This chapter has two related themes. First, it examines the motives of business angels: why do they use some of their personal wealth to invest in unquoted companies? Investing in unquoted SMEs differs in a variety of respects from most other forms of investment open to private investors. In particular, the identification and appraisal of investment opportunities is time-consuming. Although the initial screening of investment opportunities may only take five or ten minutes (Mason and Rogers, 1997) the detailed evaluation of opportunities which pass the initial screening stage typically may take between 10 and 30 hours (Mason and Harrison, 1994b). One investor has suggested that the entire investment process from initial approach to writing the cheque can last anywhere between 53 and 162 hours (Blair, 1996). Investors will normally devote further time after the investment has been made for the purposes of monitoring their investment and providing value-added contributions (see Chapter 8). One study suggests that seven out of every ten investors spend at least two or three days a month, and one-third spend at least one day a week, in assisting their investee businesses (Mason and Harrison, 1996a). The high failure rate of small businesses, especially in their early years of trading, means that such investments are high risk. Start-up ventures which, it will be recalled (Chapter 5), are popular amongst Finnish business angels, have the highest risk. Moreover, investments are likely to be illiquid for several years, during which time their value will be effectively zero.
KeywordsInvestment Opportunity Potential Investor Venture Capital Investment Business Idea Business Angel
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