5	4	4	4	2
Number of national BANs	0	0	0	0	0	0	0	0	0	0
Number of regional BANs	1	4	6	7	7	7	5	5	5	3

 

We can see that there is a decrease in the numbers of BAN, which can be explained by the fact that there were mergers. The actual figures about BAs, BANs and the number of projects are unfortunately not analyzed in this Master thesis. This is due to a lack of reliable references, which is mainly due to privacy and the secrecy of the BA activities and BAN organizations.

 

There is a promotion and support of several Business Angels investments in Belgium in order to provide a complementary source of finance to innovative small businesses. The Business Angels Networks are there to analyze both supply and demands characteristics and contribute to the quality improvement of the business plan on the demand side and reliability of the supply side. For example, Belgium Business Angel Plus (BA+) is an investment instrument created by the Belgian “Fonds de participation” enabling an entrepreneur who has got an equity investment from a private investor to receive a subordinated loan of an equal amount (with a maximum amount of 125 000 €)[10].

 

 

1.2.3. Business Angels in Europe

 

EBAN[11] has made an extensive research on the typical profile of an European Business Angel. He is a male, aged between 35 and 65, previously a successful entrepreneur or a manager who invests between 25 000 € – 250 000 € or the equivalent of 15% of their own funds in a single venture – typically a start-up firm – and who supports it with management advice and is within a business network; female BAs represent some 3 to 5% in the measured market. In The Netherlands a research carried out about Dutch Business Angels found a generational difference between them: older Business Angels show more experience whereas the younger ones lack experience and require further guidance, which does not come as a surprise. In general, Business Angels base their investment decisions on their experience in a particular sector and most often focus on companies within their local area. According to the European Commission report (2012), in Italy, the national BAN increasingly supports cross border ventures[12], which is an important point for the European economic development and integration.

 

Despite the existence of organizations such as Business Angels Europe and European Business Angels Network, no relevant figures are publicly available. Indeed, the number of financed projects, BA and BAN is not communicated because of privacy and secrecy. It is very difficult to determine the size of the market and the specific figures mentioned above.

 

In addition, the European organization of BAN has recently changed because of the separation of some national Business Angel Network between two entities: Business Angels Europe (BAE) and European Business Angels Network (EBAN). Historically, EBAN was the only European Organization; nowadays, Business Angel Europe (BAE) is a direct competitor to EBAN.

 

 

1.2.4. Business Angels Worldwide

 

As previously said, BA investments were firstly developed in the USA. More recently, Business Angels investments have extended to other continents such as Asia, the Middle East or Europe. Consequently, BA investments are more popular in USA than in the rest of the world.

 

As previously said for the Europe, despite the existence of organizations such as World Business Angels Association, no relevant information about figures is available. Indeed, the number of financed projects, BA and BAN are not communicated. In addition, many BAN are not part of the World Business Angels Association (WBAA).

 

 

1.3. Impact on the company funded by Business Angel finance

 

BAs provide their investee companies with skills and knowledge in order to enhance and speed up their development. As mentioned previously, these activities do not only influence the relationship between Business Angels and the investee management team, but also have a direct impact on the investee entity growth. According to Avdeitchikova et al. (2008) [13], BAs often directly have a function within the management team of the investee and provide it with their expertise and knowledge (or know-how) but BAs also help start-ups with their numerous valuable contacts (or know-who).

 

 

 

1.4. Economic importance of Business Angels funding

 

According to the Center for Venture Research at the University of New Hampshire (Sohl, 2012) [14], in the USA, the number of active BAs investors in 2012 was 268.160 individuals that invested about 22.9 billion $. BAs investments have been an important contributor to job growth with the creation of 274,800 jobs in the US during the 2012-year, which represent 4.1 jobs per BA investment.

 

 

1.5. Influence of institutional context

 

There is a clear influence of external environment on BA investments. According to Aernoudt (2005), by influencing the information, legal, judicial, bankruptcy, social, tax, and regulatory environments in which BAs operate, the BAs market can be impacted by institutional decisions in numerous ways. Consequently, BAs investments may be stimulated by institutional factors such as the financial system, the legal environment and the public policy support for entrepreneurial ventures.

 

According to Chahine et al. (2007) the development of a country’s stock market seems to be a crucial factor in determining BA activity as it defines whether or not and to what extent BAs can use IPOs as an exit route[15]. Indeed, BAs sometimes co-invest with VCs to whom the opportunity of an IPO is very important. Public policies are currently promoting Business Angels investments given the significant role that BAs play in early-stages when equity gaps are often met. Also, the funding of BANs is usually among the most common government interventions.

 

Here is an example of institutional BA investments stimulation in Wallonia (Belgium) : an entity of the Walloon Region, called the “Walloon SME finance and guarantee company” is supporting the BAs investments by investing the same amount as the Angel investors did. This is a significant help for the development of the BA-backed company and offers a doubled credibility and success factor to the investee company.

(In French, this Belgian institution is called “Société Wallonne de Financement et de Garantie des Petites et Moyennes Entreprises” or SOWALFIN)

 

 

2. Business Angels investments and decision-making[16]

 

There are a few periods (or steps) in the Business Angels investment decision process. It first starts with the “discovery” of the deal. Then the BA makes an evaluation of the deal through extensive investigation. It is followed by a negotiation and the closing of the deal. After the deal has occurred the BA gets personally involved with the investee, and finally there is an eventual exit.

 

Ludvigsen (2009) evaluates the importance of the decision process in Belgium by studying a sample of twenty-four Belgian Business Angels[17]. Ludvigsen’s findings express that Business Angels are not good at doing self-examination about their own decision processes. Even analyzing a BA’s controlled experiment, which greatly reduces the amount of information considered, will show that Business Angels clearly lacked strong understanding of how they made decisions.

 

 

2.1. Investment control, social capital and interpersonal trust

 

Wong and Ho (2006)[18] highlighted a framework for understanding the decision of individuals to make informal investments. A behavioral intention is the result of, among others, perceived control. The presence of the adequate degree of actual control leads the individuals to being able to act upon this intention and perform a specific behavior or decision. Business Angel investments are associated with risks and uncertainty; thus this element is very relevant in the study of Business Angels.

 

Papers by Wong and Ho (2006) have highlighted the importance of social networks, or social capital, in creating and developing ventures. Social capital, or social networks, are defined by resources that individuals get from knowing each other. This is intended, among others, to be part of a social group, to have a good reputation, etc. There is a link between the further access to financing of BAs’ portfolio companies (i.e. access to VCs or bank debts) and the BAs successful track records and/or the positive reputation.

 

 

2.2. Business Angels investments characteristics[19]

 

An important role is played by Business Angels in filling the ‘equity gap’ faced by many small businesses. Evidence shows that Business Angels’ investment performance is far from encouraging even if their primary motivation is to make a financial return. Although a few investments may produce exciting financial returns, it is generally admitted that most seem destined to fail. Business Angels face difficulties due to such a high failure rate as they are not well diversified against risk. Nonetheless, the participation of BAs in a syndicate can be very useful for successful deals and for the diversification of investments.

Businesses with high-growth potential and with owners who are committed to realizing this potential are what BAs are normally interested in. Business Angels are obviously prepared to take significant risks when they pursue important returns. They usually invest either by taking an equity stake in a business or advance loans as part of a total financing package.

According to Mason and Harrison (2010) [20], investment activity in UK has increased between 2008 and 2009. During this period, the number of investments has increased from 217 to 307, which represent an increase of 41%, and the total deal value has increased from 49.6 million £ to 123.2 million £ which represent an increase of 148%.

 

 

2.3. How Business Angels evaluate investment opportunities

 

During the pre-investing period BAs have to take into consideration the investment location, the financial amount required, their knowledge in the investee industry and the ability to eventually add value to the organization.

The purpose of this initial screening is to make a selection in order to focus on investment opportunities with a great potential that will be likely to make an interesting exit. At this evaluation stage human factors are very important; indeed the BA will be able to test the investee management team capabilities, honesty and success factors. In order to evaluate a start-up potential, the entrepreneur and/or management team is probably the most important factor.

Riding et al. (1993)[21] found that 72.6% of opportunities were rejected at the initial stage, an additional 15.9% were rejected following more extensive evaluation; as this stage goes along, another 6.3% were eliminated. This represents a cumulative rejection rate of 94.8%. Consequently, BAs enter negotiations with only 5% of the investment opportunities they receive. We can conclude that BAs usually refuse a huge majority of the investment opportunities they are proposed.

 

 

2.4. Business Angel investment: active involvement and conflicts between shareholders

 

Jacob (2012) [22] focuses on the period after the investment and the relationship between the Business Angel and the investee management team. It is demonstrated that, in fact, Business Angels protect their interests through contracting legal documents.

Nevertheless, Business Angels are not focused merely on exercising control. Developing their investee companies is what BAs aim at. They therefore provide a large variety of resources and competence. Business Angels thus help to find solutions to the shortage of resources and competence, which is often faced by small and medium sized enterprises and mainly in start-ups. Business Angels are usually active on the Board of Directors, as they impact company with additional resources, competence, management skills, networks and experience.

The owners often have separate interests in any business venture, which may lead to divergent opinions. Better decision-making may be the result of cognitive disagreement about specific decisions and is consequently beneficial to the company. One of the main advantages of having diverse competence is to make better decisions. Yet, this depends on the synergy and cohesion within the stakeholders; conflicts may become problematic in case of disagreements when the parties cannot find common grounds. In small and medium sized enterprises with Business Angel investors, emotional conflicts among the owners are indeed a major issue. As the Board of Directors is often made of both the entrepreneur and the Business Angels, and a conflict may impact the Board of Directors’ ability to collaborate and make decisions. Besides, both the Business Angel investor and the entrepreneur may have the required skills for the venture to be successful, but there could be serious consequences for the company if either party decides to stop the collaboration.

 

 

3. Investment portfolio allocation of Business Angels[23]

 

As previously said, BAs invest and offer their wealth and knowledge to SMEs and entrepreneurs in order to start or develop their activity. Business Angel Networks play the role of facilitator for matching BAs and entrepreneurs.

According to Preston (2004) financing is the most important problem for the survival and development of small and medium sized enterprises. BAs investors play a key role in financing SMEs, especially they think have innovative approach and with high growth potential. The development of the potentially profitable SMEs entities goes through several basic stages :

1. a) Seed stage: the entrepreneur has an idea or concept for potential profitable business and wants to develop it. In this stage, the savings of founders, family and friends can be used as financing resources; it is called “3F” Money.
2. b) Start-up stage: the idea has already been developed up to the level that allows commercialization preparations. This stage does not last more than a year. The Business Angel investors’ financing acts usually occur at this stage. Consequently, that such companies mainly constitute the Business Angel’s portfolio.
3. c) Early stage: the production and distribution of a specific product or service occurs in this stage. This stage can last up to five years if the business is still unprofitable. In this third stage, formal venture capital investors are typically used as financing sources.
4. d) Later stage: a business is now a mature and profitable enterprise, and it is expanding. In pursuit of high growth, the objectives can be put into action within a period covering six months up to one year. In order to generate additional funds, initial public offering or trade sale are the ideal opportunities.

 

 

3.1. Individuals portfolio allocation

 

Individual investors’ portfolios allocation and evolution depend on various personal factors such as their available financial resource, geographical area, age, sex, professional experience and their educational backgrounds.

 

The individual investor’s portfolio is also obviously impacted by its willingness to invest in safe or risky assets. Venture Capital investments and Business Angels investments are generally considered as risky investments, yet it seems that BAs are likely to accept greater risks.

 

 

3.2. Portfolio theory and investment returns

 

The concept of diversification is well known and goes back to the 16^thcentury. The saying about “not putting all one’s eggs in one single basket” is at the core of diversification. The basic idea in Markowitz’s theory (1959)[24] is that for a given level of risk, investors will choose a selection of assets that provide the highest return. An optimal portfolio is defined by Markowitz, assuming the awareness on their associated risks for all investments. These theories assert that the criteria of selection for investments are drawn from the expected mean return and the variance of returns that potential investments provide. The variance of returns indicates the volatility of the portfolio. An optimal portfolio could be defined by choosing the portfolio with the highest return from all the portfolios with a given level of volatility.

Looking at all the portfolios with an expected return is an alternate perspective. The one that has the lowest volatility represents the optimal portfolio. The set of efficient portfolios with the same combination of mean and variance has been called the “efficient frontier”.

 

Sharpe’s (1964) Capital Asset Pricing Model (CAPM)[25] is used to determine a theoretically appropriate rate of return of an asset/investment, and whether or not to decide if that asset has to be added to an already diversified portfolio, given that asset’s market risk. Sharpe’s model takes into account the asset’s sensitivity to the market risk (or systemic risk), as well as the expected return of the market and the expected return of a theoretical risk-free asset.

This CAPM theory is frequently used about large quoted corporations, in which information is usually accurate, formalized and publicly available. Nevertheless, assuming the existence of efficient markets is not pertinent in the case of small business; therefore the returns of BA investments are unfortunately not easily predictable and may even be non-inexistent. As a consequence, BAs often screen many potential investee companies as best they can in order to find opportunities that offer the lowest market risk.

Barnes and Menzies (2005) maintain that the stages of a business life cycle are correlated to the risk that investors are facing. Indeed early-stage ventures are subject to higher market risk than more mature companies[26]. Thus, the earlier the investment is made in the life cycle stages, the higher the market risk. However, BAs involvement can contribute to reducing the investee entity firm specific risks whether or not the investment portfolio is well diversified.

 

 

3.3. The financing of small businesses[27]

 

According to Berggren et al. (2001) government’s actions are more and more directed toward filling the equity gap, which represents the difficulties SMEs have to obtain external capital. Berggren et al. (2001) assert that there is a considerably greater problem for small businesses in raising new equity than securing debt capital. They underline the fact that venture capital structures, banks, or governmental investment entities are characterized by more costly structures than Business Angels.

Financing can have a variety of shapes; but basically, the capital can be divided into two types: equity and debt. As underlined in financial literature, “equity is soft and debt is hard”. With a debt, a company is required to pay charges, interest and any amortization under the terms of its contract, regardless of the result the entity is making. The different forms of capital financing and the requirements attached to them usually depend on the stage a business has reached in its development. For example, companies that are still in the start-up phase should primarily opt for softer and proportionate forms of capital financing. Other forms of capital and more significant amounts are appropriate only when the firm has stabilized its income and organization and reached a sufficient level of maturity as to develop relations with financiers. This capital may come from banks debt financing, a VC fund or eventually BAs.

 

 

3.3.1. Entrepreneurial motives and control aversion

 

According to Berggren et al. (2001), many businesses are started because entrepreneurs want to be their own boss, thus avoid any external control. This preference for autonomy is there to influence the entrepreneurs’ choice of preferred financial solutions. Therefore, entrepreneurs would rather avoid choosing external financing except the business is in danger.

 

 

3.3.2. The business cycle and SME financing[28]

 

According to the European Commission report (2012), similarly to the equity market and the credit market, the capital market is subjected to macroeconomic cyclical variations. The capital market regularly has ups and downs. At the time of this study’s writing, the financial chaos arising from the U.S. subprime lending crisis has greatly impacted both the credit and equity markets.

Again according the European Commission report (2012) VCs are sensitive to cyclical fluctuations. Indeed, the VC funds are very active and develop their portfolio of companies in a booming market whereas banks, insurance firms and pension funds have a lot of capital ready for investing. Nevertheless VC funds tend to be very cautious when the market is not in a good shape. Indeed VC companies find it difficulty to make an initial public offering when stock markets are declining, which obviously leads to a great reluctance to develop the number of investments in their portfolio. Nevertheless, market fluctuations do not have the same consequences on the informal venture capital investments. Indeed, BAs are less dependent on access to capital held by institutions or banks. But BAs still have a problem; they depend indirectly on access to VC cash. Indeed, they often work together i.e. for the next step in the financial life cycle of a portfolio company.

In addition, BAs’ investment frequency is probably linked to the evolution in real estate prices as the majority of Business Angels invest part of their wealth in real estate. Consequently, there is less interest in SMEs investments if real estate prices are decreasing.

 

 

4. The financial crisis impact on the activity of Business Angels

 

Throughout the years 2007 – 2009 a major financial crisis hit the world and it can be regarded as one of the worst since the 1929 Great Depression. The crisis led to the bankruptcy of many well-known companies, which caused a substantial decline in consumer wealth, produced enormous financial commitments incurred by governments and resulted in a major decline in economic activity.

 

 

4.1. Consequences on SME and the VC market[29]

 

According to the OECD (2009), small enterprises bring about economic strength to general economy as they offer innovative products and services to many organizations or groups of people. Generally, they bring new job opportunities; yet most of them have struggled for their survival since the housing bubble burst during 2007-2008. Access to credit is very important for their development. The small enterprises with lower diversification of product base and little option for downsizing had a significant impact across the world’s economies. In addition, credit crunch faced by the SMEs, estimated less credible but relatively more “credit-dependent” than larger companies, intensified the impact of the crisis.

The crisis has created a growing inability to obtain financing from banks. Indeed, the credit conditions offered by banks are obvious to all their clients, including SMEs. The major reasons why banks would change their attitude towards lending to SMEs are: stagnation in inter-bank lending and the desire to rebuild bank balance sheets in order to try to preserve or strengthen their capital base.

Among the most important challenges for the creation, survival and growth of SMEs, innovative ones in particular, is the access to financing. SMEs and entrepreneurs have suffered a double shock since the problem is strongly intensified by the financial and economic crisis: a major drop in demand for goods and services and a lessening in credit terms, which strongly influence their cash flows.

The main consequences for the SMEs are:

• Increased payment delays on receivables, together with an increase in inventories, which bring about a shortage of working capital and a decrease in liquidity
• Growth in reported defaults, insolvencies and bankruptcies.
• Prolonged payment delays on receivables, and consequently a worsening working capital

According to the OECD (2009), in Belgium for instance 43% of surveyed SMEs recently face extended delays in their receivables and in the Netherlands 50 % of SMEs have to handle longer payment terms from their customers. Between February 2007 and 2008 the share of enterprises waiting over 60 days for payment has risen dramatically from 4.8 % to 29.5 % in New Zealand. In Denmark, Italy, Ireland, Norway and Spain the surge in corporate insolvencies was higher than 25 %. In Finland, while short-term solvency problems among SMEs normally involve 6-8 % of these firms, in January 2009 more than 17 % of small businesses with less than 50 employees declared insolvency problems.

 

 

 

4.2. Impact of the financial crisis on the activity of Business Angels and small business

 

According to European Business Angels Network (2009)[30], the present financial crisis strongly influences access to finance for small enterprises, which represents 99% of companies Europe-wide. SMEs worldwide hardly meet their working capital requirements because of the tightening market conditions for access to credit and late payment issues from clients. In order to expand their business, they are looking for alternative ways to source finance, particularly through equity financing if they are at the early stage of their growth.

As a consequence, an unexpected flow of capital demands to BAN across Europe has been generated by the crisis, obviously because of the actual lack of access to bank credit. This does not only create some important challenges for early stage investors, but also opportunities which policy makers should help to undertake and leverage.

BAN across Europe experience a worrying phenomenon. Currently, the usual high potential start-up companies are not the only ones to seek equity finance, but even more or less mature companies having achieved 3 to 5 million € revenues in sales after 3 years, who traditionally did not have to worry about financing now looks for equity finance. For Business Angels this has represented extraordinary good deal-flow as they had the opportunity to finance large firms at a valuation that has gone up from 20 to 30%. And this trend may continue in the coming months. As a consequence, such opportunities have engendered a significant lack of access to finance for the companies who would generally be appropriate for BA finance i.e. highly innovative yet risky businesses.

Simultaneously, many BAs have lost money on the stock market and/or in real estate. As a consequence, the majority of BAs will want to stay focused on their actual portfolio, making sure that they have enough money for follow-on round investments whereas great opportunities at attractive valuations are newly available on the market. Therefore, Angel funding for newly created early stage companies will not come easy these days, and while focusing on their cash flow, entrepreneurs will often need additional funding for their development in that time period. As the climate for exits is nowadays poor, new investments are accessible only for Business Angels with “deep pockets”.

According to the Bulgarian Business Angel Network (2009) [31], the financial crisis offers opportunities for the smaller pool of early stage investors. The demand for equity is rising since the traditional capital availability is decreasing. A new generation of entrepreneurs and start-ups may be created because of redundancies or layoffs, increasing the need for additional start up and early stage risk capital. Business Angels are required not only for their capital, but obviously also for the mentoring they provide to new firms, which is particularly important during challenging times.

BANs bring together entrepreneurs looking for equity finance with BAs. The BAN have become increasingly more professional, performing and sophisticated, offering platforms for BAs to co-invest, and also capacity building opportunities through investment and investor readiness programs. In other words, BANs have become a vital element of the entrepreneurial support ecosystem across Europe.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

III. EMPIRICAL STUDY

 

In this section we will try to explain the initial situation by linking the elements of the theoretical phase developed previously with those discussed here in order to generate explanatory hypotheses. First, we attempt to support our first survey methodology in order to clarify the methods we used for the collection of information and to situate simultaneously the importance of the data.

 

 

1. Methodology

 

The methodology used in this study is qualitative. This type of survey is to define firstly a broad guideline of questioning subjected to the interviewee in order to focus more the need for investigation while leaving the interlocutor free to express himself openly. Thus, after consolidating the research objectives and filtering issues, the final survey tool is a questionnaire consisting of a guide for more « open » questions. Indeed, this instrument seems most appropriate since it allows us to obtain qualitative data and get direct access to professionals’ views.

The selected questionnaire is obviously used to the extent that it is necessary to direct the interviewees’ answers in the direction of our theme without any influence. Indeed, the list of selected survey is not exhaustive as questions, depending on the progress of each interview, were inserted in order to reach our goals. Besides, during the course of the interviews we have chosen open-ended questions to let the interviewee answer in his own words.

 

 

1.1. Sampling

 

As this Master thesis focuses on the evolution of the proportion of Business Angels investment proportion in small business since the 2007 crisis, the studied sample consists of experienced Business Angels who have at least invested in small business since the financial crisis. Indeed, we can, compare theory with field reality, including the way Business Angel investors invested in their businesses and the nature of their investments since the 2007 economic crisis. As previously mentioned, our investigation will focus on two bodies; you will find brief appendices to illustrate the Angel investors’ experience and background that were collected through the interviews.

 

1.2. Case study protocol: But how am I going to conduct interviews?

1.2.1. First, I will ask some “introduction” questions i.e. more general questions about:

• Investment history
• Venture life cycle preference
• Involvement in investee companies
• Geographic patterns
• Industry preference
• Risk perceptions
• Exit expectations

Example of questions:

• How did you become an entrepreneur? How did you (eventually) raise money?
• What is your business about?
• Why are you raising this amount of money?
• What made you decide to be a Business Angel?
• Do you like being the first Business Angel investor on a project funding? Why?
• How does a Business Angel perceive risk in a deal opportunity?
• How does someone get you thrilled and willing to commit? Are there any warning signs?
• Outside BAN, how do entrepreneurs contact Business Angel investors they do not know?
• What do you look for in a team? What does your management team look like?
• What are the attributes of an entrepreneur?
• As an Angel, do you keep money for follow-on investments?
• According to your experience, how long does it generally take before a business becomes cash positive?
• Looking back, what did you learn and what would you have done differently?

 

 

 

1.2.2. Second, I will ask more precise questions related to the main topic.

1. a) Composition investment portfolio in small business: figures about projects

Before the crisis	Since the crisis	Total (from the beginning)
–          Number of positions in portfolio –          Newly accepted projects –          Number of proposed projects –          Number of projects accepted and then abandoned –          Number of refused projects –          Number of projects rejected and then accepted –          Number of second rounds –          Number of third rounds –          Ideal size of portfolio for risk diversification –          Number of sold projects –          Number of failures	–          Number of positions in portfolio –          Newly accepted projects –          Number of proposed projects –          Number of projects accepted and then abandoned –          Number of refused projects –          Number of projects rejected and then accepted –          Number of second rounds –          Number of third rounds –          Ideal size of portfolio for risk diversification –          Number of sold projects –          Number of failures	–          Number of positions in portfolio –          Number of proposed projects –          Number of projects accepted and then abandoned –          Number of refused projects –          Number of projects rejected and then accepted –          Number of second rounds –          Number of third rounds –          Number of sold projects –          Number of failures

 

1. b) Behavior

• Investment scheme

Small business	Before the crisis	Since the crisis
	–          Continue developing portfolio of investments? –          Follow up actual investments? –          Investing alone? –          Syndication / Co-investment? –          Strategy: focus or diversification? –          Geographic area of investments	–          Continue developing portfolio of investments? –          Follow up actual investments? –          Investing alone? –          Syndication / Co-investment? –          Strategy: focus or diversification? –          Geographic area of investments
Other investments (real estate, bonds, stocks, etc.)	Before the crisis	Since the crisis
	–          Investing alone? –          Syndication / Co-investment? –          Strategy: focus or diversification? –          Geographic area of investments	–          Investing alone? –          Syndication / Co-investment? –          Strategy: focus or diversification? –          Geographic area of investments

 

• Investment decision criteria / Selection of investments

Before the crisis	Since the crisis
–          Use of analysis grid? –          Criteria/Factors for an investment decision –          Life cycle of investee company –          Criteria of influence –          Exit expectations: ROI –          Exit expectations: time period	–          Use of analysis grid? –          Criteria/Factors for an investment decision –          Life cycle of investee company –          Criteria of influence –          Exit expectations: ROI –          Exit expectations: time period

 

• Time commitment
• Small business
• Other investments (real estate, bonds, stocks, etc.)

 

1. c) Financial resource allocation

 

Small business	Before the crisis	Since the crisis
	–          Financial intervention minimum –          Financial intervention limit –          Invested amount –          Percentage of portfolio	–          Financial intervention minimum –          Financial intervention limit –          Invested amount –          Percentage of portfolio
Other investments	Before the crisis	Since the crisis
	–          Invested amounts –          Percentage of portfolio	–          Invested amounts –          Percentage of portfolio

 

 

 

2. Results

 

• Presentation of the interviewees and summary of the interviews

 

Our investigation focuses on five professionals. Their backgrounds as well as the results of the survey are presented below. All the conducted interviews were interesting and rewarding but we note that some Business Angels were more “open” to collaboration than others because of the “secrecy” of their investments or because of time constraint.

 

 

2.1. Pierre Rion

 

Our first interview is Pierre Rion, who a Belgian civil engineer. He graduated in Electronics and Computer Science from the Université de Liège (Belgium) in 1982. He then became a serial entrepreneur and he made his first IPO in 1999 with the Optical Character Recognition (OCR) in a company called IRIS. Then he made IPOs with companies where he had shares: Pairi Daiza and EVS Broadcast Equipment. Pierre Rion is now a member of the Board of Directors in public institutions, services companies, banking companies and manufacturing companies such as Banque CPH, BNP Paribas Fortis, Belrobotics, Akkanto, Walloon Union of Enterprises, Agency of Belgian Foreign Trade, Acces Direct, D-Cinex, Maxel, Progecoo or Multitel. He founded, among others, the private airline Avia-Rent Wallonie and the winery Domaine de Mellemont. Pierre Rion has been the chairman of the Cercle de Wallonie since 2011.

Pierre Rion started making Business Angel investments in 1995; nowadays he manages a portfolio of sixteen small business investments.

 

• Summary of the interview

 

Composition investment portfolio in small business

Since the crisis Pierre Rion has not made any exit from his existing projects. The projects are less easily salable and increasingly more complicated; therefore, he sticks to his participations since the crisis. Among his sixteen companies, fifteen companies are now making profits. The number of proposed projects has doubled since the crisis. Pierre Rion used to receive one project per week before the crisis, and he is now receiving two propositions of projects per week. This implies that he has to refuse a lot of projects, and he never accepted a project after it had been refused. Nevertheless he sometimes accepts to act as a business coach on a punctual basis in order to support entrepreneurs.

Pierre Rion believes that twelve participations is the ideal size for a portfolio; he is willing to accept a few new ventures, but he promised himself not to accept any new projects without making exits from his existing projects.

 

 

Investment scheme

Pierre Rion invests alone most of the time, but he sometimes does with his partners Eric Mestdagh and Laurent Minguet.

Pierre Rion invests with a diversification strategy. Because of his civil engineer background, he mainly invests in various technological activities. Such projects represent 80% of his overall portfolio. The geographic area of his numerous investments is Wallonia (Belgium).

Mr Rion’s other investments are also diversified. He had some investments in real estate properties, lands and in the stock exchange (stocks and a lot of financial derivatives). He was a proactive stockowner; he was doing stock picking before the crisis. Since the crisis Pierre Rion has had some corporate bonds opportunities. He is now very cautious about the stock exchange. Nowadays he avoids investing purely in stocks investments and derivatives. He now follows more stock indexes and obligations rather than specific stocks. Pierre Rion also made some investments in a private equity fund.

 

Investment decision criteria / Selection of investments

In order to select an investment project Pierre Rion does not use an analysis grid. His criteria of selection are the “passion” of the investee and a good feeling about the management team. Indeed, the profile of the management team matters more than their academic backgrounds. He also needs to be interested in the business activity before he decides to invest.

 

Pierre Rion invests in a project if and only if he is sure he can bring something else than just money into the project; otherwise he would rather see the potential investee company resort to a « purely financial » Business Angel. Another interesting point is that Pierre Rion often invests in activities that are at the seed period. He only invested in two companies that were not in the seed period.

 

As to the expected return on investment, if Pierre Rion is presently investing alone in a company in order to support an individual, he requires a minimum amount of 10% and this amount can go to a maximum of three times the EBIT. According to him, the expected time period for an exit was five years before the crisis, but it now ranges from a six, seven or eight years’ span.

 

Time commitment

Pierre Rion’s time commitment to his small business investments is significant.

He is working nearly full-time as a Business Angel, on an average of fourteen hours per day, which represents eighty hours per week. « Let’s talk about an average of eight hours per week per company » says Pierre Rion. Another important point is that Pierre Rion does not get any salary from the investee companies, even if he spends a lot of time working for them; his only salary is the hope to make a profit in the future.

 

Financial resource allocation

Concerning the offered financial resource, Pierre Rion does not get involved in the management of a company under the amount of 100 000 €. He also said that the maximum financial intervention per project he made was a million euros.

 

 

 

 

 

 

Pierre Rion said that the percentage of his overall portfolio allocated to small business has increased from 30% to 50% because of new significant investments. He also said that the invested amounts per project have largely increased since the crisis. The figure below illustrates the evolution of his percentage projects in total composition of portfolio in small business.

 

 

2.2. Anonymous interviewee and a Belgian Business Angels Network

 

Our second interviewee decided not to be mentioned within this Master thesis and chose to remain anonymous. The interviewee started investing as a Business Angel in 2005.

A very important point for this Master thesis is that Mister X is nowadays responsible for a Business Angels Network in Belgium. The Anonymous interviewee information enabled us to have data from a BAN, but also provided data from his own investments as a Business Angel. The interviewee also decided the Belgian Business Angel Network not to be mentioned within this Master thesis in order to remain anonymous.

The interviewee says that Business Angel investments appear contra-cyclical. Indeed, in times of crisis because more and more Business Angels investments are made. Mister X says that there is no decrease in the interest of Business Angels for financing projects. Recently, there has even been a record in the number of investors on one project.

Mister X holds an important position within a BAN; we were also very interested in his personal behavior as a Business Angel. Indeed, he also invests his own money in companies looking for funding.

• Summary of the interview

 

Composition investment portfolio in small business

He wants to continue developing his portfolio of investments when he has liquidated positions or made exits. Nowadays he holds a portfolio composed of eleven investments whereas he only had five positions before the crisis. The anonymous interviewee made one exit before the crisis and has made one exit since the crisis. After 2007, he faced two bankruptcies among the companies he invested in. Thanks to his position within the BAN, the interviewee receives nowadays around forty-four projects per year. The chart below illustrates these figures.

 

Regarding the Belgian Business Angel Network, the number of selected projects that can present an elevator pitch has remained the same since the crisis as before the crisis. The number of proposed projects to the members (forum) is 46 to 53 depending on the years, but the crisis did not have any negative impact on the evolution of the proposed projects at all. There is generally no significant annual evolution, no more than 10% change between the years with more projects and the year with fewer projects. But there is a clear trend showing that they receive more projects after the crisis than before it.

The number of deals, or matched projects, is also constant and represents 40% of the proposed projects. Consequently, the remaining 60% of the proposed projects are rejected.

Again regarding the BAN, the minimum financial intervention is 5 000 € and the total invested amount since the creation of the fund is around 30 million €.

The chart below is based on the annual figures of the Belgian Business Angel Network and shows the number of selected projects that can present an elevator pitch to the BAN. The chart also shows the number of proposed projects to the members of the BAN, and also the number of matched projects (or “deals”).

 

 

Investment decision criteria / Selection of investments

The most important criteria for an investment decision are trust and skills within the management team. The management team has to follow the CAT rule: Capable, Ambitious and Trustworthy. Since the crisis Mister X has been paying more attention to internal and external risks before he invests.

Since the crisis the expected return on investment for small business investment has increased for an early stage investment, but obviously the ROI will be significantly lower if the investee structure is more mature.

As to the average time period required for an eventual exit within the BAN, they usually think in terms of seven or eight years if the deal is successful and two or three years if it is a failure.

 

Investment scheme

We did not get any information on the anonymous interviewee’s investment scheme; but he claims he never ventured and invested alone, but rather prefers co-investments, following a diversification strategy regarding his investments.

 

Financial resource allocation

The only financial information the anonymous interviewee accepted to disclose is that the minimum amount allocated to a single investment made through the BAN is 5 000 €.

 

 

2.3. Charles Delloye

 

Our second interviewee is Charles Delloye, another Belgian businessman. Born in a family of industrialists, Charles Delloye studied Law at the Université Catholique de Louvain (Belgium).

He first took logistics, purchasing and finance positions in multinational companies while living in London, Düsseldorf, Milan and New York City. He then came back to Belgium to undertake missions within a sheet metal companies in Wallonia. He held the position of Chief Financial Officer and then General Manager at Toleries Delloye-Matthieu, and finally became Chief Executive Office at TDM-Arcelor Mittal. Charles Delloye is a member of several Boards of Directors, including the « Start-Up Invest » entity at MeusInvest and Acerta Group. He is also Vice-President at Meuse Condroz Hesbaye and Managing Partner at Alethea Consulting.

Charles Delloye started making investments as a Business Angel in 2002.

 

• Summary of the interview

 

Composition investment portfolio in small business

« Before the crisis there were less proposed projects and even very expensive ones because the valuation was not always realistic » said Mr Delloye. Whereas after the crisis « I receive more and more interesting projects with a realistic valuation. It is easier nowadays to decide whether to invest or not » said Mr Delloye.

Charles Delloye wants to continue developing his portfolio of investments as well as doing a follow up of his existing investments. The figure below explains the different figures related to the projects. The chart below shows the different figures related to Charles Delloye’s Business Angels investment projects.

 

 

Investment scheme

Charles Delloye always uses a diversification strategy of investment. He invested in areas of activities such as food industry, upgrading of waste, computer software for medical industry, websites security, and many others.

To his great disappointment after investing alone in small business, he now advocates co-investments for his investments in small business. His small business investments are nowadays co-investments. Mr Delloye’s investments are all based in Wallonia in order to keep these investments under control.

Regarding his other investments, he opted for personal investments in the real estate properties and stocks investments.

 

Investment decision criteria / Selection of investments

Before the crisis, the criteria for an investment decision was to carefully look at the management team of the investee and the expected future results of the company.

Nowadays Mr Delloye is more and more careful about the management team and the intrinsic value of the company. Instead of mostly spending time analyzing the financial criteria, he now spends much more time analyzing the past course of the company. Before the crisis, he usually focused on the evaluated future expected figures.

“Once a project was abandoned because of the lack of trust in the management team” said Mr Delloye.

Before the crisis, the expected ROI was minimum a two-digit ROI percentage, which is not the case any more. The time period for an exit expectation was 10 years and has remained the same even after the crisis.

 

Time commitment

The time commitment depends on the specific needs of the investee. If the company is not mature, a lot of time is required (it could be one day per week at the beginning and then one day per month). « If the company is more mature, obviously less time involvement is required » said Mr Delloye.

 

Financial resource allocation

A criterion of influence before the crisis was that there was intense competition with other investors, which made the prices increase too much.  Nowadays, there are less investors and consequently more reasonable prices, which explains the difference in the number of proposed projects before and since the crisis.

Despite the crisis, his percentage of portfolio dedicated to small business (compared with his overall wealth) is slightly increasing from 5% to 6%. Mr Delloye’s decisions about his financial allocated resource are exactly the same before and since the crisis. Indeed his minimum financial intervention is stable (i.e. 10 000€); and the maximum financial intervention he makes can represent several hundreds thousands euros.

 

 

 

2.4. Jean-Marc Bricteux

 

Jean-Marc Bricteux is an investor who describes himself as “a self made man” as he started by investing his own money in order to make investments. He did not hesitate to take financial risks by mortgaging his house. Jean-Marc Bricteux took positions at KPMG from 2000 to 2008 as a business developer.

He founded a venture capital fund in 1999 with five other Walloon investors called E-Capital; they managed to have a capital of 30 million € to be invested. After 10 years of existence the fund has been dissolved. And Jean-Marc Bricteux did not participate in E-Capital 2 and E-Capital 3.

He is very familiar with the investments institution in Wallonia such as Meusinvest, SRIW, Sambrinvest and many others. In 2008 he created an investment structure with Laurent Minguet (EVS) for investing in small business as Business Angels. He is now the owner of Bricteux Consulting and Associate.

 

• Summary of the interview

 

Composition investment portfolio in small business

Jean-Marc Bricteux did not have any investments before the crisis, even if he had already received some investments opportunities that he refused. As a consequence, he started to invest as a Business Angel since the 2007 crisis.

Jean-Marc Bricteux is not afraid of the crisis and is willing to continue investing despite the crisis. He is looking for companies that have international possibilities of business development. Mr Bricteux made his first investment in 2008 and now has five investments in his portfolio. He has had around 75 investments opportunities since the 2007 crisis. The chart below shows these figures.

 

Investment scheme

Jean-Marc Bricteux wants to continue developing his portfolio of investments. He does not invest alone; he has always been looking for partners who can make the investment successful. Therefore, Mr Bricteux created an entity with Laurent Minguet (EVS Broadcast Equipment) that is able to take investments i.e. co-investments.

Jean-Marc Bricteux invests with a diversification strategy. He has invested in sectors such as hydraulic energies, aeronautics innovative components and the manufacturing of precision components for heavy industry. The geographic area of his investments is based 150 kilometers around Liège (Belgium).

Concerning other investments than small business, he has no financial investments (stocks, bonds, etc.) but two real estate properties and some land; therefore we can say he is focused on real estate. Mr Bricteux owns one property alone and the other one is a co-investment.

 

Investment decision criteria / Selection of investments

Mr Bricteux does not use an analysis grid, but he always makes sure that there is an added value within the potential investee activity. He is also looking if there is an « international vocation » to the activity in order to make exports.

Jean-Marc Bricteux especially looks at the profile of the management team and their personalities. Mr Bricteux wants to invest in activities where the management team of the investee also puts their own money in the business. Mr Bricteux will only invest if he won’t have an operational position within the investee; he only agrees to play a role regarding the legal, financial and funding tasks of the company. Mr Bricteux said, « I am an investor and I want to spend as little time as possible being a manager ». In other words, Jean-Marc Bricteux wants to be involved in activities that are not in the core business of the investee.

Mr Bricteux does not want to invest in companies in the seed period. He only wants mature companies that have a good background and « some sales figures to analyze ». The minimum involvement in the capital of the investee is 25% of the shares, and today the smallest stake they have in an investee company is 30%.

Concerning exit expectations, there is no specific ROI required, but they want a clear vision and a long-term project. They especially focus on the capital gain they will make when they sell their investments. These capital gains can go up to 300%, 350% or 500%, most of the time taking into account realistic growth of sales of around 10% per year. According to Jean-Marc Bricteux the expected time period for an exit is 5 years.

 

Time commitment

The management of his small business investments nowadays is a full time job. He spends 50% of his time analyzing potential investments projects and 50% of follow up of existing projects

 

Financial resource allocation

The minimum financial intervention is 50.000 € and the maximum financial intervention is 1.000.000 €. The total invested amounts in small business up to now is 1.500.000 €. The invested amounts in small business represented 0% of his overall wealth before the crisis (as he did not have any investments) and now represent 50%. The remaining 50% of investments are invested in real estate and lands. All of Jean-Marc Bricteux’ other investments than small business are consequently invested in real estate and lands. Jean-Marc Bricteux said that he does not have any cash « sleeping in the bank ».

 

2.5. Jean-Claude Jungels

 

Our last, but not the least, interviewee is Jean-Claude Jungels. Mr Jungels is a Belgian civil engineer, who graduated from the University of Liège (Belgium) in 1964; then he got a Master’s degree in engineering from Troy University (New York State, USA) and he finally completed his academic background with a MBA at Columbia University (Manhattan, USA). During his career Mr Jungels took positions at General Electric (production engineer, USA), Citibank (director of Liège agency, Belgium) and Paribas (managing director, Belgium). Since 1999 he has been responsible for the Start-It venture capital fund, which exclusively focuses on investments in hi-tech companies, mainly university spin-offs. Mr Jungels also invests his own money in small business as a Business Angel.

Despite his large investments experience in the venture capital industry, Jean-Claude Jungels only made three « personal » investments in small business as a Business Angel. These investments were all made before the crisis and he was the only investor to take part in the investees. These investee companies were mature companies.

The bad economic situation, but especially the lack of convergence between the shareholders of his venture capital fund implied that the fund made the strategic decision of only continuing to follow-up previously made investments. Another reason for this change of strategy is that the 2007 crisis is the second crisis of the 21st century for hi-tech companies investment funds. Indeed, the dot com bubble burst had a huge impact on the venture capital industry and started to impact the Start-It fund in the early 2000s.

As a consequence, they have not been seeking for new investments since 2007, “There won’t be a so-called ‘Start-It bis’ investment fund” Mr Jungels said, and Start-It is actually in liquidation.

Consequently, Mr Jungels also made the decision to completely stop his time commitment in the formal and informal venture capital industry. Therefore, Mr Jungels is only looking for following up his own investments, and he is not looking for any new small business investments in the future. We have to note that one of the three Business Angel investments Mr Jungels made has been a failure, which may have impacted his decision to retire from informal venture capitalism. The chart below shows some figures about the few Business Angels investments of Mr Jungels.

 

 

3. Analysis of the gathered information

 

Through our exploratory study we were able to better understand the general trend of Business Angels, including investment trends in relation to the onset of the 2007 economic crisis. On the whole, we can say that despite the crisis more and more projects are offered to Business Angels. Because they are always interested in investing, but usually have trouble giving up their former holdings. Indeed in the case of our three interviewees, there has been an increase in the number of proposed projects in spite of the crisis. It is therefore wrong to assume that the number of projects, the amounts invested and the numbers of Business Angels investments have decreased.

In addition, before and since the 2007 crisis, we note that in the patterns of investment, the situation is almost the same whether it is a single investment or a co-investment. In our case, co-investment is most common because of the risks associated with investing alone, the assessed risks being too great before and after the crisis.

Negative points are that there has been a change in the behavior of Business Angels and it seems more difficult for entrepreneurs to find funding. Indeed, the Business Angels are much warier and much more cautious about new investment proposals. It might seem that these proposals are not satisfactory enough to lead to the conclusion of a contract, or simply that each proposal is inherent to a significant risk that the Business Angel does not want to run in times of crisis.

Some of these risks are mainly due to poor understanding of the investee business. This concerns directly the « team » in charge of the assessment mission. Indeed, throughout our interviews we noted that a file is refused after being studied several times. This is also why one of our interviewees emphasized that it was important to carefully monitor the management team of the entity, including the expected future results of the company in the long term. This confirms that the concept of corporate governance is essential and must be related to the need for common references with human values, involving the concepts of confidence and competence of the management team. Facts underline the importance for our five professionals to invest in human terms to provide more than money in an investment that is not meant to be purely financial.

Finally, the fact that Business Angels invest the same amount of money as before and after the crisis is emphasized. This implies that despite the obvious difficulties in the management of their portfolio and finding funding, the need to invest is still present among Business Angels, but especially since the 2007 economic crisis brought enough setbacks to Business investors to review their investment strategy in relation to particular risks. According to our results some Business Angels were able to increase or even double their invested amounts.

In short,

• Despite the crisis, the proposed projects to the Business Angels are increasing.
• Difficulties for Business Angels to carry out exits since the crisis. Indeed, there is less liquidity in general in the economy; investors are more cautious. Number of positions in portfolio of a BA increase despite the crisis.
• Most Business Angels want to continue developing their portfolio, but they usually do not accept more participations than their ideal number of companies’ portfolio.
• More difficulties for entrepreneurs to have Business Angels funding because there is higher competition between the proposed projects to the Business Angels and Business Angels are increasingly distrustful.
• The expected returns on investments by Business Angels have decreased and the expected time period to make an exit has slightly increased.
• Business Angels investments in general are increasingly popular because there is less trust in financial investments following the crisis. Investing in small business enables the investor to have more control than other kind of high return investments or assets.

To go further, one might assume that the crisis of 2007 also had an impact on the authorities of the countries where we see the number of investments increase in proportion to the number of Business Angels.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1. CONCLUSION

 

1. What is the contribution of this Master thesis?

Business Angels are wealthy individuals who invest in start-ups and small businesses with potential growth in return for equity in the company. Both time and money are involved in the investment, but it depends on the investor. Usually, Business Angels have already been involved in other business ventures in building their fortune; this could be their own start-up or they have already made a career in business. It may appear that Business Angels operate independently, but many of them also work as a syndicate. This is due to the fact that many Business Angels investments meet a loss. An investor needs to make a number of investments and spread the risk in order to avoid losing too much money on an important deal. Nevertheless, the high risk linked with investing in early-stage businesses can be potentially rewarding if the business takes off and its valuation rises with enormous returns. Business Angels are more likely to invest in early-stage businesses than formal venture capital funds. Business Angels are a key ally used for start-up and early-stage companies to fill the gap between VCs and debt financing.

This paper aims at expanding the existing literature on Business Angels and their investment decision. The impact of the 2007 economic crisis on their financing is mainly explored here, mostly small business. In fact, the companies’ three most critical effects of the financial crisis are : decrease in trade, increase in late payment and increased difficulty in accessing finance. However, if one tends to believe that the economic crisis has had a negative impact on Business Angels and their portfolio, the surveys we conducted show exactly the opposite.

 

 

2. Implications

In several countries, after family and friends, Business Angels are the largest source of external funding in newly established ventures. Companies supported by Business Angels investors have greatly contributed to economic growth and to the creation of new jobs. As a non-institutional equity finance, Business Angels could become the driving force to build more high growth SMEs in the future.

 

2.1. For Business Angels[32]

 

For early-stage and high-risk companies with high potential of growth, Business Angels are the main key source of investments. Over half the investments were made in businesses without any revenues and at very early-stage at the time of investment. This highlights once more the importance of Business Angels investing in high-risk businesses including university spin-outs.

Therefore, both in terms of investment and business-building skills, Business Angels may be seen as providing a vital kick-start to innovating businesses. It is highly significant that more Business Angels are looking for the high-growth businesses of tomorrow. This would also ensure a provision of innovating businesses for investment by the later-stage venture capitalists and help maintain the future competitiveness of a particular economy. Business Angels investments can be made successfully with sensibly striking returns and the prospects of Business Angels investors can be materially improved by many responsible business practices:

• Business Angels investments are risky, yet they seem to generate attractive outcomes. In case of successful deals, the overall return of Business Angels investments can be much higher than other types of investment. This is in spite of the fact that Business Angels investors are not usually professional investors and they are often making investments in particularly risky ventures.
• Better investment results are clearly linked to key strategic investment decisions. Investing in areas where you have suited expertise and doing so with a reasonable amount of research and investigation should significantly improve a Business Angel investment prospects. Better results will be shown when a Business Angel is involved post-investment, especially when he takes a place on the board and the operations.
• Business Angel investors are encouraged by government incentives. Many investments would not have taken place if government incentives did not exist.

 

2.2. For SMEs

 

Those with stronger knowledge of business practices and financial literacy are more likely to get additional credit[33]. With these skills, it can be predicted that these credits will be used in a productive way. Business associations, business incubators and programs backed by governments should expand competence building assistance to SMEs. Financial statement preparation, business plan development and other areas need support.

In acquiring the capacity to properly manage financing, SMEs need the help of both public and private entities. Education and support services could be enhanced by several organizations regarding financing:

• Expand training and education to business organizations on SME finance. This training aims at enabling business organizations to advise and train their members on financing issues.
• Facilitate further development of training programs that can easily be used by different kinds of public or private organizations in order to improve the SME financing and the firm’s finance management.
• Get lenders institution more involved in training. Though some banks provide their clients with training, it appears to often be limited.

 

More remains to be done in reducing liquidity constraints for SMEs and in helping them build the skills and capacity required by money lenders in order to properly manage their assets and improve their chances to receive financing while also improving banks’ lending opportunities.

 

Last but not least, a positive point of Business Angels investments for investee companies is that many Business Angels are known for their personal involvement as mentors and/or business coaches.

 

 

2.3. For the policy makers

The promotion of Business Angels and especially Business Angel Networks is very important in order to attract investors and companies seeking for funding. It can be implemented in various ways. The support of policy makers is required by Business Angel Networks to attract additional investors to the market. The first step in developing the Business Angel Market is to raise the understanding of the benefits and services that Business Angels and Business Angels Networks provide. Both potential Business Angels and entrepreneurs must acknowledge the advantages of Business Angel Networks. In order to show their importance in many countries public-private partnerships require continuous effort. Overall, such awareness rising must include debate on the administrative, legal and fiscal environment in which Business Angels and Business Angel Networks operate. Generally, awareness rising is a slow process and before results can be seen, specific intensive awareness raising actions can require a three to five year period of time.

The key to a good Business Angel investment “market” is to have a high level of awareness in order to ensure that there is an awareness of opportunities to invest among potential investors. The opportunity to find money to finance their activities is a field that companies are familiar with, and public authorities and governments are also aware of the benefits to the economy brought by the Business Angel investment market in terms of wealth and job creation through the support and funding of businesses in early stage and growing.

There is general agreement on the fact that SMEs hire and employ numerous workers, but without a good access of capital these numbers can obviously decrease. Raising the profile of the Business Angel activity to all the market stakeholders is very important. These stakeholders are governments, local or regional public entities, investors, investees, universities and all the people who are involved in helping companies with fund raising and also those dealing with investors.

A mechanism of co-investment with public and private funding can make investments more attractive in order to stimulate the Business Angels Networks investments because the investor obtains some guarantee in case the investment project becomes a failure. Obviously, Business Angels, too must be ready for this new investment opportunity, with new rules to follow and kind professionalization of their usually “informal acts”, getting close to similarity with venture capital funds. Similarly to the formal venture capital investments, Business Angels must learn how to benefit of leveraging their participation and to build a portfolio with new sectors and larger deals. The due diligence phase can be better managed by a syndication of Business Angels, thus reducing the time and the cost of an evaluation, which would minimize potential mistakes and assess the right value of the business, and ultimately reduce the risks.  The existence of BAN can be beneficial to investee companies because if Business Angels work together, they can speed up the decision-making phase.

 

 

 

 

 

3. Limitations

 

The fundamental nature of the Business Angel market is informal. Many Angels are unwilling to disclose information about their investment activities and often wish to remain anonymous. The resulting absence of reliable statistical data makes it difficult to rely on evidence.

More data is needed from the Business Angel investment market, given the importance of informal investors, for the creation and maintenance of an entrepreneurial economy in order to make rational and well-grounded policy advice and decisions.

 

 

4. Further research

 

As Business Angels are usually individuals working alone, sometimes within a more formal syndicate, they tend to stick to their “privacy” and keep their investment market “secret”. Therefore, further investigation based on accurate data and statistics is needed as HOW Business Angels make their decisions (e.g., to invest or not to invest), WHY they choose to invest (i.e. for financial or altruistic motives, in particular friends or family connections or affinity investing in specific industries or geographical areas, etc.), and WHO they choose to invest with (i.e. alone or syndicated).

 

The sample of this Master thesis for the empirical study only consists of male individuals. Therefore it would be interesting to make the same study with a sample of female Business Angels in order to see if their investment behavior has been more affected by the 2007 crisis.

 

It would also be of interest to further examine Business Angels investment activity in specific industrialized countries such as the United States, Canada or the United Kingdom and see how the Business Angels investments has evolved since the subprime crisis. Ultimately, one could compare United Kingdom Business Angels with their American counterparts, for example. Undoubtedly, that would be a … long–haul trip ! So would a comparative study of developing countries i.e. countries such as China and India with a definite high-growth potential and “new” millionaires and consequently new investors.

 

On a smaller scale, a research could be undertaken to show IF Business Angels investments in Belgium exist on a large scale or if it is still in a “seedbed” compared to the neighboring countries.

 

Finally, on the Belgian scale, one could study HOW geographically dispersed the Business Angels investments are, respectively in Flanders, Wallonia and the Brussels area.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1. REFERENCE LIST

 

1. Organization for Economic Co-operation and Development, (1997). “Technology incubators: nurturing small firms”, OECD, Paris.

 

2. Organization for Economic Co-operation and Development, (2009), “The Impact of the Global Crisis on SME and Entrepreneurship Financing and Policy Responses.”, OECD, Paris.

 

3. Reid A. and Nightingale P. (2011), “The Role of Different Funding Models in Stimulating the Creation of Innovative New Companies. What is the most appropriate model for Europe?”.

 

4. Riding A., Dal Cin P., Duxbury L., Haines G. and Safrata, R. (1993), “Informal Investors in Canada: The Identification of Salient Characteristics”.

 

5. European Commission Report (2012), “Evaluation of EU Member States’ Business Angel Markets and Policies”, European Commission Final Report, October 2012. Website: http://ec.europa.eu/enterprise/dg/files/ba-rep_en.pdf

 

6. Federal Access of the United States of America, “What is small business ?”, Federal Access: a government contracts resource website for small businesses, Vancouver, USA. Website: http://www.fedaccess.com/what-is-small-business.htm

 

7. Organization for Economic Co-operation and Development (2009), “The Impact of the Global Crisis on SME and Entrepreneurship Financing and Policy Responses”, p. 6.

 

8. European Commission Report (2012), “Evaluation of EU Member States’ Business Angel Markets and Policies”, European Commission – Final report, October 2012. Website: http://ec.europa.eu/enterprise/dg/files/ba-rep_en.pdf

 

9. European Business Angels Network (2008), EBAN Directory of Networks, EBAN – The European Trade Association for Business Angels, Seed Funds and other Early Stage Market Players, Brussels, Belgium

 

10. Belgium: Business Angels investments support from government, (2013). Belgian government entity “Fonds de participation”, Brussels, Belgium Website : http://www.fonds.org/credit/ba.

 

11. European Business Angels Network – EBAN, (2009), EBAN Tool Kit – Introduction to business angels and business angels network activities in Europe, p.10

 

12. European Commission (2012), “Evaluation of EU Member States’ Business Angel Markets and Policies”, European Commission Final report, October 2012. Website: http://ec.europa.eu/enterprise/dg/files/ba-rep_en.pdf

 

13. Avdeitchikova, S. Landstrom, H. and Mansson, N. (2008), « What do we mean when we talk about Business Angels? Some reflections on definitions and sampling », Thomson Reuters – Venture Capital, Volume 10, Number 4, San Francisco, USA.

 

14. Sohl, J. (2012), “The angel investor market: the angel market sustains the modest recovery”, Center for Venture Research, University of New Hampshire, USA. Website: http://paulcollege.unh.edu/sites/default/files/2012_analysis_report.pdf

 

15. Chahine, S., Filatotchev, I., and Wright, M. (2007), « Venture Capitalists, Business Angels, and Performance of Entrepreneurial IPOs in the UK and France », Journal of Business Finance & Accounting, Volume 34, Number 3, pp. 505-528.

 

16. Mason C., and Stark M. (2004). “What do Investors Look for in a Business Plan? A Comparison of the Investment Criteria of Bankers, Venture Capitalists and Business Angels”, International Small Business Journal, Jun 2004; vol. 22: pp. 227–248.

 

17. Ludvigsen, J. (2009), “Decision time in Belgium: an experiment as to how business angels evaluate investment opportunities”. Université Libre de Bruxelles – Solvay Brussels School of Economics and Management. Brussels, Belgium.

 

18. Wong, P. K. and Ho, Y. P. (2006), “Characteristics and Determinants of Informal Investment in Singapore”, Venture Capital, Vol. 9, No. 1, 43–70

 

19. Smith, D. J., Mason, C. M., and Harrison, R. T. (2010), “Angel investment decision making as a learning process”, Working Paper 10-05, Hunter Centre for Entrepreneurship, Scotland, UK, November.

 

20. Mason, C. M. and Harrison, R. T. (2010), “Annual Report on the Business Angel market in UK: 2008/9”. Website: http://www.ukbusinessangelsassociation.org.uk/sites/default/files/media/files/bbaa_annual_market_report_2008-2009.pdf

 

21. (Same reference as reference 4) Riding, A., P. Dal Cin, L. Duxbury, G. Haines & R. Safrata. (1993), “Informal Investors in Canada: The Identification of Salient Characteristics”.

 

22. Jacob, K. (2012), “Business Angel Investment : Active involvement and conflicts between shareholders”, Aarhus University, Denmark, pp. 2-3

 

23. Preston S., (2004), “Investment Groups, Networks and Funds: A Guidebook to Developing the Right Angel Organization for Your Community”, Kauffman Foundation, USA.

 

24. Markowitz, H.M. (1959). “Portfolio Selection: Efficient Diversification of Investments”. New York: John Wiley & Sons.

 

25. Sharpe, William F. (1964), “Capital asset prices: A theory of market equilibrium under conditions of risk”, Journal of Finance, 19 (3).

 

26. Barnes, S. and Menzies, V. (2005), “Investment into venture capital funds in Europe: An exploratory study”. Venture Capital, 7(3), pp. 209-226.

 

27. Berggren, B. Olofsson, C. Silver, L. (2001), “The effects of business cycles on entrepreneurial control aversion and the search for financial financing in SMEs”, Royal Institute of Technology, Sweden.

 

28. European Commission Report (2012), “Evaluation of EU Member States’ Business Angel Markets and Policies”, European Commission – Final report, October 2012. Website: http://ec.europa.eu/enterprise/dg/files/ba-rep_en.pdf

 

29. Organization for Economic Co-operation and Development (2009), “The Impact of the Global Crisis on SME and Entrepreneurship Financing and Policy Responses”, OECD, Paris.

 

30. EBAN (2009), “Impact financial crisis on Business Angels & early stage VCs in Europe”. Entrepreneur Inside, February 2007. Website http://entinside.wordpress.com/2009/02/07/impact-financial-crisis-on-business-angels-early-stage-vcs-in-europe/

 

31. The Bulgarian Business Angels Network, member of European Business Angel Network, (2009). “The impact of the financial crisis on the activity of business angels and early stage investors”, BBAN, Website (bban.eu): http://bban.eu/en/latest/news/business-angels-and-financial-turmoil/.

 

32. R. (2009), “Siding with the Angels: Business angel investing – promising outcomes and effective strategies”, Research Report May 2009, British Business Angels Association, London

 

33. USAID, (2012). “Financing the growth of small and medium sized enterprises: critical issue and recommendations”, United States Agency for International Development, Washington DC, USA.

 

 

 

 

 

 

 

 

 

PART V : ABBREVIATIONS AND ACRONYMS

 

BA(s) : Business Angel(s)

BAN : Business Angels Network

VC : Venture Capital

SMEs : Small and medium enterprises

EBIT : Earnings before interests and taxes

ROI : Return on investment

IPO : Initial public offering

CAPM : Capital Asset Pricing Model

CAT : Capable, Ambitious and Trustworthy

 

 

 

 

 

 

 

 

 

 

 

[1] Organization for Economic Co-operation and Development, (1997). “Technology incubators:  nurturing small firms”, OECD, Paris.

[2] Organization for Economic Co-operation and Development, (2009), “The Impact of the Global Crisis on SME and Entrepreneurship Financing and Policy Responses.”, OECD, Paris.

[3]Reid A., Nightingale P. (2011), “The Role of Different Funding Models in Stimulating the Creation of Innovative New Companies. What is the most appropriate model for Europe?”.

[4] Riding A., Dal Cin P., Duxbury L., Haines G. and Safrata, R. (1993), “Informal Investors in Canada: The Identification of Salient Characteristics”.

[5] European Commission Report (2012), “Evaluation of EU Member States’ Business Angel Markets and Policies”, European Commission Final Report, October 2012. Website: http://ec.europa.eu/enterprise/dg/files/ba-rep_en.pdf

[6] Federal Access of the United States of America, “What is small business ?”, Federal Access: a government contracts resource website for small businesses, Vancouver, USA. Website : http://www.fedaccess.com/what-is-small-business.htm

[7] Organization for Economic Co-operation and Development (2009), “The Impact of the Global Crisis on SME and Entrepreneurship Financing and Policy Responses”, p. 6.

[8] European Commission Report (2012), “Evaluation of EU Member States’ Business Angel Markets and Policies”, European Commission – Final report, October 2012. Website: http://ec.europa.eu/enterprise/dg/files/ba-rep_en.pdf

[9] European Business Angels Network (2008), EBAN Directory of Networks, EBAN – The European Trade Association for Business Angels, Seed Funds and other Early Stage Market Players, Brussels, Belgium

[10]Belgium: Business Angels investments support from government, (2013). Belgian government entity “Fonds de participation”, Brussels, Belgium Website : http://www.fonds.org/credit/ba.

[11]  European Business Angels Network – EBAN, (2009), EBAN Tool Kit – Introduction to business angels and business angels network activities in Europe, p.10

[12] European Commission (2012), “Evaluation of EU Member States’ Business Angel Markets and Policies”, European Commission Final report, October 2012. Website: http://ec.europa.eu/enterprise/dg/files/ba-rep_en.pdf

[13] Avdeitchikova, S. Landstrom, H. and Mansson, N. (2008), « What do we mean when we talk about Business Angels? Some reflections on definitions and sampling », Thomson Reuters – Venture Capital, Volume 10, Number 4, San Francisco, USA.

[14] Sohl, J. (2012), “The angel investor market: the angel market sustains the modest recovery”, Center for Venture Research, University of New Hampshire, USA. Website: http://paulcollege.unh.edu/sites/default/files/2012_analysis_report.pdf

[15]Chahine, S., Filatotchev, I., and Wright, M. (2007), « Venture Capitalists, Business Angels, and Performance of Entrepreneurial IPOs in the UK and France », Journal of Business Finance & Accounting, Volume 34, Number 3, pp 505-528.

[16] Mason C., and Stark M. (2004). “What do Investors Look for in a Business Plan? A Comparison of the Investment Criteria of Bankers, Venture Capitalists and Business Angels”, International Small Business Journal, Jun 2004; vol. 22: pp. 227–248.

[17] Ludvigsen, J. (2009), “Decision time in Belgium: an experiment as to how business angels evaluate investment opportunities”. Université Libre de Bruxelles – Solvay Brussels School of Economics and Management. Brussels, Belgium.

[18] Wong, P. K. and Ho, Y. P. (2006), “Characteristics and Determinants of Informal Investment in Singapore”, Venture Capital, Vol. 9, No. 1, 43–70

[19] Smith, D. J., Mason, C. M., and Harrison, R. T. (2010), “Angel investment decision making as a learning process”, Working Paper 10-05 , Hunter Centre for Entrepreneurship, Scotland, UK, November.

 

[20] Mason, C. M. and Harrison, R. T. (2010), “Annual Report on the Business Angel market in UK : 2008/9”. Website:http://www.ukbusinessangelsassociation.org.uk/sites/default/files/media/files/bbaa_annual_market_report_2008-2009.pdf

[21] Riding, A., P. Dal Cin, L. Duxbury, G. Haines & R. Safrata. (1993), “Informal Investors in Canada: The Identification of Salient Characteristics”.

[22] Jacob, K. (2012), “Business Angel Investment : Active involvement and conflicts between shareholders”, Aarhus University, Danmark, pp. 2-3

[23] Preston S., (2004), “Investment Groups, Networks and Funds: A Guidebook to Developing the Right Angel Organization for Your Community”, Kauffman Foundation, USA.

[24] Markowitz, H.M. (1959). “Portfolio Selection: Efficient Diversification of Investments”. New York: John Wiley & Sons.

[25]Sharpe, William F. (1964), “Capital asset prices: A theory of market equilibrium under conditions of risk”, Journal of Finance, 19 (3).

[26] Barnes, S. and Menzies, V. (2005), “Investment into venture capital funds in Europe: An exploratory study”. Venture Capital, 7(3), pp. 209-226.

[27] Berggren, B. Olofsson, C. Silver, L. (2001), “The effects of business cycles on entrepreneurial control aversion and the search for financial financing in SMEs”, Royal Institute of Technology, Sweden.

[28] European Commission Report (2012), “Evaluation of EU Member States’ Business Angel Markets and Policies”, European Commission – Final report, October 2012. Website : http://ec.europa.eu/enterprise/dg/files/ba-rep_en.pdf

[29] Organization for Economic Co-operation and Development (2009), “The Impact of the Global Crisis on SME and Entrepreneurship Financing and Policy Responses”, OECD, Paris.

 

[30] EBAN (2009), “Impact financial crisis on Business Angels & early stage VCs in Europe”. Entrepreneur Inside,  February 2007. Website http://entinside.wordpress.com/2009/02/07/impact-financial-crisis-on-business-angels-early-stage-vcs-in-europe/

[31]The Bulgarian Business Angels Network, member of European Business Angel Network, (2009). “The impact of the financial crisis on the activity of business angels and early stage investors”, BBAN, Website (bban.eu): http://bban.eu/en/latest/news/business-angels-and-financial-turmoil/.

[32] Wiltbank. R. (2009), “Siding with the Angels : Business angel investing – promising outcomes and effective strategies”, Research Report May 2009, British Business Angels Association, London

[33] USAID, (2012). “Financing the growth of small and medium sized enterprises : critical issue and recommendations”, United States Agency for International Development, Washington DC, USA.