Entrepreneurial ventures are considered of crucial importance for economic growth and development worldwide. However, those companies often lack sufficient availability and access to funding sources (Brzozowska, 2008). This problem is extremely acute when banks are reluctant to lend money to these companies, and/or the formal venture capital market is not highly developed. Funding provided by business angels could be a potential solution to this problem (Danson et al., 2007). Since they do not only provide capital but also offer their investees business skills (know-how) and personal networks (know-who), they play a significant role in the development and growth of entrepreneurial firms (Politis, 2008).
While most research on entrepreneurial finance focused on venture capital, business angels are less widely recognized and researched (Bruton et al., 2010). This paper therefore aims at meeting this shortcoming by addressing the following research questions:
- What are the characteristics of business angels?
- What does the relationship between business angels and investees look like?
- How do business angels impact the companies they are funding?
- Do institutional settings affect angel finance and in what way?
By summarizing and structuring current research concerning these questions and by linking them to theoretical perspectives, the paper contributes to the theory building of angel finance. However, insights into the role and function of business angels should also be provided with particular focus on the context of transition economies. Evidence suggests that business angels\' activity developed slowly (e.g. Brzozowska, 2008; Danson et al., 2007) or is still missing (e.g. Ramadani, 2009; Vemic and Stamatovic, 2010) in transition economies, indicating that this potential crucial funding source has not been fully deployed or used at all yet. Consequently, the current research and findings are analysed according to what lessons in terms of implications and public policy issues can be drawn for transition economies.
References:
Brzozowska, K. (2008). Business Angels in Poland in Comparison to Informal Venture Capital Market in European Union. Engineering Economics. 57(2), pp. 7-14.
Bruton, G. D., Filatotchev, I., Chahine, S. and Wright, M. (2010). Governance, ownership structure, and performance of IPO firms: The impact of different types of private equity investors and institutional environments. Strategic Management Journal. 31 (5), pp. 491-509.
Danson, M., Helinska-Hughes, E., Paul, S., Whittam, G. and Hughes, M. (2007). Business angels in Scotland and Poland: The development of an informal venture capital market. Proceedings 7th International Conference on Enterprise in Transition, Bol, Croatia.
Politis, D. (2008). Business angels and value added: what do we know and where do we go? Venture Capital. 10 (2), pp. 127-147.
Ramadani, V. (2009). Business angels: who they really are. Strategic Change. 18(7-8), pp. 249-258
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15.06.2011.
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